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Total Quality Management as a Paradigm of Business Success

Luburić, Radoica

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Luburić, Radoica Article Total Quality Management as a Paradigm of Business Success Journal of Central Banking Theory and Practice Provided in Cooperation with: Central Bank of Montenegro, Podgorica Suggested Citation: Luburić, Radoica (2014) : Total Quality Management as a Paradigm of Business Success, Journal of Central Banking Theory and Practice, ISSN 2336-9205, De Gruyter Open, Warsaw, Vol. 3, Iss. 1, pp. 59-80, https://doi.org/10.2478/jcbtp-2014-0005 This Version is available at: https://hdl.handle.net/10419/217553 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0/ 59 * Central Bank of Montenegro E-mail: [email protected] Journal of Central Banking Theory and Practice, 2014, Vol.3 No.1, pp. 59-80 Received: 7 October 2013; accepted: 22 October 2013. UDC: 005.6 DOI: 10.2478/jcbtp-2014-0005 Radoica Luburić * Total Quality Management as a Paradigm of Business Success Abstract: Total Quality Management denotes a path by which – both in a stable and a transitional environment, in a professional and scientific way and by applying a variety of methods and techniques, through constant improvements and involvement of all employees – one could get to a model that enables a simultaneous achievement of the top quality level on one hand, and the top management level, on the other. Total Quality Management is a paradigm of business success in the entire world because its set up, inter alia, improves internal functions of an organisation, instils confidence in customers and triggers improvement chain reactions with suppliers and stakeholders. Quality is the foundation and client orientation is the base of the entire concept of total quality management. Placing customers at the centre is the main idea behind the entire quality concept around which everything is built. Improving the capacity of an organization to understand and meet the actual customer needs, both stated and implied, is the main objective of the total quality management. Teamwork and team leadership play a specific role in the total quality management, top managers have the key responsibilities, and activities of the medium and lower level managers together with all employees are of immeasurable significance. Managing the teamwork within the total quality management is not only a requirement for its set up, development and implementation, but also for its survival. Total Quality Management is a managerial philosophy and a mode of running a business in order to achieve success. Key words: Customer/user satisfaction, employee involvement, process approach, Quality, Management, Continual improvements JEL classification: M00, M10, L22 60 Journal of Central Banking Theory and Practice Whatever an enterprise does internally and externally needs to be improved systematically and continuously: product and service production processes, marketing, service, technology, training and development of people, using information. Make systematic improvement a priority. Peter F. Drucker 1. Origin and Development of Total Quality Management The term “quality” comes from a Latin word “qualitas” which means characteristic, feature, trait… Rarely does one thing or a phenomenon, however, have one characteristic, feature or trait, but whether or not it has a quality can be found out only by comparing a sum of these characteristics against requirements. Nevertheless, demands of nowadays users are not easy to meet because they have also realized that quality may not be everything, but everything is nothing without quality (Raković, 2006, p. 10-11). Quality has grown from a fundamentally new scientific view of work. It is not the scientific management of Frederick Winslow Taylor from the early 20th century who was the first to use scientific methods in the rationalisation and increase of labour productivity and described them in his books.1 The Taylor`s approach and that of other writers of classical management theory, of which a French scientist Henri Fayol (2006, sp. 8-9)2 singles out, indicate that quality is ensured with the control from the raw material at the beginning to finished goods at the end of the production cycle. In the meantime, however, engineers and technologists had been inventing new and technically perfected and more sophisticated quality control methods and thus there were small, if any, changes to the approach for a long time. 1 The books are Shop Management, published in 1903, and The Principles of Scientific Management, published in 1911. Frederick Winslow Taylor (1865–1915) is one of the most notable American scientists of the early 20th century. 2 A very important book of Henri Fayol (1841-1925) General and industrial management was published in London in 1949. Its original version titled Administration industrielle et générale was published in Paris in 1916, and only four years later it was translated into Serbian language and published in Belgrade where a new edition appeared in 2006. 61 Total Quality Management as a Paradigm of Business Success The market hunger for products during the era of industrial revolution, as well as in the first half of the 20th century (due to World War I and World War II, as well as numerous regional and civil wars), had the pivotal influence on the shifting of attention from quantity to quality of production. Not before few decades following World War II when the world managed to recover from the severe suffering and destruction did the quality of products and services become the obsession of managers in many companies in developed countries worldwide. This also resulted in total quality management, as the most developed and highest level of quality management in organisations, coming to the foreground. Although managers have addressed quality since the emergence of modern companies, total quality management, both as the concept and programme, has been more clearly shaped in the past few decades, but here we deal with processes that are continuously upgraded and complemented. The basics of Total Quality Management comprises of the principles of the Quality Management System.3 1. Customer orientation. Organisations depend on their users, they should understand their current and future needs, meet their demands, and try to exceed their expectations. 2. Leadership and modern management. Leaders establish common objectives and managing of an organisation. The management creates the situations and environment where employees will be able to fully commit to the achievement of the organisation’s objectives. 3. Involvement of employees. Employees at all levels are the very essence of an organisation and only their full involvement enables the utilisation of their potential to the benefit of the organisation. 4. Process approach. A desired result is achieved most efficiently when resources and related activities are managed as processes. 5. System approach to management. Identifying, understanding and managing all interrelated processes with a view to attaining the anticipated objective contributes to efficiency and possibility of planning within an organisation. 6. Continual improvement. Continual improvement represents a permanent objective of an organisation. 7.  Factual approach to decision making. Efficient decisions are based on logical or intuitive fact and information checking. Only that which can be proven is accurate” 3 The usual and generally accepted abbreviation for Quality Management System is QMS and it is used in the latter form hereinafter. For more details see Menadžment kvalitetom usluga (Perović & Krivokapić, 2007, p. 92). 62 Journal of Central Banking Theory and Practice 8. Mutually beneficial supplier relationships. Mutually beneficial relations between an organisation and its suppliers increase the ability of both. The eight QMS principles listed above apply to other management systems as well. They comprise a consistent network system and as such, give their full effectiveness and efficiency. Disregarding only one of the principles and its related requirements jeopardizes the overall quality management system. Figure 1: Structure of quality management system (QMS) as the basics of total quality management (TQM) Source: Luburić (2010) As seen in Figure 1, the network of principles makes up a polycentric system where once it is customer orientation that is in the network centre, then some other time it is the leadership, then involvement of employees, then system approach, process approach, then factual approach to decision making and, in the end, mutually beneficial supplier relationships. As a consistent network system, all the aforesaid principles are both individually and jointly very important for the management success. Many global companies see the total quality management principle as a concept or a philosophy for operations management, as it largely is. However, it is also a set of principles and ideas for management practice, a way of life, culture and thinking or, briefly, total quality management is a framework for improvement (Perović & Krivokapić, 2006, p. 141-142). Companies can implement quality successfully only when they accept it as an organisational change. Quality is a set of technical achievements, skills and tools, 63 Total Quality Management as a Paradigm of Business Success a programme at an organisation level, but also a total change in an organisation that is ever unfolding and never ending. Quality is a continuous process of changes in an organisation, but not any kind of changes. It is a special set of changes that allows an organisation to be able to learn about customer needs, whether stated or not, which is a process that permanently evolves and changes as an effect of newly acquired knowledge or experience (Schiffman & Kanuk, 2004, p. 160-161). Quality represents an organisational learning of customer needs and the ways of meeting these needs. It is a special kind of learning. Only those changes that bring to this learning mode not only all organisational units and levels but also all its partners, will lead to total quality. Although everything seems quite understandable at first glance, neither quality nor total quality management are easy to define. A generally accepted and undisputed, but also one of the shortest definitions of quality is “Quality is customer satisfaction.” (Juran & Gryna, 1999, p. 3). An American researcher John M. Kelly (1997, p. 19) believes that there is not only one definition of quality and “there cannot be only one.” The reason is that quality is basically only “the perception of quality”, so whatever a user considers quality “actually is quality.” This American researches points that most TQM users believes that quality is not in the product itself but in its use. American scientists Joseph Moses Juran, William Edwards Deming, Philip B. Crosby and Armand Vallin Feigenbaum agree with the conclusion that an organisation’s success primarily depends on quality, the management’s accountability is of strategic importance, and all employees must be involved in achieving quality. However, these four promoters of quality have different approaches to defining quality in theory, practice, as a movement, religion of life… (Luburić, 2010, p. 61-62). Juran thinks that quality is “fitness for use”, and Deming believes that “quality should be aimed at the needs of the customer, present and future.” For Crosby, quality is “conformance to requirement”. Feigenbaum, however, says that quality is “the total composite product and service characteristics of marketing, engineering, manufacturing and maintenance through which the product in service and use will meet the expectations of the customer” (Perović, 2003, p. 142). Deming formulated 14, and Juran 10 principles that have become the basis of a new philosophy where quality is the key criterion in market competition 64 Journal of Central Banking Theory and Practice differentiation,4 as well as the main factor of a company success. The market situation also contributed to their success. Increasing globalisation and removal of barriers weakened consumer protection from poor quality goods and services. Growing competition also forced companies to abandon the suicidal strategy of “price wars” and to move the competition battle to the quality field (Janićijević, 2004, p. 188-191). 2. Total Quality Management Philosphy Total quality management is a comprehensive management philosophy based on labour virtues, as well as on continual changes aimed at improving business processes. To wit, within any organisation, the processes are those that generate results and should be managed and improved. Applying proper quality techniques in working processes and involving all employees create the conditions for lower quality to increase to higher levels and thus bring processes to similar or equal quality levels. This increases mobility and connection of functions, offering possibilities for successful implementation of various models and procedures of process improvement. V. Deming, an American theorist and one of the founders of the modern quality movement, claimed that 85 percent of quality related problems are the result of processes and not individual errors (Luburić, 2010, p. 97). Once you start establishing total quality management, the emphasis will shift from identifying errors to reviewing and improving the processes that allow or cause such errors aiming at, if possible, permanently disabling the emergence of problems. 4 Paradoxically, Deming and Juran succeeded in Japan in what they were not able to do in their own countries. Deming published his management related papers well before World War II, but they were not accepted in the USA. When he came to Japan as an American expert after the war to assist in the development of the Japanese industry, Deming`s ideas landed on a very fertile ground. Very often, fate has a way of playing strange tricks on great people. Deming had been completely ignored in his country between two World Wars, then he was celebrated in Japan in 1950s, and then people from the USA came to study his work, wondering how the Japanese industry achieved dominance over the U.S. industry. 65 Total Quality Management as a Paradigm of Business Success Figure 2: Deming’s PDSA cycle of continual improvements Source: Rentzhog (2000). No individual organisation, change, process or technique, however, means much by itself. People are those that breathe in life into them and who, both in normal and crisis times, are the most important factors of business success. One cannot expect processes to function better if the people managing those processes do not change for better because they are the managers of everything and everything depends on them. People who manage and those we work with are the key both to our success and failures. An organisation should be approached as guided by the universal principles of total quality and only then can employees give a momentum to tacit creativity and energy, balance systems with processes and work more efficiently on continuous improvement. Total quality management, therefore, is not just a fashion whim or trend in management. Experiences of many companies all over the world prove that this is a revolutionary step forward in business and the return to some of the fundamental management ideas. There is no unique and perfect method of establishing a total quality management. The best methods are those tailored to individual organisations and environment in which they operate. A strict compliance to standards does not mean that there is no room for creativity in total quality management and that organisations should refrain from searching for models that will best suit their needs. On the contrary, best achievement people have reached by using unfathomable power of imagination and intuition. But there are some universal values that are the guiding ideas to success of this plan such as customer satisfaction, knowledge, competence and innovation, top quality, commitment, trust and respect, willingness to change and conflict resolution, leadership, team work management, process approach, involvement of all employees, flawless business, a sense of urgency, time, risk and much more. 66 Journal of Central Banking Theory and Practice Figure 3: Tree of sustainable success Source: Author`s presentation Among all the variables presented in Figure 3, it is the knowledge, competence and innovation that are the key requirements without which there can be no meaningful success in total quality management. It is impossible to improve your own products without improving yourself. Peter F. Drucker pointed that managers who are successful today and who want to be successful tomorrow are those that are willing to work on themselves. As J. Welch says: “The ultimate competitive advantage is an organisation’s ability to learn and translate that learning into action rapidly”, and as he also believes, “the key to our operating system is to understand that learning and achieving success are everything.” B. Tracy points that “knowledge is the magic wand that makes everything possible.” At the times of everyday changes, it is knowledge that becomes obsolete the fastest. Challenges we face in today’s time require different knowledge and skills than those we obtained through formal education. But it should be borne in mind that knowledge does not eliminate skill. On the contrary, knowledge becomes 73 Total Quality Management as a Paradigm of Business Success success does not necessarily guarantee tomorrow’s business prosperity”, which means that all economic agents are in constant, relentless and endless market competition. Recent occasional quality problems with some Japanese car manufacturers are the best evidence of this, but problems are still resolved so that client satisfaction is the primary concern, no matter the cost. F. Kotler pointed out that it continued amazing him “how many Americans accepted bad quality in the past. When I took my newly purchased Buick to the dealer one week after purchasing it, he said: “You’re lucky. We have only one repair to make.” (Kotler, 2004, p. 78). As per Kotler, General Motors’ theory of wealth creation reads: “Produce as many cars as you can in the factory. Don’t fix them there. Send them to the dealer and let the dealer fix them. There was no thought about the cost to the customer who had to drive back to the dealer, give up the car, and pray that he or she could find alternative transportation while the car was being fixed.” Who was responsible for poor quality? Management blamed the workers. But the workers were not responsible. However, no easy answer can be given to the question – How high should the quality be? In making computer chips, Motorola aims for a six sigma quality level so that there will be no more than three or four defects per million chips. This is much higher quality than is needed if the chips are used in cheap radios; and this is lower than one would want in chips guiding 747s. The right quality level depends on the customer and the product. Peter Drucker also believes that quality originates from customer: “Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for.” (Kotler, 2004, p. 78) After the Japanese experience with constant improvements and faced with the Japanese economic boom, American managers and researchers could not do anything else but to belatedly accept and apply the quality concept as a new pillar of contemporary management. However, they did it in their American way. We have already said that compared to their US peers, the Japanese managers are usually oriented towards long-term strategic planning. The decision-making in American organisations also completely differs from the Japanese process. “In US organizations, decisions are made primarily by people and usually only a few people are involved. Consequently, after the decision has been made, it has to be sold to others, often to people with different values and different perceptions of what the problem really is and how it should be solved. In this way, the deci- 74 Journal of Central Banking Theory and Practice sion making is rather fast, but its implementation is very time-consuming and requires compromises with those managers holding different viewpoints. The decision that is eventually implemented may be less than ideal because of the compromises necessary to appease those with divergent opinions. It is true that decision responsibility can be traced to people, but at the same time, this may result in a practice of finding “scapegoats” for wrong decisions. In all, the decision power and the responsibility is vested in certain people in U.S. companies, while in Japan people share both decision power as well as responsibility.” (Weihrich, 1998, pp. 227–229) Since individualism and competitive spirit are key characteristics of the US culture, a separate law enacted in 1987 established the U.S. Malcolm Baldrige National Quality Award. The award was established as the excellence benchmark to award the best US companies, share best practices, promote learning and organisation growth, and improve the country’s competitiveness. The score criteria of the Malcolm Baldrige Award clearly shows the importance the U.S. experts give to individual quality system aspects, particularly to customer orientation and satisfaction (customer expectations – current and future, customer relations management, customer commitment, customer satisfaction, results and comparisons in user satisfaction) (Kelly, 1997, str. 51). In the second half of the 20th century, after total quality management put Japanese companies far ahead of their foreign competition, particularly when the idea was applied and introduced in many U.S. companies, it seemed that Europe has at times looked left out of this game of American-Japanese ping-pong. Claiming that Europe is the source of total quality, Raymond Levy, chairman of Renault, said in the 1990s: “Quality is representative of a culture which we Europeans have no reason to let others monopolise. The Europe of Descartes; the Europe of the Age of Reason and the Enlightenment; the Europe of the industrial and technological revolution of the last two centuries holds within itself all the elements of method and exactitude conveyed by the term “total quality”. (Hindle, 2006, pp. 266–267) Unlike the Japanese and U.S. approaches, Europe tackled the quality management issue in the 1980s. The International Organization for Standardization passed a series of standards known as ISO 9000. The first two issues of the ISO 9000 series, published from 1987 to 1996, aimed at allowing organisations to always produce the same quality according to specified procedures and working instructions. The revision of ISO 9000:2000 shifted the orientation towards customers and continuous improvement. The standard largely covers customers, 75 Total Quality Management as a Paradigm of Business Success their demands and satisfaction. The standard ISO 9004-2 as of 1993 presented requirements for quality systems improvement. According to these requirements, an organisation’s management should enable and facilitate continuous improvement of the established quality system. Constant management objective at all organisational levels is aimed towards customer satisfaction and quality improvement (Stoiljković, 2006, pp 15 and 415). By adhering to the ISO standards, an organisation communicates that it is able to achieve, maintain and improve the required quality level.8 Thus, receiving ISO 9001 certificate requires proof that the company recognizes and documents its key business processes, and that it possesses all necessary instructions and standards to perform these processes, and that employees use and permanently improve them. Being the basis for quality management system, ISO 9000 standards promote awareness on users, team activity and permanent improvements, which is also the basis of total quality management. Thus, for example, Siemens has the following quality motto: “Quality is when our customers come back and our products don’t.” (Kotler, 2004, p. 79) But, it is not like this everywhere. Experience of some managers that worked on certification point that for many companies ISO 9000 standards serve as the “foundation for further total quality management processes”, particularly as ISO 9004 standard guides.9 8 We should also note that standardisation has its principles: 1. Standards in application and creation are voluntary. 2. Openness in the approach, both in creation and application; full transparency. 3. Inclusion of stakeholders: inclusion of economy, administration, trade union, science… 4. Consensus: only standards passed univocally may be published. When consensus is not reached, only technical rules are issued instead of standard. 5. Global approach: compliance with international and European standards. 6. Uniformity and consistency in creation and application. The structure of standard is uniform and there is no contradiction to other standards. 7. Relevance: means that issuing standards that are relevant to social development. 8. Standard’s adaptability to the development level: standards are adapted to development level once in five years. 9. Adaptability to economic growth. 10. Adaptability to public needs. (Perović & Krivokapić, 2006, p. 26) 9 ISO 9004 issues guidelines and approaches to areas like purchase, corrective acting, use of statistical control of the process and other requirements. (Kelly, 1997, pp. 228–230) 76 Journal of Central Banking Theory and Practice The European Foundation for Quality Management (EFQM),10 assisted by the European Organization for Quality (EOQ) and the European Commission (EC) started with the promotion of the European Quality Award (EQA) in 1990. This is the most prestigious European award for business excellence. It focuses on recognising excellence to assist organisations on their path to achieving the goal. Many national and regional quality awards have been institutionalised since 1992, and most of them are based on the methods and processes pertinent to the European Quality Award (Cvetkovski, 2005, p. 73–74). The European approach is more flexible than the American one, as it leaves to companies to individually establish their quality level. However, it does not motivate organisations to improve quality as the Malcolm Baldrige Award does. The experience of domestic and many foreign companies shows a significant number of those implementing the ISO 9000 series standards primarily in order to obtain different certificates as a “ticket” to more demanding and picky markets, and not as the confirmation of understanding that establishing and implementing quality standards are the sine qua non to survival (Janićijević, 2004, p. 184). For one reason or another, a huge rush for standardisation is still present not only in Europe and the USA, but more and more in Asia and some other parts of the world. First, it was just certification of quality management systems (ISO 9001), then an environmental management system (ISO 14001), followed by occupational health and safety management systems (OHSAS – ISO 18001), food safety management system (HACCP – ISO 22001), information security management (ISO 27001) and risk management (ISO 31000). Under the pressure of more rapid and dynamic changes, organisations are increasingly faced with the need to manage different management systems (integrated management systems). Companies are particularly exposed to these challenges, so they tend to ensure synergies among different management systems and quickly adapt to market changes and client needs, legislative changes and the like.11 10 The European Foundation for Quality Management (EFQM) believes that total quality management strategies have the following characteristics: excellence in all managerial, operational and administrative processes; culture of uninterrupted improvement in all operational aspects; realisation that quality improvement leads to cost advantages and better profit potential; creating more intensive relations with clients/customers and suppliers; inclusion of all employees and marketing oriented organisational practices. (Hindle, 2006, p. 265–266) 11 Read more in the book Integrisani sistemi menadžmenta (Stoiljković et. al., 2006). 77 Total Quality Management as a Paradigm of Business Success There is the prevailing view among some managers and researchers that a certificate is not evidence of a better system but some kind of a “driving licence” testifying that standard requirements have been met at some point. However, these requirements are constantly complemented and expanded. For that reason, management systems need constant improvements. Until recently, this was possible only by using quality tools, and nowadays, by many advantages brought by information technologies, from local networks to the internet. Conclusion This paper focuses on one of the most powerful, the most complex and the most demanding management approaches, known as Total Quality Management (TQM). Development of total quality management is considered an organisation’s key competitive advantage. Survival, development and success in international economy require comprehensive understanding of all business activities. Comprehensively oriented total quality management should respond to these expectations. The power of total quality management is that it shows the path that may lead to the model enabling reaching simultaneously a supreme quality level and supreme management both in normal and crisis times, in a competent and scientific manner, by applying specific methods and techniques, with continuous improvements and involvement of all employees and stakeholders in the process. As a paradigm of ongoing improvements in all dimensions, total quality is an approach based on principles stemming from the best that has ever been created. Thus, by including all employees, systemic and process approach and permanent improvements, total quality management should upgrade an organisation12 to the level of sustainable success, regardless the limitations. Therefore, total quality management attracts due attention of the academia and professionals worldwide. This is not surprising, having in mind that, in the conditions of almost dramatic disturbances and crises, it is neither easy to record sustainable business success nor to create effective measures that can minimise operational losses and business failure risk in timely fashion. In order to manage an organisation successfully in such conditions, total quality management and risk management processes should be mastered. 12 The ISO 9000 standard defines organisation as a group of people, objects and corresponding equipment with set responsibilities, authorities and relationships (company, corporation, firm, enterprise, institution, humanitarian organisation, trade organisation, association or their parts and/or their combination). 78 Journal of Central Banking Theory and Practice However, strict adherence to standards does not mean that organisations should not seek the best tailored models to suit their needs and that there is no space for creativity in total quality management. Against the backdrop of ever fiercer competition that many organisations are facing nowadays, constant improvements, development and innovations are necessary. Improved customer orientation and a better use of teamwork and employees’ potential are the two primary principles available to organisations. A typical hierarchical and functional approach makes it difficult for all of us to focus on the main task of creating value for users. Process orientation and constant improvements with the involvement of all employees are surely the chance to overcome such situation. Customer orientation is the basis for the entire total quality management concept where we should always have in mind that quality is what a user thinks it is and not what we mean by that. If you do not advance in quality, you will soon lag behind the competition. However, many organisations realise this when it is too late. An effective response is continuous improvements and orientation to customers whose needs change and so it is not enough only to monitor but also to foresee those changes and/or user demands. 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