The Beginning An Emotional Experience
In the beginning came disbelief. Then denial. Then terror. American executives who visited Japan came home in shock, trying to grasp the implications of what they had seen, and unable at first to get the people at home to believe their stories. Great American corporations that bestrode the world -- Chrysler, Ford, Xerox, among others -- began to think the unthinkable, that they could be driven out of business. They did not say it out loud then, but they knew it in their hearts. By the late 1970s, Japan had pulled so far ahead of them in quality, in productivity growth, in developing new products, and in understanding the market, that some American businesses were no longer competitive even in their home market. In Japan the quality movement was born out of the destruction of its economy in World War II and the island nation's absolute need to live by exporting, which forced Japan to discover new ways of working. American business, so sure of itself, so set in its ways, so successful for so long, could never have embraced total quality management without also experiencing a profound emotional experience.
Of course, America did not wake up solely because of the alarm set off by Japan. Many saw total quality as a weapon to overcome other competition, other problems. The railroads saw it as a way of beating trucks. Banks and other financial institutions which did not compete with Japan saw it as a way of winning and keeping customers. Hewlett-Packard was convinced by the discovery that it, like most U.S. companies, wasted 20% to 30% of its output because of poor quality. In the first edition of his Quality-Control Handbook in 1951, Joseph Juran called avoidable costs of quality "gold in the mine." He cited the costs of scrappage, repairs, extra inspection, the additional space and labor needed to compensate for defects, the discounts for seconds, the customer complaints, the warranty costs, and the intangible costs of lost business and good will, and the friction within a company caused by poor quality. Philip Crosby, for 14 years a vice president and director of quality at ITT, made much of the cost of defects in Quality Is Free, a well-timed book that became a best seller in 1979. Roger Milliken, chairman of Milliken & Co., took a copy of Quality Is Free to his ski chalet in Vail for the Christmas holiday in 1980 and returned to work convinced.
Motorola, recalls its retired chairman Robert W. Galvin, woke up to a clarion call from one of its most respected executives, Arthur Sundry, at a meeting of company officers in April, 1979. Sundry announced he had something more important to say than anything on the agenda -- which was, as he put it baldly, that Motorola's quality "stinks." "You can be motivated by all manner of approaches," says Galvin. But the threat from Japan lay under all the other motivations.
IN THE BEGINNING WAS INSPECTION
To put these stirrings into some perspective, we have to go back to the fledgling American Telephone & Telegraph Company in the late 1800s. AT&T realized that the huge and complex network of lines, telephones, and switchboards it was building would need to rely on systematic quality control rather than sheer craftsmanship. Therefore it created an elaborate, expensive inspection system under the inspection department of the Western Electric Company, AT&T's manufacturing arm, to make sure that the parts it received from suppliers were good, and that the equipment it sent out to the field was good. Quality control expanded to cover design and installation in addition to manufacturing as the telephone equipment grew more sophisticated.
Work to advance quality theory continued in the inspection department, soon to become part of the newly created Bell Telephone Laboratories. In 1924 a physicist in the department, Walter A. Shewhart, passed his boss a one-page memo that opened an entirely new phase of quality control. The memo suggested how a statistical control chart could track the variations in a manufacturing process and provide the basis for reducing those variations. Quality could be achieved not by inspection but by monitoring and improving the process. Not only did this approach reduce the need for quantities of inspectors, but it assured better quality at a lower cost by eliminating defects at the source rather than after they had been made.
It took a long time for the new concept to win acceptance. World War II helped because so many inexperienced industries and workers were assigned defense tasks that the Army and Navy procurement agencies put quality-control clauses in their contracts and encouraged a burst of quality training and research. The spectacular performance of American equipment in World War II owes some debt to statistical quality control.
The next beneficiaries of what the United States had learned were the defeated Japanese. To control the country effectively, the U.S. occupation forces needed good communications with the populace. The Civil Communications Section of allied headquarters brought in three American engineers, including Frank Polkinghorn of Bell Labs, to help the Japanese repair and improve their shattered communication systems. The three found corporations like the Nippon Electric Company (NEC) deplorably lacking in engineering and management fundamentals, not to mention buildings and equipment. They found potential, however, in a small company called Tokyo Communications, despite the fact that its executives sat at their desks with open umbrellas when the rain came through the roofs of the sheds where they worked. Tokyo Communications changed its name later to Sony. To help the Japanese improve, the Americans produced a modest textbook, CCS: Industrial Management, and started giving courses in statistical process controls.
Ranging across the world's markets with little competition, and freed of the military demand for quality control, American industry pretty well forgot about the principles that had been developed here. However, a few Americans continued, in some obscurity, to elaborate and explain their ideas. In 1950, Armand V. Feigenbaum, General Electric's chief of quality, published Total Quality Control, which argued that quality was the responsibility of everybody, not just the quality department. The next year, Joseph Juran, who had worked for years before the war at Western Electric, edited and published the Quality Control Handbook, an authoritative reference work. Both books have been revised and updated repeatedly. The late W. Edwards Deming, who also worked at Western Electric during his summer vacations in the 1920s, had already been to Japan twice to advise the occupation authorities on statistical sampling. He was invited back at the end of 1950 by the Japanese Union of Scientists and Engineers to lecture business leaders on statistical process control. Juran followed in 1954 with a series of seminars that introduced the idea of "total" quality control as a management tool. From these books and lectures a view of quality much broader than statistical controls began to emerge: that it was the responsibility of everyone, especially top management, that it should encompass not only a company's products and services but all of its activities, and that improvement should be continuous.
Deming, Juran, Feigenbaum and others wrote and consulted in the United States, in some obscurity, but the message was beginning to get through. Crosby's 1979 book Quality Is Free reached a wide audience.
An easily understood and convincing call to arms, Crosby's book unfortunately left the impression that quality is easy as well as free. It is not. But for those just beginning the journey it was perhaps just as well not to know how hard it was going to be. Many saw the 1980 NBC documentary, "If Japan Can...Why Can't We?" which explained (very roughly) how Deming, then unknown in America but famous in Japan since the 1950s, could reduce failures through statistical controls. The more cerebral might have gotten the message from the so-called PIMS studies, which gave convincing evidence that quality was the key to growth and greater market share.
But for nearly three decades Japan had had the almost exclusive use of the new theories of quality and in practice had refined them to a level that astounded the West. One industry after another -- autos, cameras, electronics, shipbuilding, office equipment, steel, construction -- delivered world-beating products.
The oil crises of the 1970s maintained the sense of urgency created in Japan by the need to rebuild after World War II. Today, with no crisis and with a surfeit of praise from foreigners, Japan may be losing its passion for quality. The crisis of quality in Japan is that there is no crisis, laments Noriaki Kano, a professor at the Science University of Tokyo and a consultant to Japanese and American firms. He even suggests slyly that Americans are trying to lull Japan with praise and deference. However, the downturn the Japanese economy experienced at the beginning of the 1990s may provide a new impetus, if not a crisis.
THE UNBELIEVABLE DATA
Thomas J. Murrin remembers how the tenor of his visits to Japan changed on many trips made he for Westinghouse over the decades. Murrin, who played tackle for Vince Lombardi at Fordham University, spent some frustrating years pushing for quality at Westinghouse and then more of the same in the government as deputy secretary of Commerce. Now, as dean of the business school at Duquesne, he has taken on the task of bringing quality to academe. Talking of his dealings with Japan when he was at Westinghouse, he says,
"I started going there about 30 years ago on technical exchange agreements. They'd almost bow to the floor. You'd say hello and they'd write it down. Well, when I go now, shit, they just nod at you and immediately start lecturing you. 'What are you dumb lazy people doing?' It's been an incredible transformation. One of the things I was doing in the 1970s was studying their financial reports and we couldn't believe the data because it seemed to say that their big companies, which were similar to ours, had an annual real productivity gain of 8% or 10%. It was unbelievable. It was embarrassing. First of all, you know, we kind of looked at each other and we said, 'Well, so what?' 'What do you mean, so what?' 'Well, we must be doing the same thing.' We didn't know what the hell we were doing. We never ran those numbers. So we got our comptroller guys and they ran the numbers and they said, 'Hell, you know, you've got a couple of small units that do maybe 6% or 7% but your average is like 1% or 2% or 3%. And the country was like 0%. So we said there has to be something wrong with the Japanese numbers...."
Like others confronted with what the Japanese were achieving, Westinghouse managers tried to deny the facts at first. But the evidence held up. An entirely different persuader helped motivate the senior managers. After hours, over drinks, the Westinghouse brass used to brood over the difference between them and the GE brass. It seemed to them that many of the GE brass retired rich with stock options, but that didn't happen to them. Westinghouse had to change. Murrin represented a small group of convinced executives who went to the chairman, Robert Kirby, an unnerving experience.
"He was so goddamed smart, he didn't have to grind these things out. He'd have the radio playing and he'd be making the most intricate geometric pattern and you might have worked for six months on this Goddamned thing and you'd say, 'Bob, this is really important.' 'Huh,' he'd say. 'Go on, go on.' The son of a bitch would understand everything you said and he'd ask a few of the most penetrating questions and if you gave him the right answer, he'd say go ahead."
If he wasn't carded away by Murrin's concepts, Kirby did at least approve. The annual management council meeting at the Tamarron in Durango, Colorado in 1979 recognized the importance of raising productivity and gave Murrin $2 million to start. As Murrin tells it,
"We doled out several hundred thousand here, several hundred thousand there, to any part of Westinghouse. No formality, no calculation, but we quizzed them. The fellow said, 'I'm the one who's going to spend this and this is what I'm going to do.' And we kind of said, 'Buddy, if you squander this we're going to shoot your nuts off.' I mean this is the way we talk in Pittsburgh."
Murrin grew up on New York's East Side and he remembers his father, a structural steelworker, telling him what a "dumb ass" his foreman was. So Murrin liked the idea of quality circles, of using the brains as well as the brawn of workers. The construction group, one of the units under Murrin's supervision, started to work with quality circles in 1980. Westinghouse established a productivity center to lend a hand to anyone in the company who wanted to improve productivity. The quality circles failed (see Chapter 3) and it turned out that what Westinghouse needed was not so much higher productivity as better quality, so the center's name and aim were changed. It became the Westinghouse Center for Quality and Productivity. That is how Westinghouse stumbled into the era of quality. The company is still stumbling and its executives still have good reason to be envious of GE, but it did well enough so that its Commercial Nuclear Fuel Division won a Baldrige prize in 1988, the first year of the award.
"YOU CAN'T BE THAT BAD": XEROX AND HP WAKE UP
Xerox, like Westinghouse, woke up with a start to what it also perceived as a productivity crisis. The decade of the 1970s opened with Xerox owning 90% of the U.S. market for photocopiers, which it had invented. By 1976, Xerox's share was down to 85%, and it kept dropping, bottoming out at 13% in 1982. In 1979, as Xerox began to see its mortal danger, Peter McColough, the chairman, called Frank Pipp home from Rank Xerox in Europe to be chief of manufacturing. Unlike many modern manufacturing executives, Pipp knew the inside of a factory. He had been a foreman in a GM plant and had worked in Ford and Xerox plants. He also spoke his mind. He came home about when Xerox introduced the 3300 small copier, an unreliable machine that stank, scorched documents, and jammed the paper. It was another in a long line of terrible copiers made by Xerox. The faults of one would be repeated in the next model, for Xerox relied on a huge field force to fix the machines rather than fixing the causes of the problems before the copiers left the factory. Juran recalls being invited to talk to the company's senior managers at the time that "sales began to hemorrhage." He found that Xerox had plenty of information about why its copiers were failing but was not acting on it. When he asked for a list of the ten most common causes of failure of one popular model, in order of importance, Xerox provided it promptly. Then he asked for the same list for an earlier model. He put the two lists side by side and they were identical. In other words, Xerox had learned nothing from its failures. Product managers required their design engineers to focus on new product features and gave no priority to fixing old features known to be failure-prone, although they "posed a threat to the very survival of the company."
Pipp discovered from Yotaro (Tony) Kobayashi, head of the Fuji-Xerox joint venture in Japan, that it already had experienced its productivity and quality crisis. In response to the enormous price increases in Japan caused by the Mideast oil embargo in 1973, relates Kobayashi, "we first tried raising prices and that didn't work because we were clobbered in the market, especially by Ricoh, which had practiced Total Quality Control. We decided to do something very fundamental and thanks to TQC in two years we had better quality than Ricoh." Fuji-Xerox produced a high-speed copier that was only one third the size of Ricoh's, which until then was the fastest in the world.
Pipp talked to Kobayashi at a long-range planning meeting in the summer of 1979 and found that through Kobayashi he could get to the bottom of the Japanese success. Xerox people were speculating about how the Japanese were able to sell a copier in the United States for less than it cost Xerox to make one. The answer had to be dumping, they figured. Pipp put together a team of line managers and took them to Japan. What they found was so "shocking and nauseating," says Pipp, that he had to send over a second team of staff engineers before anyone at Xerox headquarters in Stamford, Connecticut, would believe their findings. It turned out that Ricoh and other Japanese finns could design and ship a copier in half the time and at half the cost required by Xerox. The Japanese were selling at a profit in the United States at a price below Xerox's manufacturing costs. "You can't be that bad," McColough said to Pipp. "I am," said Pipp.
That was the starting point for the extraordinary transformation of Xerox, which led it step by step into one the most successful quality efforts mounted by any U.S. company (see Chapter 7). It was not until nearly a decade later that Xerox fully understood what it had to do, but as early as 1982 it began to recover market share.
Hewlett-Packard's rude awakening, which reverbated through the electronics industry, also came in the late 1970s. HP used 4K and 16K random access memory chips in its computers and until 1977 had bought them solely from American suppliers. In that year the U.S. vendors ran short of capacity, and so HP turned cautiously to a Japanese supplier. HP engineers still thought of Japan as a producer of junk, so they put the Japanese chips through rigorous tests. To their surprise, the Japanese chips passed very well. When another crunch came in 1979, HP bought more chips from Japan, this time from three suppliers. They were tested again. Richard W. Anderson, manager of HP's Data Systems Division, shook up the U.S. chip industry by going public with the findings. Comparing three Japanese and three American vendors, none identified, Anderson reported that not a single Japanese chip failed inspection on arrival, while 50 to 100 U.S.-made chips out of every 50,000 failed. In the field, the worst American chip was 27 times as likely to fail as the best Japanese chips. Anderson stated that the Japanese suppliers had lower scrap costs, lower rework costs, fewer production interruptions, lower warranty costs, and, most important, happier customers.
Like Xerox, HP had an outrider in Japan, Yokogawa-Hewlett-Packard, a joint venture established in 1963. In the 1960s, "we were learning everything from the U.S. and we were very successful," recalls Katsumi Yoshimoto, quality manager for HP Asia Pacific. But in the 1970s, as HP's product lines changed, YHP began to have real quality problems and "we were really concerned whether YHP would survive." In 1977, the YHP management went to a quality seminar at the Japanese Union of Scientists and Engineers, which had worked with the U.S. occupation forces three decades earlier to start the quality movement in Japan and which had become the focus of that movement. YHP accepted JUSE's total quality control as the way to improve and sent its executives and most of its managers for training there. YHP led the way for its U.S. parent and in 1982 won the Deming prize for quality, administered by JUSE.
HP headquarters in Palo Alto swallowed Anderson's findings and YHP's lessons more readily than Xerox did Pipp's findings. "HP had always been a high quality company," says John A. Young, the president and CEO then and for the next decade. As a high-tech company with a culture that encouraged diversity and innovation, HP was more open to change than others. Still, the mandatory trips to Japan to see YHP and Japanese companies were eye-openers. "They were doing things better than we were," says Young. "Boy, what a shock! The good news was that they weren't doing anything we couldn't do. There was no magic."
Young could also see new requirements coming. "I was persuaded that the expectations of our customers were going to be very much different in the future than in the past and that unless we changed our methods of doing things, we weren't going to be able to meet our customers' expectations," he recalls. HP's product lines were changing. The company was selling fewer small-volume, stand-alone instruments used in labs, and more high-volume items such as computer terminals that had to mesh with whole systems. The new markets required higher productivity and better quality, Young believed. "I was persuaded even then there was nothing cheaper than doing it right the first time and that was certainly not common wisdom." The studies of two HP divisions showing that the cost of poor quality amounted to 25% of their sales made it still more evident that the company had to change. So in 1980 when Young drew up a list of things that he thought were going to be important for the decade ahead, he put quality in the list. HP set a goal of improving quality tenfold in ten years.
THE UAW HELPS SAVE WINDSHIELDS
Watching General Motors's elephantine and unsuccessful struggles to get it right all through the 1980s and into the 1990s, it seems hard to imagine that GM had begun to move in that direction 20 years ago. However, the initiator was not the corporation but the union, the United Auto Workers. And total quality was not the original objective. Not even product quality. The scholarly Irving Bluestone, former UAW vice president in charge of the GM division, persuaded the UAW convention of 1968 to adopt a resolution supporting what was called Quality of Work Life, or QWL. "I didn't know about quality then," says Bluestone. "My objective was that workers be treated with dignity and given credit for intelligence." The idea was to set up teams of workers who would discuss ways of improving work conditions. The UAW put a quality of work life proposal on the table in its negotiations with GM in 1970 and got an agreement in 1971. It turned out that quality was one of the things that most concerned workers.
GM's Tarrytown, New York plant was to have been shut down in 1973 because of its wretched performance. Quality was low and the backlog of grievance cases high. But the union and management decided to see what the team concept could accomplish. They started with one of the worst sections of the plant, where windshields and backup lights were installed. Quality was so poor that this section scrapped 60% of what it made. Teams formed, studied problem-solving techniques and cut the scrap rate to 2%. Absenteeism and grievances dropped and the team concept spread through the plant. (GM decided in 1992 to put an end to Tarrytown's long and troubled story, announcing that it would close the plant in 1995.)
Ford discovered employee involvement in the 1970s when it sent managers accompanied by UAW officials to Japan. They returned convinced that the success of Japanese companies was based on waves of employee ideas, "accumulated drop by drop." In 1978, at a conference of 60 plant managers, Ford called for volunteers to try employee involvement. Just four volunteered their plants, with lukewarm support from the UAW locals. Within months, the plants began to show improvement; employee involvement won the support of Philip Caldwell, Ford's CEO, who endorsed employee involvement in one of the company's rare policy memos.
The quality of Ford's cars had become a serious issue. Hertz, the biggest user of Ford cars, reported that Japanese cars were performing much better than Ford cars. Prior to a management meeting in 1978 Caldwell jotted down a note, "quality -- number one," at the top of a list of priorities. He told the meeting that from then on quality would be Ford's top priority. From that meeting came Ford's well-known slogan, "Quality is Job 1." To an automaker, if not to the auto owner, the slogan had strong symbolism because "Job 1" in auto talk is the first car of a new model that comes off the line. For reasons lost in history, meeting the date set for Job 1 had become sacred to Detroit. What the choice of priority said to the worker was, "Don't worry what the car is like, just get it out on time." For a while, Ford's quality effort consisted of little more than the slogan, which was derided inside and outside the company. Its quality was the worst among the Big Three in terms of "things gone wrong" per car, and its market share was collapsing. Ford was still asleep. Why worry? Ford made a profit of $1.2 billion in 1979 and had cash reserves of $2.2 billion.
"HOW SCARED WE WERE" -- THE BIG THREE
The second oil crisis struck the auto industry in 1979. Chrysler lost $1.1 billion that year and its reserves fell so low that no bank would lend it money. Japanese cars, so much more fun to drive and better made than small American cars, began to move on the market -- without the premiums that dealers had had to offer before. The imports' share of the market shot up from 21.2% in 1979 to 26.1% in 1980. After making big profits in 1979, Ford began to hemorrhage money: $1.5 billion in 1980, $1 billion in 1981, and $700 million in 1982. Now the auto industry, or at least Ford and Chrysler, had the emotional experience that had been lacking before as motivation.
GM, with 46.3% of the North American car market, earned $2.9 billion in 1979 and had a colossal cash reserve of $3 billion. GM did lose $800 million in 1980, but was profitable once more in 1981 and 1982. In a sense, it was GM's loss that it did not lose more money then. It might have woken up sooner.
Chrysler and Ford were terrified. Chrysler was on the verge of bankruptcy. A Ford executive vice president remembered: "You can never underestimate how scared we were in 1980-81. We really believed Ford could die. From top executives through middle management down to the hourly employees, a lot of people got religion. It enabled us to deal with the turf, the egos, and the 'not invented here' attitudes that were killing us." One particularly disturbing piece of news came from a Department of Transportation report based on studies by James E. Harbour, president of Harbour & Associates, Inc., a consulting finn in Troy, Michigan. Harbour estimated that the Japanese could build a subcompact for $1,500 less than the Americans in 1981. In 1982, he raised the difference to $1,750.
Like others, the automakers reacted at first with disbelief and attempts to protect themselves. They pooh-poohed the Harbour report. They sought and obtained a quota limiting Japanese imports -- which only allowed both U.S. and Japanese automakers to raise prices, giving the Americans a breathing spell and the Japanese fat profits that allowed them to finance their transplant factories in the United States. The U.S. consumer paid more for his car. Lee Iacocca, who ironically became a symbol of the entrepreneurial spirit, got a government loan guarantee to save Chrysler's neck.
However, Detroit was also catching on to the idea that quality could save it. Chrysler and GM were slow to get it. Chrysler was too busy saving itself and arrogant, insulated GM had too much money for its own good; it thought it could buy its way out of its difficulties by spending to automate. Ford, in the middle, was the first to find the right answer. The earlier employee involvement efforts at Ford blossomed into an extraordinary relationship between Ford's director of labor relations, Pete Pestillo, and Don Ephlin, the UAW official in charge of employee relations. Neither was exactly an organization man. Pestillo had come in from B. F. Goodrich and believed in employee participation. Ephlin, who had been the UAW regional director for New England during the Tarrytown experiment, had the same faith, although it was not shared by most of the UAW's leadership. Together they took a group of Ford managers and union members on a tour of Japan. Ephlin remembers: "We saw they weren't working their people to death. People had talked about all the robots in Japan. But it was not that really. Their automation wasn't much greater than ours. The trip dispelled the myths about Japan. There was no magic. They were just doing the job and doing it very well. We were impressed by the cleanliness of the plants, by the way the work was organized. We realized we were competing with them on the same basis, but their quality was much better. Some of that, maybe 30%, was in assembly, but most of the quality was in design."
Ford in 1980 stood on the edge of a social revolution. Although many workers remained skeptical of the sincerity of management's quality pledge and would remain skeptical for some years more, employee involvement, in the words of one participant, produced "a tremendous upwelling of initiative from the ranks. Somehow we channeled it constructively." Ford management was examining itself too. North American Automotive Operations established a Blue Ribbon Committee to look at ways of breaking down the notorious "chimneys" at Ford which turned the functional divisions of the company into warring fiefdoms. Ford began to force its suppliers into the quality movement by telling its own subsidiary, Diversified Products Operations, which made a whole range of parts, to meet Japanese standards or be shut down.
Ford was now ready for W. Edwards Deming, the avenging angel of the quality movement. The new president of Ford, Donald E. Peterson, invited Deming to Detroit at the beginning of 1981 and Detroit was never quite the same again. Deming had been so important in helping Japan launch its quality efforts more than three decades earlier that Japan named its premier quality prize after him. But Ford was the first really big U.S. company to seek his help. By now aged 80, Deming had built up quite a head of steam during the intervening years. Although he was gentle with blue-collar workers and students, he was the scourge of the managers at Ford and the other companies he advised. He told them in his deep, rumbling voice that they were of negative value, a drag on the American economy.
A group of Ford vice presidents and general managers met him at Ford's world headquarters, expecting to be handed a silver bullet that would solve their quality problems, but the first thing Deming did was ask, "Do you have constancy of purpose?" "What the hell does he mean?" they thought. "We've been in the auto business since 1903." Sometimes, after an allday session with his Socratic approach and his blunt opinions, he left the automakers climbing the walls. But he made them think profoundly about their jobs and their business. He told them that they had to build in quality, not inspect it in. He said they had to remove the barriers between the people in the different parts of the company and at different levels, and to drive out fear so that they could deal with each other frankly. He told them to develop long-term relationships with a few good suppliers, rather than switching suppliers whenever they could cut the cost a bit. He told them to institute training. And he talked to them about the statistical discipline that had opened his eyes to quality improvement, statistical process control.
With all these elements in place -- committed leadership, involved employees, the teachings of Deming, and the fear of imminent ruin -- Ford began a remarkable recovery. By 1985, Ford's quality was the best of the Big Three and its market share was growing. In each of the next three years, Ford's profits were greater than GM's, by a total of nearly $2 billion. Ford was on its way. For a time, Chrysler's crisis was masked by the enormous success of its minivans, and GM's crisis did not come until much later, when the futility of its vast spending on new plants and equipments was exposed at the end of the 1980s. But gradually both of them got on the road taken by Ford.
MOTOROLA'S LUCKY BREAK
Even when there was no direct threat from Japan, American companies heard a strong message from across the Pacific. Motorola may have been awakened by Art Sundry's cry that Motorola's quality "stinks." "That was a lucky break for us, that we had someone who had the guts to do that and caused all the rest of us who were sitting there to say, 'if Art says that, maybe there's something to it,' "Bob Galvin states. "There was no denial or rejection of Art Sundry's message [and] the following Monday morning, everybody came to work and had some, at least subliminal intent, 'I will do it a little better today.' Motorolans may have been preconditioned to Sundry's words by what what had happened to their old Quasar plant in Franklin Park, Illinois. Before Matsushita bought the plant from Motorola in 1974, the TV sets coming off the line had 140 problems per 100 sets. By the end of the decade Matsushita, with the same work force and management, had reduced the problems to 7 per 100 sets. (In justice to Motorola, we should note that it already had decided to quit the television business and was not giving the Quasar plant the resources it needed.)
Although Roger Milliken's textile company was not directly threatened by Japan, he had sent three plant managers to Japan in 1979, figuring that they would find some secret to the equipment the Japanese were using that made them more productive. The team reported back that the Japanese were using equipment two to three generations older than Milliken's, but their "off-quality" output was one-tenth of Milliken's and their productivity three and a half times higher. The company sent a second larger team to Japan to check out the first team's findings and it came back saying the first group had underestimated the achievements of the Japanese. So when Roger Milliken read Crosby's Quality Is Free in Vail during that Christmas vacation in 1980 he knew his company could do better. It was easier to accept Crosby's claim "that it was possible to bring a lot of otherwise wasted money to the bottom line if people in a business did everything right the first time." On his return to headquarters at Spartanburg, South Carolina, Milliken ordered 300 copies of the book and distributed them to his executives.
WITHOUT PRODDING: DURACELL AND FPL SEE THE LIGHT
In the 1980s, once American managers began to see that it was not an immutable law of nature that a certain proportion of what they did had to be done wrong, that things could be made better without great expenditure and with improved productivity, the reasons for joining the quality movement multiplied. It just made good sense. Even those not directly threatened by Japanese competition began to see in total quality a way out of their difficulties. After a decline of nearly 50 years when they lost nearly half their business to trucks, America's seven major freight railroads finally roused themselves in the 1980s and found a new life in total quality. By 1993, only 31% of the companies surveyed by the Delta Consulting Group said they had felt a great or very great urgency about implementing TQM, and an equal 31% said they started although they felt little or no urgency.
With a hold on nearly half of the U.S. and European markets for alkaline batteries, strong sales in other parts of the world, and batteries better than most, Duracell would not seem to have any compelling reason for turning to total quality. Indeed, Duracell's reputation for quality was a disadvantage when C. Robert Kidder, the CEO, began bringing in outside consultants to help. People in the company did not see the need for help. But when Kidder instituted quality audits around the world in the mid-1980s, the company found that its products and processes did not compare so well with others', and that there was indeed plenty of room for improvement. Every consumer wanted longer-lasting batteries. What could be done about that? Why did Duracell have to tie up capital and space to let every battery age for 21 days to see if it leaked before it was shipped? Was it necessary to continue to use a dangerous toxin like mercury in the batteries? Why were the company's capital forecasts written in an almost incomprehensible English? Obviously, Duracell had reason for adopting total quality, without any prodding from the outside. (Duracell has lengthened the life of its batteries by 50% in a decade, reduced battery aging time to zero and taken all the mercury out of its batteries. But writing the forecasts in English, that is a really tough problem.)
The regulated utilities would seem to be immune to the sort of threat that faced the auto and electronics industries. However, in 1981 Florida Power & Light Company linked its survival to its quality, which was not good at the time. FPL was hurting from the high cost of oil after two oil shocks, rising bond interest rates, customer complaints, and government regulation, and electricity rates were going up faster than the cost of living.
Marshall McDonald, FPL's chairman at the time, explained,
...we had been looking at the horse from the wrong end -- and it was not a pretty sight. We had been concerned with keeping rejects down, instead of quality up. We had been busy keeping imperfection under control, rather than trying for perfection. We had sometimes burnt the toast and then scraped it clean, instead of fixing the toaster. Some of us even leamed to like burned toast.
Although FPL had no competition from Japan, it looked to Japan for help. FPL was predisposed to Japanese quality methods because the people who built and operated one of its units, St. Lucie 2, a nuclear power station, saved time and money by using quality improvement teams to figure out how to do the job better. Whereas the notorious Shoreham plant on Long Island, New York cost $11 billion and never was licensed to operate, St. Lucie 2 cost $1.4 billion, as originally estimated, and was built and licensed 30% faster than the average U.S. plant. At first, when they visited Kansai Electric and other companies in Japan, the FPL people did not quite understand what they were looking at, but they certainly understood the results. In 1986 FPL compared the number of its "scrams" -- temporary shutdowns of nuclear stations, usually caused by faulty instrument readings rather than by any real emergency -- with Kansai's. FPL averaged seven shutdowns a year at each of its four nuclear stations. When John Hudiburg, who had succeed McDonald as chairman, was told that Kansai had had no scrams in a year among nine nukes, he assumed at first that the interpreter had made a mistake. It was no mistake. Finally, when FPL decide to compete for a quality award, it put itself in the hands of consultants from the Japanese Union of Scientists and Engineers and applied for Japan's Deming Prize, which it won in 1989.
Quality efforts rippled through American industry, from client to manufacturer to supplier. The pressure from big companies on their vendors forced thousands of companies to take up TQM. Ford had its Q-1 award and GM its Mark of Excellence to recognize the best suppliers. Hewlett-Packard, IBM, Motorola, Xerox, and other big companies rode hard on their suppliers. They in turn also heard from their own customers. For example, as U.S. banks installed more automated teller machines, they told IBM that its computers had to be more reliable since the public was now directly affected when the machines went down.
Analog Devices, a successful Massachusetts maker of the electronic links between analog and digital equipment, found itself facing new demands. Ray Stata, the founder and head of the company, says,
The first blush of TQM at Analog Devices goes back to the 1983-84 period, the beginning of the serious quality movement in the electronics industry, which was triggered by HP and IBM when they began to put pressure on their vendors. Everybody ran out to acquire TQM literacy. I would have to say that from 1983 through 1986 the flute music of TQM which I was preaching did very little to change the substance of the way we were managing.
Then came a second impetus in the late 1980s as the market for integrated circuits flattened out and the customers' quality demands got tougher. Analog Devices found itself with a dwindling military clientele and a need to expand into new markets. Stata had been accustomed to record growth and profits. The motivation for improving had been just that "we can do better than we've done." Now the motivation became, "If we don't do better than we've been doing, we're not going to survive." Quality became more than flute music.
PRIORITY AT AT&T: "DO WE KNOW HOW TO RUN A BUSINESS?"
What was happening all the while at AT&T, the birthplace of modern quality? The answer should be sobering to quality fanatics who forget that quality alone does not guarantee success. While the seed planted by Bell Labs in the 1920s had by now grown into a sizable tree with branches pointing in many directions, AT&T itself was not among the first TQM companies. It had developed an elaborate and well-practiced quality control system. Ample capital and the best in technology allowed AT&T to track the performance of each of its 20 divisions (before the 1984 breakup) on the basis of 130 criteria. AT&T knew exactly where and when customers were having trouble getting a dial tone in more than the permissible three seconds, or how well installers were keeping appointments, or the quality of voice transmissions. In the 1970s, AT&T began surveying its customers regularly to see how the service looked from the outside. But then, as the TQM movement gathered strength in the 1980s, AT&T was distracted by another matter. On January 1, 1984, by order of the courts, Ma Bell split off its seven operating companies, retaining only its long-distance service, manufacturing, and the famous Bell Labs.
AT&T was not driven by a quality crisis. "In fact," says Phillip M. Scanlan, head of AT&T's corporate quality office, "in 1985 we were much more focused at the top on, Do we know how to do marketing? Do we know how to do financial planning? Do we know how to do business management? Do we know how to create a company that is organized and runs properly? We had a lot of real serious fundamental issues to deal with. If you don't have the basics, quality can't get you anywhere.
Those issues gave AT&T a perspective on the importance of quality that other companies missed. After some false steps at the start, AT&T did become a successful, well-planned, market-oriented business. (It is interesting, if idle, to wonder now what the outcome might have been if history were reversed and the government had won its antitrust case against IBM and failed in its attempt to break up AT&T. Would IBM, or its parts, now be the agile, competitive force and AT&T the blundering giant?)
But AT&T was not practicing total quality management in the modem sense. In 1983 Bell labs had initiated a study of quality in software, in the reliability of design and products in the field, and in the quality of components. In 1985, the late James Olson, chairman of the newly divested AT&T, presided at a quality forum. The AT&T people who attend the forum came away thinking, "Hey, we're not really doing this new TQM." As a result AT&T formulated a new quality policy, allowing the business units and divisions to develop the specifics within a framework of satisfying the customer and empowering its people? The results became clear in 1992 when two AT&T units won Baldrige Awards -- and the stock reached a level nearly triple what it was at divestiture.
THE PULITZER PRIZE OF BUSINESS: THE BALDRIGE
The Baldrige Award itself gave the quality movement an unexpectedly strong boost when it was created in 1987. Unlike many government and industry prizes, which are hardly more than promotional stunts and deserve their obscurity, the Baldrige quickly established itself as a prize so well conceived and administered that simply applying for the prize forces a company to examine itself rigorously against an excellent set of standards. Winning the prize became a sought-after honor, the Oscar or Pulitzer Prize of business. The applicants numbered only in the hundreds in the first five years of the award, partly because of the difficulty of winning, but the companies using the criteria numbered in the thousands. Some major corporations, including Motorola and IBM, insisted that their suppliers hew to the Baldrige criteria and others, such as Westinghouse, made the Baldrige the model for their annual internal awards. Leon Gorman, chairman of L. L. Bean, was so inspired at the unveiling of the Baldrige in 1987 in Washington that he went back to Maine determined to make Bean a total quality company and to apply for the prize the first year. (Bean had a head start on other newcomers to TQM because of its tradition of stretching itself to serve the customer. Bean finished near the top in the competition for a Baldrige in 1988, but did not win.) State-wide quality prizes proliferated and attracted more competitors, ones that might have been scared off by the Baldrige.
The success of some companies, the pressure from large corporations on their suppliers, popularity of the Baldrige prize, the growing awareness that poor quality was extremely costly, and the need to match competitors who had improved their quality created a rush to TQM in the late 1980s and early 1990s. It spread from manufacturing to the service industries, and from big companies to small companies. TQM moved from the banks to the insurance companies to the hospitals. It began to interest the universities and the professions. Even law firms took notice, which was remarkable in that the law is perhaps the only line of work that can profit from its own incompetence and sloth. Here and there TQM appeared in the federal government: in the Internal Revenue Service and the Patent Office, and in the armed forces. State and local governments launched quality efforts, particularly in Arkansas, where Governor Bill Clinton showed an interest and understanding of total quality, which he took with him to Washington. All the newcomers to the field have the advantage of drawing on more than a decade of experience in the United States in total quality. They do not have to learn their lessons from a strange and distant culture. Unless the newcomers are to suffer the same disappointments that most of their forerunners experienced, they need to look at what other Americans have already learned about the practice of TQM. The following chapters will examine that experience.
Sheer survival got the quality movement going in the United States (just as it had in Japan about three decades earlier), but as the movement matured, American businesses accumulated other compelling reasons for adopting TQM. In rough chronological order, they were:
* The discovery that the costs of poor quality in many good companies amounted to 20% or 30% of total sales.
* The need to improve productivity, which led to the discovery that better quality meant higher productivity.
* The realization, through benchmarking or other methods of comparison, that other companies were doing things much better than "we" were.
* The growing awareness that better products and services were the critical competitive weapon.
* The pressure from big companies on their vendors to adopt quality management methods.
* The example and stimulus of the Baldrige Award.
* The increasing complexity of products that demanded higher levels of quality.
* The recognition in government that TQM might be one way to deal with the budget crunch.
Large segments of U.S. business have come to realize that TQM is a good way to run a business, that in many markets high quality has become the ticket that gets you in the market, and that customers now expect it.
Copyright © 1994 by The Juran Institute, Inc. and Jeremy Main