Applying Cost of Quality to a Service Business

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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.  

Lawrence P. Carr is assistant professor of accounting, Babson College. Previously he was president and CEO of Osram Corporation, a subsidiary of Siemens.

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