The Private Sector's Experience with Total Quality Management

Home , Quality (business), Total quality management

EXPLORING QUALITY MANAGEMENT JohnE. Watson&f ThomasW Hopp -1 THE PRIVATE SECTOR’S EXPERIENCE WITH TOTAL QUALITYMANAGEMENT

EROX, THE COMPANY that created the cop- complaints, even though they used technology less ier industry-the company whose name is advanced than Milliken’s. The reasons, company X synonymouswith plain-paper copying- executives found, lay in management approaches faced a tough challenge during the 1970s. As Japa- and personnel practices that drive improvements in : nese copiers of comparable quality and lower price quality and efficiency. were shipped into North America, Xerox’s share of Milliken, Ford, and Xerox have since adopted t the North American market plunged from 93 per- such practices. The results? Since the early 1980s cent to 40 percent. Milliken’s productivity has increased 42 percent Ford Motor Company was having similar prob- and sales have risen significantly. Between 1981 lems. Between 1978 and 1982, its U.S. sales of and 1989, Ford’s market share rose from 16.3 per- cars and trucks fell by 49 percent, resulting in a cent to 22.4 percent; the company moved from a cumulative operating loss of more than $3 billion. net loss of $1 billion to a net profit of $4 billion. Around this same time, Milliken & Com- And Xerox has recaptured its leadership in docu- pany-a privately owned textile manufacturer long ment processing technologies. recognized for quality products and its state-of- These companies’ experiences are not unique. the-art technology-began to ask why some of its In recent years, a number of U.S. companies have Japanese competitors achieved higher quality, less found that they could not sufficiently raise their waste, greater productivity, and fewer customer standards of quality by using conventional approaches to managing product and service quality. Instead, like Xerox, Ford, and Milliken, they have JOHN E. WATSON is m Assistunr Director and adopted a new management approach known as THOMAS WLHOPI’ is u senior evohotor in the “total quality management” (TQM). Trade, Enemy, and Finonce Issue Area of GAO’s Traditionally, management has sought to en- Nation& Secutity ond International Affairs sure quality through inspection at the final stages Division. of production, just before the product or service is

34 THE G.A.0 JOURNAL THE PENTAGON’S DEPENDENCE ON FOREIGN SOURCES

approach faces several hurdles: The foreign firms compete internationally. Unfortunately, there are might be unwilling to license their products to do- signs char, in the race for world leadership in key mestic manufacturers; the U.S. government might technologies, the United States is slipping badly. have to pay steep licensing fees; and the domestic U.S. industry has often failed to rapidly and effec- firms might not always be able to maintain the de- tively commercialize the results of American tech- sired level of quality. nological advances by successfully introducing products into the marketplace. Furthermore, out l The federal government could restrict the import of certain items that are deemed to constitute of 12 crucial emerging technologies identified by the Commerce Department and projected to ac- a threat to national security. Such restrictions are , in fact allowed under current law. They have al- count for nearly $1 trillion annually in sales on the 1 ready been placed on antifriction bearings, ma- world market by the year 2000, the United States is expected to lag behind Japan in most cases and The problem of foreign chine tools, and plastic injection molding machin- dependence in defense- ery. Problems might arise, however, if import behind Europe in several.‘” Most of these emerg- related items does not ing technologies are dual-use, having important exist in a vacuum. A restrictions triggered retaliatory protectionist central challen#e for actions by other countries. commercial and military applications. These the United States is trends do not bode well either for foreign depen- Although we have focused on the potential to meet military dencies or for U.S. technological leadership, jobs, requirements in such drawbacks of these approaches, options such as a way ae to build and long-term productivity growth. these need to be considered in cases where for- 1 a stro*er, more A central challenge for U.S. policymakers and internationalty eign dependencies for critical weapon components for U.S. industry is to meet military requirements competitive are judged to pose unacceptable risks to national eiviliau economy. in such a way as to build a stronger, more interna- I security. No one option will make sense in every tionally competitive civilian economy. Not only such case. Instead, the pros and cons need to be will such an economy contribute to the broader considered on a case-by-case basis. To perform aspects of American strength and security but it such analyses intelligently, however, the federal will also be better equipped to satisfy this government needs a much more comprehensive nation’s defense needs. l understanding of the extent to which U.S. weapon

systems depend on foreign components. This un- 1. Jacob M. Schlesinger, “Kyocera’s Ambivalent Role m Weap- derstanding will not be possible until DOD de- ens,” WlStrectJoumal. Feb. 5, 1991, p. A-19. signs and implements an effective information 2. In this article, “offshore” or “foreign” source means a system detailing this dependence, as well as a set source of supply manufacrure, or technology located outside the United States and Canada. of criteria for determining how much foreign de- 3. Paul Magnusson et al., “American Smart Bombs. Forergn pendence can be tolerated in various cases. Brains,” Business WCC), March 4, 1991, p. 18. 4. Stuart Auerbach, “U.S. Relied on Foreign-Made Parts for Weapons,”I&&&n Post, March 25, 1991, pp. .4-I and A-17. 5. DOD contracts for more than 100 major weapon systems as The international economy well as numerous other weapons.

6. Interview with John Tucker, Office of Industrial Resources, E Department of Commerce, April 26, 1990; and telephone m- Th e pro bl em of foreign dependence in defense- terview with Brian Nilsson of the same office, Aprrl 8. 1991. related items does not exist in a vacuum. Because 7. A Study ofthe E&t o,f &reign Dependmo by DOD’r Joint Logistics Commanders (Feb. 15, 1986). Major pornons of this of increasing competition in the global market- report are classified. place, the U.S. economy as a whole has come to 8. Indust&/ Base: Signifcanct of DOD’s Fomgn Dtpcndcnq 1 I rely more and more on foreign products, compo- (GAUNSIAD-91-93, Jan. 10, 1991). This reporr was Issued nents, and technology. Furthermore, the indus- less than a week before the Gulf War began. trial and technological base of the commercial 9. Theodore H. Moran, “The Globalization of Amcoca’s De- fense Industries: Managing the Threat of Foreign IIrpend- sector is increasingly important to defense. Partic- ewe,” /ntenzarionalSecwi~, Summer 1990. Vol. 15. No. 1. : ularly as one examines the lower levels of DOD Also see .4 Strareg jar StrcrrgrAening th ;Vat~onal &~&SC.- The Role of I#s Industrial Base, a “draft final” report h\ rhe De- subcontractors, one finds that defense needs are fense Manufacturing Board Critical Industries Tbrk Force. Jan. i often met by firms that primarily do commercial 23, 1990; and Foreign Vulnerabiliry of Crit~al Indu.~~~tr. J re- rather than defense-related work. port by the Analytic Sciences Corporation (T.XX:i. \farch I, 1990. Consequently, this country’s ability to meet IO. U.S. Department of Commerce, Tcchnolop Urmnrutra- i its defense needs is increasingly tied to the tion, Etnqfng Tcrrtnoiogics: A Survq of ErAer0zi ad b sonomic strength of the U.S. economy and its ability to Opportunifier. Spring 1990.

WINTER I’NI 92 33 made available to the customer. This approach, re- TQM in U.S. corporations ferred to as “inspecting in” quality, puts responsibility in the hands of quality control experts. The TQM approach, on the other hand, calls D esprte. t h e apparent success of many companies for management practices that “build in” quality that have implemented TQM, some observers har- throughout the process of creating a product or bor doubts about it. TQM may have been the service. Quality then becomes the responsibility main driving force behind Japan’s economic suc- not just of quality control experts but of every em- cess over the past several decades; but because it ployee. How quality is defined depends wholly on has been most widely applied in Japanese culture, the customer: A quality product or service is one these skeptics say, it is not likely to be effective in that always meets the customer’s expectations and an American context. How much weight should needs. TQM emphasizes that true quality re- such criticisms be given? quires the full involvement of the entire work force GAO recently investigated the impact of TQM and that managers and workers must seek contin- practices on the performance of 20 U.S. compa- ually to improve the work process. In other words, nies.’ The results of this study (the first to gather TQM is not a destination but a journey empirical rather than merely anecdotal evidence) showed that the myth about TQM not being appli- cable in the United States is just that-a myth, Most companies GAO studied experienced an overall improvement in corporate performance. For example, on an average annual basis, these companies had an 11.6 percent drop in customer complaints, a 12 percent reduction in order-processing time, a 10.3 percent decline in defects, and a 16.6 percent increase in the volume of employee sug- gestions. Overall, the companies boosted their market shares by 13.7 percent.

Essential features of TQM

T otal quality management is not a cookbook approach; it cannot be boiled down to a series of clear-cut steps. A company pursuing ‘l.y5r gener- ally considers the ideas of a number ofqual~ty practitioners-particularly W. Edwards I Icming, Joseph M. Juran, Armand I! Feigenbuum. Jnd Philip B. Crosby-and then develops d ‘I.yJt approach that suits its own unique work em rronment and management problems. At the same time, TQM is not just .I c.rtchall term for any type of management reform \ con- sensus has emerged as to the essentrJl clcments ofany TQM approach. Thoseorganr/.Jrrlpn3 In GAO’s study that experienced impro\ccl p4)rrn- ante under TQM tended to have implcnlcl~rcd most if not all of these elements. EXPLORING QUALITY MANAGEMENT

Focus on the customer formal and informal-between departments and among workers. Customer satisfaction is critical to competicive- At Milliken, for example, the TQM process ness. Because TQM treats customers as the driv- began in 1981when a program called Pursuit of ing force behind all quality efforts, organizations Excellence (POE) was launched by senior man- must determine customers’ needs and then must agement. Today, Roger Milliken, chief executive put processes in place to fulfill them. officer, and Thomas J. Malone, chief operating of- For instance, in 1984, Goodyear Tire & Rub- ficer, devote more than half their time to POE. ber established a customer support network based Similarly, Xerox’s TQM drive, known as “Leader- on a toll-free number. USAA Property and Cas- ship Through Quality,” was announced in 1981by ualty insurance division conducts quarterly cus- then Chief Executive Officer David Kearns. Man- tomer attitude surveys and evaluates its service agement has continued to demonstrate leadership delivery against the standard set by L.L. Bean. through daily practice by frequent communica- And the Business Products and Services division tions that keep all Xerox employees informed of of Xerox analyzes a wide variety of data, gathered the progress of Leadership Through Quality from monthly surveys of 55.000 Xerox equipment owners, to identify customer requirements. This information is then used to develop concrete busi- Employee involvement ness plans for making the necessary improve- and empowerment ments. Along with other steps Xerox has taken, this focus on customer satisfaction has contributed In order to strengthen employee commitment to to some impressive statistics: Between 1983 and continuous quality improvement, organizations in 1989, there was a 38 percent increase in the num- GAO’s study focused on teamwork and on increas- ber of customers for copier/duplication systems ing employees’ sense of involvement and empower- who considered themselves “highly satisfied” and ment, Companies also provided training to ensure a 40 percent decrease in customer complaints. that employees had the skills necessary for a TQM approach. Active top leadership Motorola, for example, encourages first-line employees to make significant on-the-job deci- The top executive of an organization must provide sions. To help prepare them for these responsibili- active leadership if quality is be established as a ties, the company spends more than $100 million fundamental value in the company’s management annually on training and education-an effort philosophy. In the organizations GAO studied, known as “Motorola University? quality concepts were clearly articulated and thor- At Milliken, teams of workers are a hallmark of oughly integrated throughout all organizational the quality process. Production work teams can activities. Top executives also took the lead in es- undertake training, schedule work, and establish tablishing a more flexible and responsive corporate individual performance objectives. Moreover, any culture to allow for more communication-both Milliken employee can halt a Production process if

36 THE C.A.0 IOURNAL THE PRLVATE SECTOR’S EXPERIENCE WITH TQM ;

he or she detects a quality or safety problem. lished closer, long-term partnerships with a smaller ) Xerox’s approach to quality issues is reflected number of suppliers who meet higher quality in the company’s concept of “Team Xerox.” In standards. Such suppliers, it is felt, can be en- 1988, teams in manufacturing and development listed as full partners in an organization’s own were credited with saving $116million by reducing quality efforts. E scrap, tightening production schedules, and devis- In certain cases, companies have included ing other quality-enhancing measures. Xerox pro- their suppliers in key product design meetings. vides quality training to every employee, and the Some companies have even gone so far as to help : company gives rewards and recognition for quality suppliers improve their own quality systems. Mil- improvement efforts not only co individuals but liken, for instance, has provided training in quality also to groups. principles to its suppliers as well as to its own employees. Xerox’s suppliers receive training in such ( areas as statistical process control and total quality Actions based on facts techniques. These suppliers credit Xerox with Fact-based decision-making is another common improving their products and operations; over the ! feature of TQM. In order to determine when past five years, the number of defective parts from ! changes are needed, companies use systematic suppliers has been reduced by 73 percent. processes to continually measure and evaluate the quality achieved with current production processes. TQM practitioners refer to this as a “Plan- TQM’s broad applicability [ Do-Check-Act” approach to quality improvement. At Milliken, for example, quality improvement efforts are founded on factual information con- Al though TQM principles were first applied in tained in databases accessible from all Milliken manufacturing companies, the approach is flexible facilities. Xerox has identified its most important enough that many different kinds of organizations business processes and compared its performance can benefit from putting it into practice. The pri- in these areas with world-class standards to estab- vate-sector organizations in GAO’s study included lish benchmarks. Employees are encouraged to both manufacturing and service companies (such use these benchmarks to assess their work. as insurance, telephone, and catalog sales companies), both large companies and companies with fewer than 500 employees. Companies in every Partnership with suppliers category improved their performance with TQM. Traditionally, U,S. firms have established mini- For example, not only did a TQM approach mum specifications for suppliers and then. from help Corning greatly improve the quality of output the pool that met those minimum standards, cho- in its manufacturing plants, it also spurred im- sen the suppliers that offered the lowest prices. proved operations in its corporate tax unit. That Under TQM, many companies instead have estab- unit simply applied the principle of finding out its

WINTER 19’)l (3.2 37 EXPLORING QUALilY MANAGEMENT

customer’s needs. In this case, the customer was ized; the average was two and a half years. TQM I the Internal Revenue Service, which turned out is not a means of improving performance in the not to want a summary of thousands of accounts short term. It takes time to change a corporate cul- detailing the expenses of Corning’s various depart- ture, plan new strategies, and train people in new ; ments. The resulting change in procedure report- ways of thinking and working. Most importantly, it edly saved Corning 400 hours of personnel time requires continuous hands-on leadership. annually; the IRS also saved the hundreds of With the right leadership and enough time, the hours it had previously spent unraveling the ac- benefits of TQM can be enormous. Not only will counts summary. individual organizations improve their perform- t Motorola had a similar experience in one of its ance, but the U.S. economy as a whole will be staff offices. The internal audit department strengthened. TQM’s emphasis on quality and achieved a 26 percent increase in audit staff pro- customer service can help U.S. private-sector ductivity, thereby saving $1.5 million. In addition, firms to become more competitive in today’s inter- c the time required by external auditors to complete national economy and can help government organi- 1 their review was cut in half, resulting in a savings zations deliver services more efficiently, even in I of $1.8 million, the face of budgetary and other resource con- TQM can also yield benefits in the country’s straints. Furthermore, the “second-best” product largest service organization-the federal govern- image that private-sector U.S. firms have had as ment. Many federal executives, managers, and compared with the Japanese has been helped by employees have realized the need to do business improvements in the quality of their performance in a new way and have made a commitment to (rather than by mere polishing of their corporate TQM principles. The potential benefits include images). Similarly, the U.S. taxpayers’ doubts billions of dollars in savings, more efficient and ef- about their government’s ability to serve the needs fective government, and increased citizen satisfac- of its citizens can be alleviated by an improved de- tion with the services they receive. livery of services. In other words, TQM can-if truly adopted as a fundamental change in approach-help an organization get the most out of what it has. l Reaping the benefits

I. See Manugmentbiz-tices: U.S. Cornpanics lmpnnv Ifrlbnnof~~t wh erever TQM is applied, it is crucial that the TArovgA Quality Efir~s (GAOINSIAD-91-190. Slav 2, 1991). GAO studied 20 companies char, in 1988 and 1989. acre among organization implementing it allow sufficient time the highest-scoring applicantsfor the Malcolm B~ldr~gc Na- for results to be achieved. For the companies in tionalQuality Award-an award presentedannualh tn rhc U.S. Department ofCommerce’s National institute of Scdndards and the GAO study, it took anywhere from one to five Technology. The award recognizes companies thar hd\r WCCCSS- years for the initial benefits of TQM to be real- fully implemented total quality management s)rrcm>

38 THE GAO JOURNAL