CHOOSE An organisation that has recently experienced a significant failure in it
ID: 374752 • Letter: C
Question
CHOOSE An organisation that has recently experienced a significant failure in its quality management
For this option select an organisation that has recently had a significant quality failure. Examples of possible quality failings include:
A car manufacturer that has been forced to recall models.
A food company that has either been required to recall a food product or been involved in distributing tainted food.
A building company that has constructed buildings with a significant defect.
A toy manufacturer that has sold products that do not meet required safety standards.
A financial services company that has not protected customer privacy.
A passenger transport business that has not performed to expected service standards.
The example you select may involve a high-profile organisation whose quality failure attracts a lot of media attention,
Your investigation of the case should be reported in four parts, in the following order.
1. Background to the quality failure A brief explanation of what happened, why it happened (in terms of the immediate causes) and what the consequences were for the organisation and customers. This section will also include a background summary of the organisation, its size, the goods and services it provides, its market, and related information.
2. Underlying cause With reference to appropriate theories and/or models, explain what made it possible for the quality failure to occur. This is where you provide an explanation of the causes of the quality failure, linked to possible difficulties in the organisation’s approach to quality management. For example, this may involve highlighting shortcomings in staff training, confused management responsibilities, or gaps in the management of supply chain relationships.
3. Quality management systems and strategies Identify and discuss quality management systems and/or strategies the organisation could use to improve quality management. Supported by theory and/or best practice, select and explain one strategy you think best suits your organisation’s needs and capabilities.
4. Improving quality management Using relevant theory and/or best practice, explain how the organisation could design, develop and implement an improved quality management system. Outline the benefits you expect from the particular quality management system or strategy that you are recommending for adoption (WORD LIMIT 3000)
Explanation / Answer
For this answer I am taking the case of: A car manufacturer that has been forced to recall models.--FORD PINTO
The cases involving the explosion of Ford Pinto's due to a defective fuel system design led to the debate of many issues, most centering around the use by Ford of a cost-benefit analysis and the ethics surrounding its decision not to upgrade the fuel system based on this analysis.
ISSUE
Should a risk/benefit analysis be used in situations where a defect in design or manufacturing could lead to death or seriously bodily harm, such as in the Ford Pinto situation?
RULE
There are arguments both for and against such an analysis. It is an economically efficient method which has been accepted by courts for numerous years, however, juries may not always agree, so companies should take this into account.
ANALYSIS
Although Ford had access to a new design which would decrease the possibility of the Ford Pinto from exploding, the company chose not to implement the design, which would have cost $11 per car, even though it had done an analysis showing that the new design would result in 180 less deaths. The company defended itself on the grounds that it used the accepted risk/benefit analysis to determine if the monetary costs of making the change were greater than the societal benefit. Based on the numbers Ford used, the cost would have been $137 million versus the $49.5 million price tag put on the deaths, injuries, and car damages, and thus Ford felt justified not implementing the design change. This risk/benefit analysis was created out of the development of product liability, culminating at Judge Learned Hand's BPL formula, where if the expected harm exceeded the cost to take the precaution, then the company must take the precaution, whereas if the cost was liable, then it did not have to. However, the BPL formula focuses on a specific accident, while the risk/benefit analysis requires an examination of the costs, risks, and benefits through use of the product as a whole. Based on this analysis, Ford legally chose not to make the design changes which would have made the Pinto safer. However, just because it was legal doesn't necessarily mean that it was ethical. It is difficult to understand how a price can be put on saving a human life.
There are several reasons why such a strictly economic theory should not be used. First, it seems unethical to determine that people should be allowed to die or be seriously injured because it would cost too much to prevent it. Second, the analysis does not take into all the consequences, such as the negative publicity that Ford received and the judgments and settlements resulting from the lawsuits. Also, some things just can't be measured in terms of dollars, and that includes human life. However, there are arguments in favor of the risk/benefit analysis. First, it is well developed through existing case law. Second, it encourages companies to take precautions against creating risks that result in large accident costs. Next, it can be argued that all things must have some common measure. Finally, it provides a bright line which companies can follow.
A. Incident Facts
On August 10, 1978, three teenage girls stopped to refuel the 1973 Ford Pinto sedan they were driving. After filling up, the driver loosely reapplied the gas cap which subsequently fell off as they headed down U. S. Highway 33. Trying to retrieve the cap, the girls stopped in the right lane of the highway shoulder since there was no space on the highway for cars to safely pull off the roadway. Shortly thereafter, a van weighing over 400 pounds and modified with a rigid plank for a front bumper was traveling at fifty five miles an hour and stuck the stopped Pinto. The two passengers died at the scene when the car burst into flames. The driver was ejected and died shortly thereafter in the hospital. Inspecting the van shortly after the accident, the police found open beer bottles, marijuana and caffeine pills inside.6
The subsequent proceedings were rather surprising. Based on the facts of the case, it seemed that any one of a number of parties could be liable in a civil action or prosecuted criminally. The obvious target seemed to be the driver of the van. It seems he could have been prosecuted for criminal homicide or the families of the victims could have pursued a civil action, in light of the fact the driver possessed several controlled substances at the time of the accident.
A second potential party open to a civil suit was the Indiana Highway department. It was their design which left no safe stopping place along Highway 33 where cars could pull over for emergencies. In fact, the road was so dangerous that the Elkart County Citizens' Safety Committee had previously written a letter to the department asking that the road design be modified to provide safe stopping place for emergencies.7 It is also conceivable, the driver of the Pinto could have been found negligent for stopping a car in the middle of the highway.
The first surprise of the resulting litigation carne when Indiana state prosecutor filed suit against Ford Motor Company for criminal recklessness and reckless homicide.8 The famous and highly publicized legal battle was underway. Some have argued the prosecution acted unethically from day one, gathering and hiding evidence from the defendant and concealing information about the condition of the van driver.9 Whether true or not, the following litigation caused damage that would take Ford years to recover from.
B. Questionable Design
The controversy surrounding the Ford Pinto concerned the placement of the automobile's fuel tank. It was located behind the rear axle, instead of above it. This was initially done in an effort to create more trunk space. The problem with this design, which later became evident, was that it made the Pinto more vulnerable to a rear-end collision. This vulnerability was enhanced by other features of the car. The gas tank and the rear axle were separated by only nine inches. There were also bolts that were positioned in a manner that threatened the gas tank. Finally, the fuel filler pipe design resulted in a higher probability that it would to disconnect from the tank in the event of an accident than usual, causing gas spillage that could lead to dangerous fires. Because of these numerous design flaws, the Pinto became the center of public debate.
These design problems were first brought to the public's attention in an August 1977 article in Mother Jones magazine. This article condemned the Ford Motor Company and the author was later given a Pulitzer Prize.10 This article originated the public debate over the risk/benefit analysis used by the Ford Motor Company in their determination as to whether or, not the design of the Pinto fuel tank be altered to reduce the risk of fire as the result of a collision.
The crux of the public debate about The Ford Motor Company was the decision not to make improvements to the gas tank of the Pinto after completion of the risk/benefit analysis. Internal Ford documents revealed Ford had developed the technology to make improvements to the design of the Pinto that would dramatically decrease the chance of a Pinto "igniting" after a rear-end collision.11This technology would have greatly reduced the chances of burn injuries and deaths after a collision. Ford estimated the cost to make this production adjustment to the Pinto would have been $11 per vehicle.12 Most people found it reprehensible that Ford determined that the $11 cost per automobile was too high and opted not to make the production change to the Pinto model.
C. Risk/Benefit Analysis
In determining whether or not to make the production change, the Ford Motor Company defended itself by contending that it used a risk/benefit analysis. Ford stated that its reason for using a risk/benefit analysis was that the National Highway Traffic Safety Administration (NHTSA) required them to do so.13 The risk/benefit approach excuses a defendant if the monetary costs of making a production change are greater than the "societal benefit" of that change. This analysis follows the same line of reasoning as the negligence standard developed by Judge Learned Hand in United States vs. Carroll Towing in 1947 (to be discussed later). The philosophy behind risk/benefit analysis promotes the goal of allocative efficiency. The problem that arose in the Ford Pinto and many other similar cases highlights the human and emotional circumstances behind the numbers which are not factored in the risk/benefit analysis.
The Ford Motor Company contended that by strictly following the typical approach to risk,/benefit analysis, they were justified in not making the production change to the Pinto model. Assuming the numbers employed in their analysis were correct, Ford seemed to be justified. The estimated cost for the production change was $11 per vehicle. This $11 per unit cost applied to 11 million cars and 1.5 million trucks results in an overall cost of $137 million.
The controversial numbers were those Ford used for the "benefit" half of the equation. It was estimated that making the change would result in a total of 180 less burn deaths, 180 less serious burn injuries, and 2,100 less burned vehicles. These estimates were multiplied by the unit cost figured by the National Highway Traffic Safety Administration. These figures were $200,000 per death, $67,000 per injury, and $700 per vehicle equating to the total "societal benefit" is $49.5 million. Since the benefit of $49.5 million was much less than the cost of $137 million, Ford felt justified in its decision not to alter the product design. The risk,/benefit results indicate that it is acceptable for 180 people to die and 180 people to burn if it costs $11 per vehicle to prevent such casualty rates. On a case by case basis, the argument seems unjustifiable, but looking at the bigger picture complicates the issue and strengthens the risk/benefit analysis logic.
The main controversy surrounding the Ford Pinto case was The Ford Motor Company's choices made during development to compromise safety for efficiency and profit maximization. More specifically, it was Ford's decision to use the cost/benefit analysis detailed in section 11 to make production decisions that translated into lost lives. During the initial production and testing phase, Ford set "limits for 2000" for the Pinto. That meant the car was not to exceed $2000 in cost or 2000 pounds in weight. This set tough limitations on the production team. After the basic design was complete, crash testing was begun. The results of crash testing revealed that when struck from the rear at speeds of 31 miles per hour or above, the Pinto's gas tank ruptured. The tank was positioned according to the industry standard at the time (between the rear bumper and the rear axle), but studs protruding from the rear axle would puncture the gas tank. Upon impact, the fuel filler neck would break, resulting in spilled gasoline. The Pinto basically turned into a death trap. Ford crash tested a total of eleven automobiles and eight resulted in potentially catastrophic situations. The only three that survived had their gas tanks modified prior to testing.55
Ford was not in violation of the law in any way and had to make the decision whether to incur a cost to fix the obvious problem internally. There were several options for fuel system redesign. The option most seriously considered would have cost the Ford Motor Company and additional $11 per vehicle.56 Under the strict $2000 budget restriction, even this nominal cost seemed large. In addition, Ford had earlier based an advertising campaign on safety which failed miserably. Therefore, there was a corporate belief, attributed to Lee Iacocca himself, of "safety doesn't sell."57
Ultimately, the Ford Motor Company rejected the product design change. This was based on the cost-benefit analysis performed by Ford (see Exhibit One). Using the NHTSA provided figure of $200,000 for the "cost to society" for each estimated fatality, and $11 for the production cost per vehicle, the analysis seemed straightforward. The projected costs to the company for design production change were $137 million compared to the project benefits of making the design change which were approximately $49.5 million. Using the standard cost/benefit analysis, the answer was obvious--no production changes were to be made.