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Meeting the new paradigm challenges through total quality management.


In recent issues of Management Quarterly, it has been suggested that the electric utility industry in general, and rural electric cooperatives in particular, have entered a new paradigm. Steve Collier suggests that this new paradigm is mostly characterized by competition.|1~ Scott Luecal emphasizes that the consumer dominates the new paradigm.|2~ Few would argue that both meeting increasing competition and better satisfying consumers have become extremely important challenges facing all rural electric cooperatives today and in the critical years ahead. In fact, if these challenges are not met, not only will there be problems, but rural electric cooperatives may not even survive as we know them today.

Importantly, it should be recognized that rural electric cooperatives are not alone in the tremendous challenges that lie ahead. All American organizations today are faced with a new paradigm characterized by global competition and rapidly escalating customer expectations. Fortunately, many organizations are meeting these challenges through total quality management or TQM. For example, world class organizations such as Motorola have met their competitive and customer challenges through TQM. A sample of the results achieved through TQM implementation at Wells REC is explained on page 13.

Obviously, TQM is not going to be the panacea for rural electric cooperatives. Yet, rural electric managers must be aware of this movement that is sweeping across America and the world. The purpose of this article is to spell out exactly what is meant by TQM, suggest some steps of implementation, and bring out some of the common problems.

Already, many cynics are calling TQM the latest gimmick, the latest fad and quick fix for management problems. Obviously, there is some truth to these accusations. But even the most caustic nay-sayers will admit that "quality" is for real and will definitely provide the competitive edge and improve customer satisfaction. This new "quality" approach is needed to meet not only the challenges facing huge multinational corporations such as Motorola, but also the smallest electric cooperative. Therefore, all electric co-op managers should be aware of what is involved in TQM so that they can take all, or just what is deemed useful to them, in meeting the competitive and consumer challenges that lie ahead in their new paradigm.

What Is TQM?

Obviously, there are many definitions and connotations associated with TQM. Practically every management author, consultant or even practitioner has a different meaning for TQM. In an earlier article, my colleagues and I defined TQM as an organizational strategy with accompanying techniques that deliver quality products and/or services to customers.|3~ In other words, we feel that TQM is an organizational strategy, not just another technique that is used in operations or member services. TQM is the way the organization is managed, not just something in addition to everything else. However, the definition does point out that there are TQM techniques that are employed to help deliver (the key word in TQM implementation) quality service to customers. To gain a depth of understanding of TQM, it would be helpful to examine each letter in the acronym for further refinement and expansion.

The "Total" Perspective of TQM

The total part of TQM differentiates the approach from the traditional inspection, quality control or quality assurance approach. TQM is an overall organizational strategy that is formulated at the top management level and then is diffused throughout the entire organization. Everyone in the organization, from the general manager/CEO to the lowest paid hourly workers/clerks are involved in the TQM process.

The "total" part of TQM also encompasses not only the external, end-user and purchaser of the product or service, but also internal customers and outside suppliers and support personnel. This is how TQM differs from a traditional customer service orientation. Under TQM, the "Customer Is King" (as in Wal-Mart), but so are internal customers such as co-workers or other departments. Everyone who gives or passes on anything in the organization is a supplier, and anyone who receives anything from anyone in the organization is an internal customer. The same is true for external suppliers and support personnel such as in maintenance; they are also a vital, integral part of the TQM approach. If suppliers and external support personnel do not deliver quality, then the organization cannot deliver quality to its customers.

In essence, TQM becomes the dominant culture of the organization. Well known behavioral scientist Edgar Schein has formally defined organizational culture as "a pattern of basic assumptions--invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration that has worked well enough to be considered valuable and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems."|4~

Under TQM, the core cultural values for everyone in the organization might include the following:

1. Make it right for the customer at any cost.

2. Internal customers are as important as external customers.

3. Respond to every customer inquiry or complaint by the end of the day.

4. Answer the phone within two rings.

5. The customer is always right.

6. Not only meet customers' expectations, but delight them.

7. Teamwork and cooperation is more important than individual action and gamesmanship.

8. Everyone is involved in the quality effort, no exceptions or bench sitting is allowed.

9. Respond to every employee suggestion for quality improvement within one week.

10. Never be satisfied with the level of quality, always strive for continuous improvement.

Importantly, the representative cultural values above cannot just be shallow, "gimmicky" slogans. All organizations have had quality slogans for years. But these slogans were just that; they often did not deliver on the quality promise. In fact, the slogans often raised the expectations of customers, and when the organization did not deliver as promised, there were bigger problems than if there was no slogan at all. In their well known book, Albrecht and Zemke conclude after years of study of Service America that there is really no relationship between slogans and quality service.|5~ The key is that there must be cultural values for quality, not just empty slogans. Cultural values are accepted by the employees and drive their behavior to actually deliver quality to customers.

What Does "Quality" Stand for in TQM?

When most people think of quality, they conjure up an image of defect free products such as automobiles or electronic goods. In TQM, quality does mean no defect products, but much, much more. In fact, in terms of relative importance, TQM is more concerned with quality service than it is with quality products. This is because of the growing importance in the post- industrial society of the service sector that doesn't produce any products per se. However, even traditional goods producing companies under a TQM approach become service companies, service to their customers.

Counting defects is an easy way to operationalize quality under the old product-oriented approach, but how is quality operationalized in the new service orientation? It has become widely recognized that under TQM quality is operationally defined as meeting or exceeding customer expectations. Thus, quality is defined by the customer, not the organization or the manager or the quality control/assurance department. The service (or product) must meet or exceed what the customer wants or expects. These customer expectations are highly individualized by age, gender, personality, occupation, location, socio-economic class, past experience with the organization and many other variables. In other words, what is quality for one customer may not be quality for another customer. A challenge for TQM is to deliver quality to all customers. The world class companies using a TQM approach not only try to meet or exceed expectations, but try to "delight" their customers.

What Is the "Management" Dimension in TQM?

The "M" in TQM infers that this is a management approach, not just a narrow quality control or quality assurance function. Someone from the quality control function may head up and coordinate the TQM effort, but to get away from this more traditional, limited perspective, it would be more appropriate for someone from another department who is respected and is a good communicator and "doer" to be the TQM project manager. This manager should ideally not only thoroughly understand and be able to train others in TQM, but also be a strong advocate and report directly to the general manager/CEO. However, it should be remembered as discussed in the "total" section, everyone in the organization, all managers, are involved in TQM, not just the project head.

The management part of TQM also contains the various techniques that are used to deliver quality on a day-to-day basis. These techniques range from traditional inspection and statistical quality control to cutting edge process and concurrent engineering and human resources management approaches such as self-managed teams. The common theme of both the engineering and human resources management techniques used in TQM is the customer focus. All the techniques view quality management as a single process that encompasses many functions. Thus, the engineering techniques involve everyone from various functions, and even outsiders such as key suppliers, from the very beginning working on solving a problem or developing a new product/service. Under the old approach, there was a sequential, step-by- step, passing on (or "throwing over the wall") from function to function. Under TQM, everyone is concurrently involved. The same for the self-managed teams. These teams consist of interfunctional members and they operate without the traditional hierarchical chain of command. By working together, cross-functional teamwork is more flexible and much faster in being able to meet the quality expectations of customers.

In summary, the difference between the old style, traditional manager, and the approach taken by managers using TQM can be summarized as follows:|6~

Old Style Managers

* Self-image as a manager or boss

* Follows the hierarchical chain of command to attain quality goals

* Works within a set formal, functional structure

* Acts and makes decisions as an individual

* Is protective and even distorts information

* Becomes an expert and spends whole career in one function

* Demands long hours and only loyalty to one boss

Managers Using TQM

* Self-image as a team leader, sponsor, or internal consultant

* Cuts across functional lines dealing with anyone necessary to attain quality goals

* Changes the composition of teams in response to customer needs and needed innovation

* Acts and makes decisions as part of a team

* Shares and supplements information with the team or anyone else who needs it

* Becomes an expert and has significant assignments in many different functions

* Demands quality results and loyalty not only to the organization and one's boss, but also to subordinates, teammates in other departments, and especially customers

Implementing TQM

The discussion so far has tried to give a general understanding of what is meant by and what is involved in TQM. Now we turn to implementation. Although the steps will differ depending on the past experience and culture of the organization, the following discussion can be used for general guidelines for successful implementation of TQM.

Formulate the Overall TQM Strategy and Philosophical Framework

Like any overall strategy, the TQM strategy involves goals, policies and plans.|7~ This strategic process is customer driven and strives for continuous improvement. The strategic goals spell out what the organization intends to accomplish in terms of delivering quality products/services to customers. Importantly, these goals start with defining who the customers really are and then letting them express their needs and expectations.

The level of the goals should be determined by "benchmarking." This is the term used in TQM that establishes the very best in the industry and in the world. Finding out the "benchmark" for various quality goals may take some effort and digging, but generally is not as big a problem as it may appear. Valuable benchmark information can be gained from published sources, government documents, and, especially for electric cooperatives, industry professional services such as those offered by NRECA. An organization can even directly contact competitors and prestige firms in the industry to get the needed benchmark data.

In addition to establishing the goals in the strategic process for TQM, policies and plans are also formulated. The policies provide guidelines for how the organization will work toward the quality goals. These policies are rules that are intended to shape the organization's actions toward the delivery of quality to customers. The plans, on the other hand, are more specific; they spell out the means that will be used to attain the goals of the delivery of quality to customers. The plans are a specific set of actions that should take place to accomplish the quality goals.

The TQM strategy can be structured along the lines of widely recognized philosophical frameworks such as Deming's 14 principles or the Baldrige criteria. W. Edwards Deming is the best known quality guru who is given credit for teaching the Japanese statistical quality control after World War II. Now in his nineties, Deming's 14 well-known principles can be used as the philosophical framework in formulating the strategy for TQM.

Deming's Fourteen Points

1. Create constancy of purpose. 2. Adopt the new philosophy. 3. Cease dependence on mass inspection to achieve quality. 4. End the practice of awarding business on price tag alone. Instead, minimize total cost, often accomplished by working with a single supplier. 5. Improve constantly the system of production and service. 6. Institute training on the job. 7. Institute leadership. 8. Drive out fear. 9. Break down barriers between departments. 10. Eliminate slogans, exhortations, and numerical targets. 11. Eliminate work standards (quotas) and management by objective. 12. Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship. 13. Institute a vigorous program of education and self-improvement. 14. Put everyone in the company to work to accomplish the transformation.

Like the Deming principles, the Baldrige criteria can also be used as a philosophical framework. Named after Malcolm Baldrige, a popular secretary of commerce who died in a rodeo accident in 1987, the award was established by Congress in 1987 to encourage American companies to improve their quality efforts. Motorola was named the first winner and today hundreds of thousands of firms use the criteria for structuring their quality strategy. These criteria are so widely accepted that some firms will not even use suppliers that have not applied for the Baldrige Award.

Baldrige National Quality Award

Leadership (100 points) Examines the senior executives' leadership in creating quality values and incorporating those values into the way their company conducts business.

This category is divided into four sections:

1. Senior Executive Leadership 2. Quality Values 3. Management for Quality 4. Public Responsibility

Information and Analysis (70 points) Examines the scope, validity, use, and management of data and information that underlie the company's overall quality improvement program.

Strategic Quality Planning (60 points) Examines the company's planning process in achieving or retaining quality leadership and how quality improvement planning is integrated into overall business planning.

Human Resource Utilization (150 points) Examines the company's effectiveness at developing and utilizing the full potential of its work force, including management, and to maintain an environment that is conducive to full participation, continuous improvement, and personal and organizational growth.

Quality Assurance of Products and Services (140 points) Examines the statistical and procedural approaches used for designing and producing goods and services based, primarily, upon process design and control.

Quality Results (180 points) Examines the levels of quality improvement based upon objective measures derived from analysis of customers' requirements and expectations and from analysis of business operation.

Customer Satisfaction (300 points) Examines the company's knowledge of its customers, overall customer service systems, responsiveness, and ability to meet customers' requirements and expectations.

Develop the Organization and Train/Empower the Personnel

After the strategy has been formulated, the next step of implementation is to communicate the strategy to everyone and develop the organization to accommodate TQM. This may involve a reorganization that combines certain functions and/or reduces the levels of management. Importantly, however, this reorganization effort for TQM should not be equated with eliminating people or downsizing. There may be a reduction of personnel in a few cases that can be handled by attrition, but the thrust of TQM is certainly not to reduce the number of personnel. In fact, successful TQM application involves more people intensive systems, not less. But because of the extensive use of self-managed, interfunctional teams, personnel may need to be reconfigured and especially trained and empowered.

There must be a significant commitment made to training in implementing TQM. One of the biggest mistakes of the traditional approaches to handling quality was that it was assumed employees would use common sense and be courteous and knowledgeable when dealing with customers. Under TQM, everyone must be trained in things like handling customer complaints and interacting with customers like Wal-Mart's "Aggressive Hospitality" approach. Also, because of the cross-functional emphasis, everyone must be cross trained, and because of the extensive use of teams, training in team building is important.

Besides customer interaction training, cross training, and team building, there are two generally recognized types of TQM training.|8~ One is statistical training that can be used in measuring performance, identifying technical problems, and eliminating the causes and changing the process. The second is problem solving training that can be used by teams to address quality issues that are best handled with a nonquantitative approach. Simple "brainstorming" techniques, general participative techniques, or specialized group problem solving approaches such as nominal grouping technique (NGT) would be examples.|9~

Finally, this phase of TQM implementation involves empowering the personnel. The word "empowerment" is very popular these days and certainly is a fad. However, like quality itself, what empowerment stands for is very important and is vital to successful TQM. A throw-back to the old concept of delegation, all personnel must be empowered, have the authority and autonomy, to make decisions that have to do with the delivery of quality to customers. For example, even hourly paid front-line employees should be empowered to carry out the quality goals such as making it right for the customer at any cost. They could be empowered to fix a bill or cancel a cost without going to their boss for a decision. Such empowerment, of course, assumes that the benefits of quality service are greater than the costs, which has proven to be the case in most instances.

Establish the Reward Systems for Quality Improvement

Equal, if not more important, than formulating overall strategy, developing the organization and training/empowering the personnel is the need to reward quality improvement. Drawing from the "laws of behavior,"|10~ the simple fact is that the delivery of quality to customers followed by a positive consequence/reward will tend to strengthen the quality effort and cause it to be repeated. By the same behavioral laws, quality efforts followed by a negative consequence/punishment will weaken and decrease it in subsequent frequency. Finally, quality followed by no consequence/extinction will also weaken and decrease it over time. In other words, if there is no reward system to support quality, it simply will not happen. If people are given more work for delivering quality to customers (punish) or, more commonly, if quality improvements are ignored (extinction), then it is only a matter of time before quality deteriorates. Importantly, it doesn't matter how good the strategies, organization development and training/empowerment has been, if there are no rewards for TQM, then it will not happen.

Reward systems are commonly given little or no attention in TQM implementation. Yet, to get people's attention and insure improved quality results, there must be effective reward systems in place. Both "pay for quality" and nonfinancial rewards can play an important role in successful TQM implementation.

A "pay for quality" reward system can be administered on an individual or, more appropriately, on a group basis. The most basic individual technique would be to pay hourly employees for error free, defect free work (i.e., meeting zero defect goals). For salaried managers, bonuses (a one-time lump sum cash payment) or merit pay (a permanent raise in pay for outstanding performance) would be given contingent upon meeting quality goals for their area of responsibility. However, because of the importance of groups and teams in TQM, group rather than individual pay for quality techniques are more relevant. Gainsharing would be such a group reward technique. Under gainsharing, the contribution to quality improvement by specific teams or groups/departments would be determined. The quality improvement accomplished by the team or group/department would then be translated into monetary gains and distributed to all members according to a predetermined formula. Such group reward systems foster needed cooperation and teamwork in TQM.

Even though monetary/pay reward systems are vital to TQM, perhaps even more important to the day-to-day delivery of quality service to customers are non-financial rewards such as attention, recognition and feedback. Managers, supervisors and team leaders who provide social support (attention and recognition) and PIGS (positive, immediate, graphic and specific) feedback|11~ to their people contingent upon delivering quality service to customers, has been shown to have a dramatic impact on quality improvement.|12~ Such rewards cost the organization nothing, but can be very important in getting the desired results from TQM.

Potential Problems with TQM

Like its predecessors (Planning Programming Budgeting Systems, Management by Objectives, Quality Circles, Statistical Process Control and so forth), TQM has not always worked out in practice. Ideally, of course, we would like to say that if the background and perspective is really understood, and the steps of implementation as outlined in this article are followed, then TQM will get the desired results. Unfortunately, the real world application of TQM is not that simple. Fortunately, there has been enough experience with TQM to identify some barriers that need to be overcome and pitfalls to avoid. One of the best summary lists of such problems with TQM has recently been offered by Oren Harari as follows:|13~

1. TQM focuses people's attention on internal processes rather than on external results. There is a preoccupation with internal measures, indices and technical specifications while external factors such as changing customer expectations, competition, and technological advances are ignored.

2. TQM focuses on minimum standards. Zero defects is a minimum, a given, the cost of entry into global competition. There is a need for "gee-whiz," "wow," and "bedazzle" quality in these times.

3. TQM develops its own cumbersome bureaucracy. TQM is not an orderly, sequential, linear and predictable process. Rather, real quality emerges from a chaotic, disruptive emotional process that often rips into the organization and rebuilds it from the bottom up.

4. TQM delegates quality to quality czars and "experts" rather than to "real" people. TQM cannot anoint somebody or some group to do quality. TQM must involve everyone on the payroll; it cannot be delegated.

5. TQM does not demand radical organizational reform. There must be flatter structures, liberation of line management from corporate control, liberation of front-line people from line management and the breakdown of functional empires.

6. TQM does not demand changes in management compensation. When quality indices become important determinants of management compensation, then people really start taking quality seriously.

7. TQM does not demand entirely new relationships with outside partners. With so much work now being subcontracted and outsourced, and with the need for lightning-fast, top- quality turnaround work, new nonadversarial, nonlegalistic relationships with suppliers, joint venture partners and other company business units are crucial.

8. TQM appeals to faddism, egotism, and quick-fixism. This is not really the fault of TQM. However, TQM lends itself to consulting and seminar firms promoting their own companies and wares by presenting a fantasy picture of a clean, orderly, straightforward, eminently logical, user-easy path to success.

9. TQM drains entrepreneurship and innovation from the organization culture. TQM programs attempt to standardize and routinize internal processes with carefully developed measures. Paradoxically, however, organizations must encourage risk and tolerate errors in pursuit of the destruction of the status quo in order to compete.

10. TQM has no place for emotion and "soul." TQM attempts to make quality happen via an analytically detached, sterile mechanical approach. There should be more joy, passion and fun in TQM.

A Final Word

There is no question that American organizations in general, and electric cooperatives in particular, are in a new paradigm. This paradigm has new rules and new boundaries, and importantly, requires new approaches to meet the challenges such as increased competition and consumer expectations. This article has proposed that TQM is an approach that if clearly understood and properly implemented can help meet the challenges in the new paradigm. Although today's managers must be careful to avoid a "bandwagon" effect of getting involved in a TQM approach before they are willing or able, they must understand what is involved and be aware that it is no longer possible to sit on the side lines. Everyone is in the new paradigm, like it or not, and must explore and implement new approaches such as TQM. The TQM road is not easy, but the payoffs can be great.


1 Collier, Steve E. "Restructuring in the Electric Utility Industry: Old and New Paradigms." Management Quarterly, Fall 1992. pp. 3-10.

2 Luecal, Scott. "The Future Is Spelled CONSUMER." Management Quarterly, Fall 1992, pp. 11-16.

3 Lee, Sang M., Fred Luthans, and Richard M. Hodgetts. "Total Quality Management: Implications for Central and Eastern Europe." Organizational Dynamics, Spring 1992. p. 44.

4 Schein, Edgar H. Organizational Culture and Leadership. Jossey-Bass, San Francisco, 1985, p. 9.

5 Albrecht, Karl and Ron Zemke. Service America. Dow Jones-Irwin, Homewood, Ill., 1985, p. 48.

6 Patterned after some points made in "The New Non-Manager Managers," by Brian Dumaine. Fortune, February 22, 1993, p. 81.

7 See Dess, Gregory G., and Alex Miller. Strategic Management. McGraw-Hill, New York, 1993, pp. 5-7.

8 See Lee, Luthans, and Hodgetts, op. cit.

9 See Luthans, Fred. Organizational Behavior, 6th ed. McGraw-Hill, New York, 1992, pp. 503-511.

10 Luthans, Fred, and Robert Kreitner. Organizational Behavior Modification and Beyond. Scott, Foresman, New York, 1985.

11 This feedback approach is discussed in detail in Luthans, Fred. Richard M. Hodgetts, and Stuart A. Rosenkrantz. Real Managers. Ballinger, Cambridge, Mass., 1988. pp. 141-142.

12 See Luthans, Fred. Organizational Behavior, op. cit., pp. 245-256.

13 See Harari, Oren. "Ten Problems with TQM." Management Review, January 1993. pp. 33-38.

TQM at Wells REC

Total Quality Management may have been developed first for manufacturing companies, but we think the same concepts apply to rural electrics. Wells REC serves 4,300 consumers in northeast Nevada. About two years ago we began working with NRECA on a pilot project called REQUIP, or the Rural Electric Quality Improvement Program.

After initial training sessions with staff, we formed a set of teams to identify and improve some of our internal work processes. Here are some of the results:

* One team, working with local community agencies and other utilities like the phone company, developed a new, vastly improved service address system.

* Another team developed a detailed flow chart of our work order procedures, leading to greater understanding of employees about how the whole system fits together.

* A team assessed our pole inventory system, and implemented a set of guidelines that will result in savings of approximately $170,000.

* A team evaluated our May Day emergency response plan. As a result of their assessment, they developed a more advanced grid system of maps, which all employees and emergency response providers were trained to use. (This included the helicopter drivers at the nearest full-service hospital in Salt Lake City.)

These are only some of our team results. What is most exciting about this is that these aren't projects chosen or implemented by management--all of the work was done by frontline employees, who had the responsibility of running their own meetings. This shows what we found to be most important about TQM: the change in the work environment at Wells REC. TQM isn't just another program--it produces changes in the way everybody thinks and acts.

We're proud of the results we achieved, and expect to have even better results in the future.

* Fred Luthans is a George Holmes University Distinguished Professor of Management at the University of Nebraska-Lincoln. He received his doctorate from the University of Iowa and taught at the United States Military Academy at West Point while serving in the United States Army. Dr. Luthans is the author or co-author of more than 20 books and 100 articles and papers. He wrote the widely used textbook Organizational Behavior, which is now in its sixth edition. He is past president of the National Academy of Management and a fellow of the Decision Sciences Institute and the Academy of Management.

Dr. Luthans has been a core faculty resource for the NRECA Management Internship Program since its inception. He has been an instructor on NRECA's Advanced Management Program and other conferences. He has also done considerable training and consulting work for the Omaha Public Power District.
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Title Annotation:includes related article
Author:Luthans, Fred; Kessler, Dan
Publication:Management Quarterly
Date:Mar 22, 1993
Previous Article:Dealing with an unhappy consumer.
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