Xerox received the Malcolm Baldridge Quality Award in 1989 for its manufacturing operations. A key element in its program was instituting a system of quality cost measures. The system helped managers determine the costs of activities such as inspecting products, making excessive engineering changes, doing rework, and repairing substandard equipment. But when it was time for the company’s U.S. marketing division to join the quality bandwagon, managers had to come up with whole new definitions and measurements. This article explains how they adapted cost of quality concepts to a service business — with dramatic results.
1. RS. Kaplan, “Limitations of Cost Accounting in Advanced Manufacturing Environments,” in Measures for Manufacturing Excellence, ed. RS. Kaplan (Boston: Harvard Business School Press), p. 37.
2. R.S. Kaplan, “Measuring Manufacturing Performances: A New Challenge for Management Accounting Research,” The Accounting Review 58 (1983): 686–705.
3. J.M. Juran, Quality Control Handbook, 3rd ed. (New York: McGraw-Hill, 1979);
P. Crosby, Quality Is Free (New York: McGraw-Hill, 1979);
W.E. Deming, Quality, Productivity, and Competitive Position (Boston: MIT Press, 1982); and
D.A. Garvin, “Competing on the Eight Dimensions of Quality,” Harvard Business Review, November–December 1987, pp. 101–109.
4. American Society for Quality Control, Accounting for Quality Costs (Milwaukee, Wisconsin: ASQC, 1991).
5. See J.K Shank, “Strategic Cost Management: New Wine, or Just New Bottles?” Journal of Management Accounting Research 1 (1989): 47–65;
J.H. Atkinson, Jr., et al., Current Trends in Cost Quality: Linking Cost of Quality and Continuous Improvement (Montvale, New Jersey: National Association of Accountants, 1991); and
R.L. Hale, D.R. Hoelscher, and R.E. Kowal, Quest for Quality (Minneapolis: Tennant Company, 1987).
6. Xerox, USMG, Cost of Quality Team, Cost of Quality: A Guide to Application (Xerox Corp., 1987).
The author wishes to thank John Kelsch, John Reilly, and Tom Lee of Xerox for their open discussion and helpful comments.