Volume 1, No. 2, 4th Quarter 1993
Historian J.H. Elliott wrote:
"Heirs to a society which had over-invested in empire, and surrounded by the increasingly shabby remnants of a dwindling inheritance, they could not bring themselves at the moment of crisis to surrender their memories and alter the antique pattern of their lives. At a time when the face of Europe was altering more rapidly than ever before, the country that had once been its leading power proved to be lacking the essential ingredient for survival - - the willingness to change."
Elliott was referring to 17th century Imperial Spain, but there is an uncomfortable (to an American) parallel to 20th century America. There is real concern that the present generation in the United States may be the last whose children will live better than their parents. The reason for this is that foreign competitors are driving American products out of the market, by producing higher quality goods at lower price. Both higher quality and lower price are the result of Total Quality Management (TQM).
A January 1992 Special Issue of Business Week reported that Japanese firms had captured 34% of the U.S. car market. Quality efforts since 1981 have improved American autos significantly, but Japanese manufacturers have not stood still. The reported average defects per car produced were 1.5 for American products and 1.1 for Japanese. Further, Japanese companies release new designs in 4.5 years against eight years for Americans. Other comparisons also favor the Japanese, who now have a reputation for quality which will not be easily overcome. This reputation began to grow in 1950 when Japanese industry started to follow the principles of TQM. Before then, "made in Japan" was a synonym for cheap and shoddy.
In 1979, the leading manufacturer of integrated circuits in worldwide sales was Texas Instruments. Motorola was second. Five of the top 10 suppliers were American companies, holding 57% of the top ten sales. By 1990, only three of the top 10 producers were American companies and they held 20% of the sales. The top three suppliers were NEC, Toshiba and Hitachi.
The Xerox company found they were losing sales to Japanese photocopiers which were of higher quality than their own, and which they learned were sold profitably for what it cost Xerox to assemble an equivalent model. Xerox initiated their own version of TQM and by 1991 had recaptured some of its lost market share.
So why TQM? For some, just for survival. Elliott's quote becomes ominous when coupled with two others: Santayana's comment that those who do not learn from the past are condemned to repeat it, and an ancient Chinese adage to the effect that "if we do not change direction soon, we are doomed to arrive at where we are heading." Are you heading where you want to go?
While compelling to those for whom it applies, survival is not the only driving force for TQM. Some others are the necessity or desire to continue providing products or services despite declining resources, the opportunity to increase profits even in a stagnant market, and, in my opinion, the fact that TQM is a more moral approach to business success. Let's take these one at a time.
With some exceptions, government agencies have little fear of going out of business. However, they can see their resources decline as budgetary constraints force reductions even as responsibilities and workloads remain steady or increase. How does one "do more with less?"
As the U.S. Defense budget continues to shrink, the armed services are calling upon quality initiatives to maintain warfighting capability. The U.S. Navy version of TQM is TQL (Total Quality Leadership). Under TQL, the Norfolk Naval Aviation Depot reduced the costs of overhauling F-14A airplanes from $1.8M to $1.0M. The Cherry Point Depot reduced defects in the H-46 helicopters they overhaul from about four per bird to about one defect in four machines. The Naval Avionics Center in Indianapolis now produces Walleye missiles in one quarter the time of past norms.
On the civilian side, the U.S. Internal Revenue Service (IRS) began its quality improvement initiative in 1986. In 1989 its Ogden Service Center in Utah won the national Quality Improvement Prototype Award for making changes which improved service and yet saved the taxpayers $11M. In 1988, a survey by Money Magazine showed the IRS gave incorrect answers to 45% of questions received by telephone. By 1990, this had been reduced to 28%. In 1991, only 9% of IRS replies were in error.
Similar histories have been reported for cities, hospitals, and schools. The Oregon State University issued a white paper in July 1990 describing their own quality journey and listing 25 institutions of higher learning involved with TQM activities (ranging from researching the subject to a heavy involvement in self-application). If you have to do more with less, TQM might be the way to do it.
"There ain't no more money!" So says George Butts, a quality consultant. He hastens to add that there is plenty of money around, there just are no additional sources to call on when your share of the pot is not enough. The expanding markets of the era following World War II are gone, at least for most products. So your profits must come out of the money on hand in the existing market. That's the bad news.
The good news is that there is a potential for an additional profit equal to perhaps 25% of operating costs with no change in price or sales. This is the average cost of the "hidden factory" in most enterprises, which exists to handle defects. It includes scrap, rework on line, warranty costs, etc., all resulting from less than perfect quality. By preventing defects through process improvements, a TQM approach taps into this source of profit. Of course, preventing defects costs money. But not preventing them costs much more.
Figure 1 presents data compiled by the U.S. Defense Systems Management College and presented in their 1990 TQM workshop. Figure 2 presents data compiled by Rafael, an Israel aerospace corporation showing the results of their quality efforts between 1987 and 1990. Both figures show substantial return from failure prevention.
In a 1990 paper, Xerox reported their quality effort reduced the cost of their products by 40-50% and reduced the development cycle 25-50%, producing a net increase of 35% in revenue per employee.
The U.S. General Accounting Office issued a report in May 1991 titled "U.S. Companies Improve Performance Through Quality Efforts," which evaluated the results of companies applying TQM and noted that those surveyed had averaged a 9% annual reduction in the cost of quality by investing in TQM. They also demonstrated an average annual increase of 13.7% in market share. Clearly, quality pays.
Finally, let us consider that TQM provides close to the ideal "win-win" situation, where profit to one party does not have to involve loss to another. Indeed, with the possible exception of unenlightened competitors, all stakeholders in a company should profit from TQM. The management has a tool for survival and growth. Its effective use creates profits, which delights the owners. The workers have job security, more pride in their work, and some benefit from the company profits, ranging from a decent wage to a share in the proceeds, depending on the company. All of this arises from the creation of satisfied customers who buy quality products at reasonable prices. Could a theologian invent a more moral approach to operating a business?
So why TQM? Because it is (1) necessary for survival, (2) profitable, and (3) the morally right thing to do. That should be enough.
(Note: There is some genuine fear among workers that quality initiatives are means for eliminating jobs. In reality, the survival of a company preserves jobs, and its growth creates jobs. Improving processes may require a change in jobs for those displaced, but no one should be idled by the practice of TQM. In a declining market, TQM may not prevent a layoff, but it might make the difference between downsizing and going out of business altogether. The introduction of automation created similar fears, which I believe have been alleviated. Since TQM requires a partnership between management and labor, the anxiety should be even less warranted).
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