THEORIES OF MANAGEMENT

The Diamond Model

The Competitive Advantage of Nations of Michael Porter

The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a model that can help understand the
competitive position of a nation in global competition. This model can also be used for other major geographic regions.
Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:
A. Land
B. Location
C. Natural resources (minerals, energy)
D. Labor, and
E. Local population size.
Because these factor endowments can hardly be influenced, this fits in a rather passive (inherited) view towards national economic
opportunity.
Porter says sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such
factors may actually undermine competitive advantage! He introduced a concept of "clusters," or groups of interconnected firms,
suppliers, related industries, and institutions that arise in particular locations.
As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced factors and activities in and between
companies in these clusters. These can be influenced in a pro-active way by government.
These interlinked advanced factors for Competitive Advantage for countries or regions in Porters Diamond framework
are:
1. Firm Strategy, Structure and Rivalry (The world is dominated by dynamic conditions, and it is direct competition that impels firms
to work for increases in productivity and innovation)
2. Demand Conditions (The more demanding the customers in an economy, the greater the pressure facing firms to constantly
improve their competitiveness via innovative products, through high quality, etc)
3. Related Supporting Industries (Spatial proximity of upstream or downstream industries facilitates the exchange of information and
promotes a continuous exchange of ideas and innovations)
4. Factor Conditions (Contrary to conventional wisdom, Porter argues that the "key" factors of production (or specialized factors) are
created, not inherited. Specialized factors of production are skilled labor, capital and infrastructure. "Non-key" factors or general use
factors, such as unskilled labor and raw materials, can be obtained by any company and, hence, do not generate sustained
competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This
leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable).
 
The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage - or even push -
companies to raise their aspirations and move to higher levels of competitive performance …" . They must encourage companies to
raise their performance, stimulate early demand for advanced products, focus on specialized factor creation and to stimulate local
rivalry by limiting direct cooperation and enforcing anti-trust regulations.
 
Porter introduced this model in his book: The Competitive Advantage of Nations, after having done research in ten leading trading
nations. The book was the first theory of competitiveness based on the causes of the productivity with which companies compete
instead of traditional comparative advantages such as natural resources and pools of labor. This book is considered required reading
for government economic strategists and is also highly recommended for corporate strategist taking an interest in the macro-
economic environment of corporations.
 
Overview of The Competitive Advantage of Nations (The Diamond Model)
 Porter is a famous Harvard business professor. He conducted a comprehensive study of 10 nations to learn what leads to
success. Recently his company was commissioned to study Canada in a report called "Canada at the Crossroads".
 Porter believes standard classical theories on comparative advantage are inadequate (or even wrong).
 According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through
innovation. Innovation can include technical improvements to the product or to the production process.

The Diamond - Four Determinants of National Competitive Advantage

 Four attributes of a nation comprise Michael Porter's "Diamond" of national advantage. They are:
1.
1. factor conditions (i.e. the nation's position in factors of production, such as skilled labour and infrastructure),
2. demand conditions (i.e. sophisticated customers in home market),
3. related and supporting industries, and
4. firm strategy, structure and rivalry (i.e. conditions for organization of companies, and the nature of domestic
rivalry).
a. Factor Conditions
  Factor conditions refers to inputs used as factors of production - such as labour, land, natural resources, capital and
infrastructure. This sounds similar to standard economic theory, but Porter argues that the "key" factors of production (or
specialized factors) are created, not inherited. Specialized factors of production are skilled labour, capital and infrastructure.
 "Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtained by any company and,
hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment.
They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate
these factors, they are valuable.
 Porter argues that a lack of resources often actually helps countries to become competitive (call it selected factor
disadvantage). Abundance generates waste and scarcity generates an innovative mindset. Such countries are forced to
innovate to overcome their problem of scarce resources. How true is this?
1.
1. Switzerland was the first country to experience labour shortages. They abandoned labour-intensive watches and
concentrated on innovative/high-end watches.
2. Japan has high priced land and so its factory space is at a premium. This lead to just-in-time inventory techniques
(Japanese firms can’t have a lot of stock taking up space, so to cope with the potential of not have goods around
when they need it, they innovated traditional inventory techniques).
3. Sweden has a short building season and high construction costs. These two things combined created a need for
pre-fabricated houses.
b. Demand Conditions
 Michael Porter argues that a sophisticated domestic market is an important element to producing competitiveness. Firms
that face a sophisticated domestic market are likely to sell superior products because the market demands high quality and
a close proximity to such consumers enables the firm to better understand the needs and desires of the customers (this
same argument can be used to explain the first stage of the IPLC theory when a product is just initially being developed and
after it has been perfected, it doesn’t have to be so close to the discriminating consumers).
 If the nation’s discriminating values spread to other countries, then the local firms will be competitive in the global market.
 One example is the French wine industry. The French are sophisticated wine consumers. These consumers force and help
French wineries to produce high quality wines. Can you think of other examples? Or counter-examples?
c. Related and Supporting Industries
 Porter also argues that a set of strong related and supporting industries is important to the competitiveness of firms. This
includes suppliers and related industries. This usually occurs at a regional level as opposed to a national level. Examples
include Silicon valley in the U.S., Detroit (for the auto industry) and Italy (leather-shoes-other leather goods industry).
 The phenomenon of competitors (and upstream and/or downstream industries) locating in the same area is known as
clustering or agglomeration. What are the advantages and disadvantages of locating within a cluster? Some advantages to
locating close to your rivals may be
1.
1. potential technology knowledge spillovers,
2. an association of a region on the part of consumers with a product and high quality and therefore some market
power, or
3. an association of a region on the part of applicable labour force.
 Some disadvantages to locating close to your rivals are
1.
1. potential poaching of your employees by rival companies and
2. obvious increase in competition possibly decreasing mark-ups.
d. Firm Strategy, Structure and Rivalry
1. Strategy
(a) Capital Markets

o Domestic capital markets affect the strategy of firms. Some countries’ capital markets have a long-run outlook,
while others have a short-run outlook. Industries vary in how long the long-run is. Countries with a short-run
outlook (like the U.S.) will tend to be more competitive in industries where investment is short-term (like the
computer industry). Countries with a long run outlook (like Switzerland) will tend to be more competitive in
industries where investment is long term (like the pharmaceutical industry).
o What about Canada?
(b) Individuals’ Career Choices

o Individuals base their career decisions on opportunities and prestige. A country will be competitive in an industry
whose key personnel hold positions that are considered prestigious.
o Does this appear to hold in the U.S. and Canada? What are the most prestigious occupations? What about Asia?
What about developing countries?
1. Structure
 Porter argues that the best management styles vary among industries. Some countries may be oriented toward a particular
style of management. Those countries will tend to be more competitive in industries for which that style of management is
suited.
 For example, Germany tends to have hierarchical management structures composed of managers with strong technical
backgrounds and Italy has smaller, family-run firms.
1. Rivalry
 Porter argues that intense competition spurs innovation. Competition is particularly fierce in Japan, where many companies
compete vigorously in most industries.
 International competition is not as intense and motivating. With international competition, there are enough differences
between companies and their environments to provide handy excuses to managers who were outperformed by their
competitors.
The Diamond as a System
 The points on the diamond constitute a system and are self-reinforcing.
  Domestic rivalry for final goods stimulates the emergence of an industry that provides specialized intermediate goods. Keen
domestic competition leads to more sophisticated consumers who come to expect upgrading and innovation. The diamond
promotes clustering.
 Porter provides a somewhat detailed example to illustrate the system. The example is the ceramic tile industry in Italy.
 Porter emphasizes the role of chance in the model. Random events can either benefit or harm a firm’s competitive position.
These can be anything like major technological breakthroughs or inventions, acts of war and destruction, or dramatic shifts
in exchange rates.
 One might wonder how agglomeration becomes self-reinforcing…
1. When there is a large industry presence in an area, it will increase the supply of specific factors (ie: workers with industry-
specific training) since they will tend to get higher returns and less risk of losing employment.
2. At the same time, upstream firms (ie: those who supply intermediate inputs) will invest in the area. They will also wish to
save on transport costs, tariffs, inter-firm communication costs, inventories, etc.
3. At the same time, downstream firms (ie: those use our industry’s product as an input) will also invest in the area. This
causes additional savings of the type listed before.
4. Finally, attracted by the good set of specific factors, upstream and downstream firms, producers in related industries (ie:
those who use similar inputs or whose goods are purchased by the same set of customers) will also invest. This will trigger
subsequent rounds of investment.
Implications of The Competitive Advantage of Nations for Governments
 The government plays an important role in Porter’s diamond model. Like everybody else, Porter argues that there are some
things that governments do that they shouldn't, and other things that they do not do but should. He says, "Government’s
proper role is as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move
to higher levels of competitive performance …"
 Governments can influence all four of Porter’s determinants through a variety of actions such as
1.
1. Subsidies to firms, either directly (money) or indirectly (through infrastructure).
2. Tax codes applicable to corporation, business or property ownership.
3. Educational policies that affect the skill level of workers.
4. They should focus on specialized factor creation. (How can they do this?)
5. They should enforce tough standards. (This prescription may seem counterintuitive. What is his rationale? Maybe to
establish high technical and product standards including environmental regulations.)
 The problem, of course, is through these actions, it becomes clear which industries they are choosing to help innovate.
What methods do they use to choose? What happens if they pick the wrong industries?
Criticisms about The Diamond Model
Although Porter theory is renowned, it has a number of critics.
1. Porter developed this paper based on case studies and these tend to only apply to developed economies.
2. Porter argues that only outward-FDI is valuable in creating competitive advantage, and inbound-FDI does not increase
domestic competition significantly because the domestic firms lack the capability to defend their own markets and face a
process of market-share erosion and decline. However, there seems to be little empirical evidence to support that claim.
3. The Porter model does not adequately address the role of MNCs. There seems to be ample evidence that the diamond is
influenced by factors outside the home country.

The 80-20 Rule

The 80-20 rule  (also known as the Pareto principle, the law of the vital few and the principle of factor sparsity) states that, for many
events, 80% of the effects comes from 20% of the causes. Business management thinker Joseph M. Juran suggested the principle
and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. It is
a common rule of thumb in business; e.g., "80% of your sales comes from 20% of your clients."

It is worthy of note that some applications of the Pareto principle appeal to a pseudo-scientific "law of nature" to bolster non-
quantifiable or non-verifiable assertions that are "painted with a broad brush". The fact that hedges such as the 90/10, 70/30, and
95/5 "rules" exist is sufficient evidence of the non-exactness of the Pareto principle. On the other hand, there is adequate evidence
that "clumping" of factors does occur in most phenomena.

The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist, Vilfredo
Pareto. Pareto developed both concepts in the context of the distribution of income and wealth among the population.

The misnamed 80-20 rule (also known as the Pareto principle, the law of the vital few and the principle of factor sparsity) states that
for many phenomena 80% of consequences stem from 20% of the causes. The idea has rule-of-thumb application in many places,
but it's also commonly and unthinkingly misused.

The principle was suggested by management thinker Joseph M. Juran. It was named after the Italian economist Vilfredo Pareto, who
observed that 80% of property in Italy was owned by 20% of the Italian population. Since J. M. Juran adopted the idea, it might
better be called "Juran's assumption". That assumption is that most of the results in any situation are determined by a small number
of causes. That idea is often applied to data such as sales figures: "20% of clients are responsible for 80% of sales volume." This is
testable, it's likely to be roughly right, and it is helpful in your future decision making.

It is important to note that many people misconstrue the principle (because of the coincidence that 20+80=100): it could just as
well read that 80% of the consequences stem from 10% of the causes. Many people would reject such an "80-10" rule, but it is
mathematically meaningful nevertheless.
Some hold that the principle is recursive, and may be applied to the top 20% of causes; thus there would be a "64-4" rule, and a
"51.8-0.8" rule, and so on.

This is a special case of the wider phenomenon of Pareto distributions.

The Pareto principle is unrelated to Pareto efficiency, which really was introduced by Vilfredo Pareto.

Vilfredo Pareto

Vilfredo Pareto (born July 15, 1848 in France - died August 19, 1923 in Lausanne, Switzerland) made several important contributions
to economics, sociology and moral philosophy, especially in the study of income distribution and in the analysis of individuals'
choices. He introduced the concept of Pareto efficiency and helped develop the field of microeconomics with ideas such as
indifference curves. His theories influenced Benito Mussolini and the development of Italian fascism.

The Pareto family moved to Italy in 1858. In 1870, Pareto received an engineering degree from the Turin Polytechnic Institute and
he took employment with the Italian state railways. In 1886, he became a lecturer on economics and management at the University
of Florence. In 1893, he was appointed as a lecturer in economics at the University of Lausanne in Switzerland where he remained
for the rest of his life.

In 1906, he made the well-known observation that 20% of the population owned 80% of the property in Italy, later generalised (by
Joseph M. Juran and others) into the so-called Pareto principle (for many phenomena 80% of consequences stem from 20% of the
causes), and generalised further to the concept of a Pareto distribution.

The Pareto index is a measure of the inequality of income distribution.

The Pareto chart is a special type of histogram, used to view causes of a problem in order of severity from largest to smallest. It is a
statistical tool that graphically shows the 20-80 rule.

Pareto's social policies were put on paper in his work, Mind and Society.

In his Trattato di Sociologia Generale he put forward the first Social cycle theory in sociology

Joseph M. Juran, the real "father" of the 80-20 rule

Joseph M. Juran (born December 1904 in Romania) has been called the "father" of quality. Joseph M. Juran's major contribution to
the world has been in the field of quality management. Perhaps most important, he is recognized as the person who added the
human dimension to quality—broadening it from its statistical origins.

In 1937, Dr. Juran conceptualized the Pareto principle, which millions of managers rely on to help separate the "vital few" from the
"useful many" in their activities. This is commonly referred to as the 20-80 principle. In 2003, the American Society for Quality is
proposing renaming the Pareto Principle the "Juran Principle." Its universal application makes it one of the most useful concepts and
tools of modern-day management.

Dr. Juran wrote the standard reference work on quality control, the Quality Control Handbook, first published in 1951 and now in its
fifth edition. This handbook is the reference for most quality departments and business improvement change agents since it provides
important how-to information dedicated to improving an organization's performance by improving the quality of its goods and
services.

His classic book, Managerial Breakthrough, first published in 1964, presented a more general theory of quality management. It was
the first book to describe a step-by-step sequence for breakthrough improvement. This process has evolved into Six Sigma today
and is the basis for quality initiatives worldwide.

In 1979, Dr. Juran founded Juran Institute, an organization aimed at providing research and pragmatic solutions to enable
organizations from any industry to learn the tools and techniques for managing quality.

The Juran Trilogy, published in 1986, identified and was accepted worldwide as the basis for quality management. After almost 50
years of research, his trilogy defined three management processes required by all organizations to improve. Quality control, quality
improvement and quality planning have become synonymous with Juran and Juran Institute, Inc.

Juran describes quality from the customer perspective as having two aspects: higher quality means a greater number of features
that meet customers' needs. The second aspect relates to "freedom from trouble": higher quality consists of fewer defects.

As a result of the power and clarity of Joseph Juran's thinking and the scope of his influence, business leaders, legions of managers
and his fellow theorists worldwide recognize Dr. Juran as one of "the vital few" —a seminal figure in the development of management
theory. Juran has contributed more to the field and over a longer period of time than any other person, and yet, feels he has barely
scratched the surface of his subject. "My job of contributing to the welfare of my fellow man," writes Juran, "is the great unfinished
business.
 The Deming Cycle

The Deming cycle, or PDSA cycle, is a continuous quality improvement model consisting of a logical sequence of four repetitive steps
for continuous improvement and learning: Plan, Do, Study (Check) and Act. The PDCA cycle is also known as the Deming Cycle, or
as the Deming Wheel or as the Continuous Improvement Spiral. It originated in the 1920s with the eminent statistics expert Mr.
Walter A. Shewhart, who introduced the concept of PLAN, DO and SEE. The late Total Quality Management (TQM) guru and
renowned statistician Edwards Deming modified the Shewart cycle as: PLAN, DO, STUDY, and ACT.
Along with the other well-known American quality guru-Joseph Juran, Edwards Deming went to Japan as part of the occupation
forces of the allies after World War II. Deming taught a lot of Quality Improvement methods to the Japanese, including the usage of
statistics and the PLAN, DO, STUDY, ACT cycle.
 

 
 
The graphic above shows Deming's Plan-Do-Check-Act (PDCA) cycle. (Deming himself called it the 'Shewhart Cycle' but Deming's
work in Japan has lead to it commonly being named after him.) In BPE, everything is done with the discipline of PDCA. At all levels of
the organization we:
 Plan what we are going to do. In this step we assess where we are, where we need to be, why this is important, and plan
how to close the gap. Identify some potential solutions.
 Do try out or test the solutions (sometimes at a pilot level).
 Check to see if the countermeasures you tried out had the effect you hoped for, and make sure that there are no negative
consequences associated with them. Assess if you have accomplished your objective.
 Act on what you have learned. If you have accomplished your objective, put controls into place so that the issue never
comes back again. If you have not accomplished your objective, go through the cycle again, starting with the Plan step.
Frequently, a particular project will define sub-objectives, run thorough the PDCA cycle one or more times to accomplish the sub-
objective, then define the next objective and go through the cycle again. Thus, many projects end up "turning the wheel" many
times before completion. In ongoing management activities, we find a similar use of the cycle.
What we are trying to avoid by using the PDCA discipline is the "Ready, Fire, Aim" fallacy where people jump to the solution without
identifying the problem and assessing if their proposed solution fixes it, or even results in another problem. The Act step makes sure
we don't have to fix it again in a couple of years.
Problems With Deming Cycle
The Deming Cycle's application was intended for quality control purposes and proposed continuous improvement in quality of
products/experiments.[4] The simple cycle works well in this application, but it is debatable that it should be applied to major
organizational improvement. ISO recognized the need to provide better guidance in this regard and published the ISO standard ISO
9004:2000, which replaced the use of the term continuous improvement with continual improvement. The change is not trivial, it
recognizes that organizational quality system performance improvement requires significant effort and needs pauses to consolidate
change (hence continual and not continuous improvement) (ISO 9004:2000).
The Deming Cycle has an inherent circular paradigm, it assumes that everything starts with Planning. Plan has a limited range of
meaning. Shewart intended that experiments and quality control should be planned to deliver results in accordance with the
specifications (see meaning above), which is good advice. However, Planning was not intended to cover aspects such as creativity,
innovation, invention or Complex Adaptive Systems. In these aspects particularly when based upon imagination, it is often
impossible or counterproductive to plan (see referenced Wikipedia pages for why this is so). Hence, PDCA is inapplicable in these
situations.
The Deming Cycle approaches often do not get to the root cause of a problem, especially in adaptive situations which call for an
experiential approach but demand much more rigour in analysis and data collection. An adaptive challenge exists where there are no
visible solutions to problems, and can exist, for example in areas where chaos, uncertainty, and ambiguity exists, such as new
frontiers, and existing complex systems such as Healthcare.
Do and Act have the same meaning in English. Dictionaries (Shorter Oxford) provide the following relevant definitions:
 Do: verb 1 perform or carry out (an action). 2 achieve or complete (a specified target). 3 act or progress in a specified way.
4 work on (something) to bring it to a required state.
 Act: verb 1 take action; do something. 2 take effect or have a particular effect. 3 behave in a specified way.
The 'Act' in the Deming Cycle is meant to be interpreted to have a different meaning to 'Do', otherwise it could be as easily have
been PDCD or PACA. In PDCA, 'Act' is meant to apply actions to the outcome for necessary improvement (see meaning above), in
other words 'Act' means 'Improve' (applying PDCA to itself could result in PDCI).
The Deming Cycle is a set of activities (Plan, Do, Check, Act) designed to drive continuous improvement. Initially implemented in
manufacturing, it has broad applicability in business. First developed by Walter Shewhart, it is more commonly called the Deming
cycle in Japan where it was popularized by Edwards Deming.
Deming Cycle is also known as Shewhart cycle, PDCA, Plan-Do-Check-Act

Linking Pin Model

The Linking Pin Model is an idea developed by Rensis Likert in which an organisation is represented as a number of overlapping work
units in which members of one unit are leaders of another. In this scheme, the supervisor/manager has the dual task of maintaining
unity and creating a sense of belonging within the group he or she supervises and of representing that group in meetings with
superior and parallel management staff. These individuals are the linking pins within the organisation and so they become the focus
of leadership development activities.
Likert have given the idea of linking pin model for connecting various parts of the organisation.
The model is based on two basic characteristics of the organisation. First, organisation can be seen as system of interlocking groups;
and second, the interlocking groups are connected by individuals who occupy the key positions of dual membership serving as linking
pin between groups. Thus every individual functions as a linking pin for the organisation units above and below him. He is the group
leader of the lower unit and a group member of the upper unit. In the linking pin structure a group-to-group, as opposed to
traditional man-to-man, relationship exists. 

Quality Circles

The concept behind quality circles is widely believed to have been developed in Japan in 1962 by Kaoru Ishikawa as a method to
improve quality, though it is also argued that the practice started with the United States Army soon after 1945, whilst restoring the
war torn nation, and the Japanese adopted and adapted the concept and its application.

A quality circle is a volunteer group of employees from the same work area who meet together to discuss workplace improvement.
The circle is empowered to promote and bring quality improvements through to fruition. Though quality circles are not the silver
bullet solution for quality improvement, with the right top end management commitment, resources, and organisation, they can
support continuous quality improvement at shop floor level.

Because of the social focus of a Quality Circle group, they can not only improve the performance or an organisation, but also
motivate and enrich the work lives of fellow employees. A typical Quality Circle group will display a good approach to:

    * Analysing the context of a problems and its situation

    * Define exactly what the problem is and the relationship between its component parts
    * Identify and verify that the causes are indeed causes, ensuring that solutions address the real problem
    * Define, quantify and measure the impact of a given problem
    * Understand the quality objectives
    * Create a solution to a given problem

Quality Circle groups generally address issues such as improving safety, improving product design, and improving manufacturing
process. Because Quality Circle groups remain intact from project to project they have the advantage of consistency, though they
retain the option to call in expertise or request training when needed.

Techniques used by a Quality Circle group will usually consist of process capability flow charts, lot sampling, brainstorming, cause
and effect analysis, reverse engineering, value analysis, and pareto analysis.

Japanese Quality Circles demonstrated the effectiveness of worker teams in identifying and solving process problems in their own
work areas. However the more serious quality problems from non-manufacturing organisations often arise in activities that span
more than one department or function.
 
A Quality Circle
 
A Quality Circle is a volunteer group composed of workers (or even students) who meet to discuss workplace improvement, and
make presentations to management with their ideas, especially relating to quality of output in order to improve the performance of
the organization, and motivate and enrich the work of employees. Typical topics are improving occupational safety and health,
improving product design, and improvement in manufacturing process.

The ideal size of a quality circle is from eight to ten members.

Quality circles have the advantage of continuity; the circle remains intact from project to project. (For a comparison to Quality
Improvement Teams see Juran's Quality by Design[1].

Quality circles were first established in Japan in 1962, and Kaoru Ishikawa has been credited with their creation. The movement in
Japan was coordinated by the Japanese Union of Scientists and Engineers (JUSE).

The use of quality circles then spread beyond Japan. Quality circles have been implemented even in educational sectors in India and
QCFI (Quality Circle Forum of India) is promoting such activities.

There are different quality circle tools, namely:

    * The Ishikawa diagram - which shows hierarchies of causes contributing to a problem
    * The Pareto Chart - which analyses different causes by frequency to illustrate the vital cause
    * The PDCA-Deming wheel - Plan, Do, Check, Act, as described by W. Edwards Deming

Pareto Chart
A Pareto chart is a special type of bar chart where the values being plotted are arranged in descending order. The graph is
accompanied by a line graph which shows the cumulative totals of each category, left to right. The chart is named after Vilfredo
Pareto, and its use in quality assurance was popularized by Joseph M. Juran and Kaoru Ishikawa.

The Pareto chart is one of the seven basic tools of quality control, which include the histogram, Pareto chart, check sheet, control
chart, cause-and-effect diagram, flowchart, and scatter diagram. See glossary of quality management.

Typically on the left vertical axis is frequency of occurrence, but it can alternatively represent cost or other important unit of
measure. The right vertical axis is the cumulative percentage of the total number of occurrences, total cost, or total of the particular
unit of measure. The purpose is to highlight the most important among a (typically large) set of factors. In quality control, the Pareto
chart often represents the most common sources of defects, the highest occurring type of defect, or the most frequent reasons for
customer complaints, etc.

Their use gives rise to the 80-20 Rule — that 80 percent of the problems stem from 20 percent of the causes.
Pareto chart is also called: Pareto diagram, Pareto analysis

Variations are weighted Pareto chart, comparative Pareto charts

Description
A Pareto chart is a bar graph. The lengths of the bars represent frequency or cost (time or money), and are arranged with longest
bars on the left and the shortest to the right. In this way the chart visually depicts which situations are more significant.

When to Use a Pareto Chart

* When analyzing data about the frequency of problems or causes in a process.
* When there are many problems or causes and you want to focus on the most significant.
* When analyzing broad causes by looking at their specific components.
* When communicating with others about your data.

Pareto Chart Procedure

1. Decide what categories you will use to group items.
2. Decide what measurement is appropriate. Common measurements are frequency, quantity, cost and time.
3. Decide what period of time the Pareto chart will cover: One work cycle? One full day? A week?
4. Collect the data, recording the category each time. (Or assemble data that already exist.)
5. Subtotal the measurements for each category.
6. Determine the appropriate scale for the measurements you have collected. The maximum value will be the largest subtotal from
step 5. (If you will do optional steps 8 and 9 below, the maximum value will be the sum of all subtotals from step 5.) Mark the scale
on the left side of the chart.
7. Construct and label bars for each category. Place the tallest at the far left, then the next tallest to its right and so on. If there are
many categories with small measurements, they can be grouped as “other.”

Steps 8 and 9 are optional but are useful for analysis and communication.
8. Calculate the percentage for each category: the subtotal for that category divided by the total for all categories. Draw a right
vertical axis and label it with percentages. Be sure the two scales match: For example, the left measurement that corresponds to
one-half should be exactly opposite 50% on the right scale.
9. Calculate and draw cumulative sums: Add the subtotals for the first and second categories, and place a dot above the second bar
indicating that sum. To that sum add the subtotal for the third category, and place a dot above the third bar for that new sum.
Continue the process for all the bars. Connect the dots, starting at the top of the first bar. The last dot should reach 100 percent on
the right scale.

Pareto Chart Examples

Example #1 shows how many customer complaints were received in each of five categories.

Example #2 takes the largest category, “documents,” from Example #1, breaks it down into six categories of document-related
complaints, and shows cumulative values.

If all complaints cause equal distress to the customer, working on eliminating document-related complaints would have the most
impact, and of those, working on quality certificates should be most fruitful.
 Example #1

 
Example #2

POSDCORB

POSDCORB is a word composed of the initials of the functions of the executives. POSDCORB is developed by Luther Gulick.
POSDCORB lists the functions of the executives according to  Luther Gulick who was a well known member of the classical school.
POSDCORB includes seven functions. According to POSDCORB model the seven functions of executives are as follows:

POSDCORB is an acronym created by Luther Gulick and Lyndall Urwick in their “Papers on the Science of Administration” (1937).
Developed as a means to structure and analyze management activities, it set a new paradigm in Public Administration. Based on the
theories of Henri Fayol’s 14 Principles of Management, Gulick and Lyndall Urwick disputed the prevailing thinking that there was a
dichotomy between politics and administration. Instead that it was impossible to separate the two. It has been called the “high noon
of orthodoxy,” due to the assumption that it was the principles that were important and not where they were applied.

The acronym which formulates the responsibility of a chief executive or administrator stands for: Planning, Organizing, Staffing,
Direction, Coordinating, Reporting, and Budgeting. It defines the principles as follows:

PLANNING
Planning is working out in broad outline the things that need .to be done and the methods for doing them to accomplish the purpose
set for the enterprise;
 

ORGANIZING
Organizing is the establishment of the formal structure of authority through which work subdivisions are arranged, defined and
coordinated for the defined objective;
 
STAFFING
Staffing is the whole personnel function of bringing in and training the staff and maintaining favorable conditions of work;
 
DIRECTING
Directing is the continuous task of making decisions and embodying them in specific and general orders and instructions and serving
as the leader of the enterprise;
 
CO-ORDINATING
Coordinating is the all-important duty of interrelating the various parts of the work;
 
REPORTING
Reporting is keeping those to whom the executive is responsible informed as to what is going on, which thus includes keeping
himself and his subordinates informed through records, research and inspections;

 
BUDGETING
Budgeting, with all that goes with budgeting in the form of fiscal planning, accounting and control

Force Field Analysis

Force field analysis is a management technique developed by Kurt Lewin, a pioneer in the field of social sciences, for diagnosing
situations. It will be useful when looking at the variables involved in planning and implementing a change program and will
undoubtedly be of use in team building projects,when attempting to overcome resistance to change.
Kurt Lewin assumes that in any situation there are both driving and restraining forces that influence any change that may occur.

Driving Forces
Driving forces are those forces affecting a situation that are pushing in a particular direction; they tend to initiate a change and keep
it going. In terms of improving productivity in a work group, pressure from a supervisor, incentive earnings, and competition may be
examples of driving forces.

Restraining Forces
Restraining forces are forces acting to restrain or decrease the driving forces. Apathy, hostility, and poor maintenance of equipment
may be examples of restraining forces against increased production. Equilibrium is reached when the sum of the driving forces
equals the sum of the restraining forces. In our example, equilibrium represents the present level of productivity, as shown below.

Equilibrium
This equilibrium, or present level of productivity, can be raised or lowered by changes in the relationship between the driving and the
restraining forces.
For illustration, consider the dilemma of the new manager who takes over a work group in which productivity is high but whose
predecessor drained the human resources.
The former manager had upset the equilibrium by increasing the driving forces (that is, being autocratic and keeping continual
pressure on subordinates) and thus achieving increases in output in the short run.
By doing this, however, new restraining forces developed, such as increased hostility and antagonism, and at the time of the former
manager's departure the restraining forces were beginning to increase and the results manifested themselves in turnover,
absenteeism, and other restraining forces, which lowered productivity shortly after the new manager arrived. Now a new equilibrium
at a significantly lower productivity is faced by the new manager.
Now just assume that our new manager decides not to increase the driving forces but to reduce the restraining forces. The manager
may do this by taking time away from the usual production operation and engaging in problem solving and training and
development.
In the short run, output will tend to be lowered still further. However, if commitment to objectives and technical know-how of the
group are increased in the long run, they may become new driving forces, and that, along with the elimination of the hostility and
the apathy that were restraining forces, will now tend to move the balance to a higher level of output.
Managers are often in a position in which they must consider not only output but also intervening variables and not only short-term
but also long-term goals. It can be seen that force field analysis provides framework that is useful in diagnosing these
interrelationships.
 

Force Field Analysis

Understanding the Pressures For and Against Change
Force Field Analysis is a useful technique for looking at all the forces for and against a decision. In effect, it is a specialized method of
weighing pros and cons.

By carrying out the analysis you can plan to strengthen the forces supporting a decision, and reduce the impact of opposition to it.
 
Using Force Field Analysis
 
To carry out a force field analysis, first download our free worksheet and then use it to follow these steps:
 Describe your plan or proposal for change in the middle.
 List all forces for change in one column, and all forces against change in another column.
 Assign a score to each force, from 1 (weak) to 5 (strong).
For example, imagine that you are a manager deciding whether to install new manufacturing equipment in your factory. You might
draw up a force field analysis like the one in the following Figure :
 

 
 Once you have carried out an analysis, you can decide whether your project is viable. In the example above, you might initially
question whether it is worth going ahead with the plan.

Where you have already decided to carry out a project, Force Field Analysis can help you to work out how to improve its probability
of success. Here you have two choices:
 To reduce the strength of the forces opposing a project, or
 To increase the forces pushing a project
Often the most elegant solution is the first: just trying to force change through may cause its own problems. People can be
uncooperative if change is forced on them.
If you had to implement the project in the example above, the analysis might suggest a number of changes to the initial plan:
 By training staff (increase cost by 1) you could eliminate fear of technology (reduce fear by 2)
 It would be useful to show staff that change is necessary for business survival (new force in favor, +2)
 Staff could be shown that new machines would introduce variety and interest to their jobs (new force, +1)
 You could raise wages to reflect new productivity (cost +1, loss of overtime -2)
 Slightly different machines with filters to eliminate pollution could be installed (environmental impact -1)
These changes would swing the balance from 11:10 (against the plan), to 8:13 (in favor of the plan).
 
Key points of Force Field Analysis
Force Field Analysis is a useful technique for looking at all the forces for and against a plan. It helps you to weigh the importance of
these factors and decide whether a plan is worth implementing.

Where you have decided to carry out a plan, Force Field Analysis helps you identify changes that you could make to improve it.