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Total quality: a strategy for organizational transformation.

TOTAL QUALITY: A Strategy For Organizational Transformation

In the first article in this series I described four different "types of quality" characteristic of different industries and how Total Quality programs needed to be tailored to fit their unique features. In this article I will deal with six critical elements which appear to be present in successful TQ programs irrespective of industry. * Customer focus * Meeting commitments * Process management * Elimination of waste * Employee empowerment * Continuous improvement

Customer Focus

Total Quality companies go to unusual lengths to stay close to their customers, to understand their needs and to meet them completely.

Many people believe that because they deal with their customers on a day to day basis they understand their needs. This is rarely the case even for those who have regular contact. For others submerged within their own organization, as most managers outside the sales function are, the probability of truly understanding customers is negligible unless special measures are taken. Total Quality companies recognize this problem and take special steps to stay in touch with their markets. Most of them use extensive customer surveys to identify needs and track customer satisfaction. The best go much further, they use creative methods to encourage customer input. At A. T. Kearney in Canada we ask each of our clients at the start of an engagement "what must we achieve on this study to meet your expectations fully"? At the engagement's conclusion we ask again whether or not we had, in the client's view, succeeded in doing so. It is a simple (sometimes brutally simple) way of measuring satisfaction.

Some other organizations use interesting techniques to keep their managers close to customers. At Ford of Canada for example all managers must spend half a day per month on the 800 lines listening to customer complaints and feedback. AMP, an electrical distribution products company, goes one further. They have an "adopt a customer" program which serves two purposes. It provides all AMP's managers with customer contact and provides a clearly identifiable individual for the customer to relate to (1).

Meeting Commitments

Meeting commitments, both externally to customers and internally to co-workers is, ultimately, what makes TQ companies tick.

The external manifestation of this is that TQ companies believe that only acceptable quality standard is 100% conformance to requirements, rather than the 95% or 97% which many of us were trained to believe should be acceptable. Meeting commitments to customers is probably the best known aspect of TQ. "Right first time" and "zero defects" are powerful ideas and there are many well known examples of product or service areas where the consequences of a 99% quality level are so totally unacceptable; accuracy of prescription filling, electricity supply, etc.; that nothing less than very close to 100% is or could be tolerated. Motorola's 6 sigma program which aims to reduce defects to three parts over billion is an example of how "zero defects" can be realized in a conventional manufacturing type business.

In Japan "zero defects" has been a way of life for years as the following story from IBM demonstrates. In one of their first dealings with Japan, IBM had placed an order for components with the standard contractual clause "no more than 3% defectives". On the assigned delivery date they were surprised when two packages were delivered; one large, one small. The mystery was solved by the accompanying note which, in essence, said" we don't know why you want the 3% defectives but we packed them separately for you anyway".

Internally, meeting commitments is the day to day driver for TQ. The idea that all commitments to co-workers; up, down or sideways; should be met is incredibly powerful. It eliminates the time and effort that, in the average organization, is wasted on checking, chasing and forcing everyday tasks through the system.

Usually a major culture change is required for this to work. Senior management must create a climate in which it is as unacceptable for a manager to break a commitment to a subordinate as vice versa. Equally employees at all levels must not feel afraid or uncomfortable to raise problems with co-workers behavior. Creating such a climate is a difficult and lengthy process.

Process Management

The third critical element is process management. Most of us think of businesses as being built up of functions, departments etc. but there is no methodology for improving a function. Unfortunately, "Improving Human Resources" let alone "Optimizing Human Resources" is too general an idea to be actionable. However, we can improve processes. We need to think of the business as a collection of business processes; each of which exists to transform inputs into outputs; each of which can be optimized. We have found that all the activities of a business, even those not traditionally thought of as processes, can be analyzed and charted in much the same way as industrial engineer or systems analyst would chart a routine manufacturing or clerical process. As an example consider this flow chart of the brand development and advertising process in a packaged goods company.

Note that, as in manufacturing, the output of one process will often become an input for another. In this case, for example, the "brand quality statement" will be an input to the product development process.

Elimination of Waste

TQ companies work extremely hard to meet their customer commitments in the most efficient way. They recognize that waste is not just material or labour but may also be a lost opportunity or time. Indeed the recognition of time as a parameter (or metric) of great importance is one of the characteristics of the real leakers like Milliken, Hewlett Packard, Motorola and AMP. In some quality improvement initiatives the focus has been on the reduction of cycle times; the idea of "nothing in process" (a non-manufacturing analogue of J.I.T.) rather than on "conformance". Others have focussed on reducing new product development time. In a most revealing analysis Hewlett Packard discovered that bringing a new product to market six months late cost them 30% of the product's profitability over its whole life. A comparable figure for a 50% R&D cost over-run was only 3%. There are no prizes for guessing which of these two parameters Hewlett Packard's accountants were measuring.

One of the weaknesses of conventional cost of quality measurements; focussed on cost of conformance and cost of non-conformance; is that they tend to ignore opportunity costs. My colleague, Peter Klapwijk of A.T. Kearney Holland, goes further. He proposes a hierarchy of cost of quality measures which starts with the conventional Crosby derived definition and progresses through five stages to include even the costs external to the enterprise, such as environmental clean up costs, of sub-optimum performance.

Employee Empowerment

The fifth key element, perhaps the most important and, surely, the most misunderstood is employee empowerment. There are three themes here. Firstly, employees need to be empowered to meet customer needs. This is especially crucial in service businesses where reasonable flexibility and fast response are crucial. The tired frustrated airline passenger absolutely does not want to hear "I'll have to talk to my supervisor."

Empowerment also recognizes that all employees have two equally vital roles; running one or more processes and improving the processes they work on. This is one of the keys to moving beyond the "suggestion scheme mentality". Many companies believe that they have created a high involvement workforce because management receives large numbers of suggestions from the workforce. In the truly transformed companies few good suggestions ever make it to management; instead they are implemented by the employees working the process. It would scarcely be possible for Toyota to implement 5000 suggestions every day if multiple layers of approval were needed for each.

For many managers empowerment smells of "giving away the store" or as my former boss once graphically put it "letting the lunatics run the asylum" (I think he meant me!). It doesn't work that way when managers recognize how their role changes under empowerment. Successful companies like Proctor and Gamble and SAS airlines have learned that if senior management is prepared to create and consistently reinforce a clear set of values and priorities employees will respond. What is required is "leadership" rather than direction and a consequent inversion of the traditional hierarchical pyramid.

It is important to recognize that there is a downside to empowerment; mistakes will be made. The third key to making it work is to recognize that fact and to tolerate well intentioned and value consistent error. The benefits of doing so will outweigh the costs of the errors many times over.

Continuous Improvement

Our final common element is continuous improvement. In TQ companies the empowered workforce continuously strives to squeeze each process for everything it's worth. Whenever goals are met, new and more ambitious ones are set. At Milliken, for example, the signs of improvement activity are ubiquitous. Everywhere one looks one can see charts and graphs of progress versus target on a wide range of parameters. Those parameters have one thing in common however, they are measurable, tangible and directly relevant to the people working the process. Continuous improvement is characterized by many local goals; increase yield by 1%, reduce errors by a factor of ten, reduce order processing time from two hours to one etc. Even when overall goals are set, such as Motorola's "six sigma" drive to reduce defects to less than one part per billion the goal is expressed in physical rather than financial terms.

The sum total of many small improvements can be staggering. Some Japanese companies consistently achieve overall cost reductions of 2% per month or nearly 30% on an annual basis.

Organizations who have successfully introduced all of the five elements described above are few and far between. The luck (or deserving) few are extraordinary. They are competitive dynamic organizations where good people want to work. We can truly describe them as "transformed".

Notes: (1)Whittaker, B.; Increasing Market Share Through Marketing Excellence; Canadian Business Review, Spring 1990 [Diagrams Omitted]

John Gilks A.T. Kearney Management Consultants John Gilks leads the Total Quality practice of A.T. Kearney management consultants in Toronto. He is particularly interested in applying TQ principles to consumer goods and professional services and is currently working with clients in North America and Europe.
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Title Annotation:part 2: five critical elements
Author:Gilks, John
Publication:Canadian Manager
Date:Jun 22, 1990
Previous Article:Organizational integration: let's get closer to employees!
Next Article:What does sales force turnover cost you?

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