The Quality Policy in Value Based Management

This study is based on the premise that, strictly speaking, capitalistic firms are business profit oriented organizations that are viewed as systems for the creation of economic and financial value for their shareholders (owners). This assumption has guided the new concept of a management whose aim is the production of value, or Value Based Management (VBM). VBM recognizes that financial performance – based on profit and the value of capital – depends in a causal way on the level of quality of products and processes, and that therefore quality is the condition for producing value for the client and financial value for shareholders. Quality is an “elusive” concept, but for VBM I hold there are three notions of quality to consider in the value production process: 1) functional quality, according to which the product must be fit for a purpose, leaving to clients the task of identifying the needs and aspirations the product must satisfy; 2) design-based quality, according to which the product must, in any case, conform to a design, prototype, or standard in order to satisfy client needs: 3) environmental quality, according to which the product must not only satisfy the clients but be compatible with its introduction in the environment. This paper has a twofold objective. It seeks above all to analyze the different ways VBM must use to consider quality as a value driver – identifying the relations between quality levels, on the one hand, and cost, revenue and profit levels, on the other; and, secondly, to indicate the guidelines based on which VBM can develop a strategy of Total Quality Management, or Company-Wide Quality Control that is integrated with the other “value creating strategies”