Case Game: The Case Of Quality Management

CASE GAME
The Case Of Quality Management

Barely a year into Total Quality Management (TQM), Total Industries-BT's fictional company-is having second thoughts. Is its quality initiative misguided? Wipro's Ram Agarwal, IQL's Ravinderr Singh, and IIM, Bangalore's L.S. Murty deliberate. A BT Case Study.

By R. Chandrasekhar

How do you explain this?'' asked the youngish-looking man to an avuncular figure sitting across him. Both were busy going over a bunch of charts, and with every thoughtful flip of the spiral-bound pages, the younger executive shook his head disapprovingly.

His concern was in order. As the owner-manager of the Rs 6,500-crore Total Industries, Abhinav Kumar had a lot at stake. His company-which made colour TVs and refrigerators; switchgears; batteries; and soaps and oils-had launched a Total Quality Management (TQM) programme last year. The figures that Kumar was going through along with Total's Vice- President (Quality), Madhukar Parekh, related to Cost Of Poor Quality (COPQ), and the market shares of Total's four businesses.

Like other manufacturing companies, Total used COPQ to measure the strength of its internal processes. While all the divisions showed a distinct improvement in quality, there were no significant gains in marketshare. In fact, the switchgear division had lost marketshare.

Based on historical records, the company's new quality councils had aggregated COPQ data for the last three years. While the COPQ had improved from 35.6 per cent of ex-factory cost in 1997-98 to 35.2 per cent in 1998-99, it had climbed to 35.3 per cent in 1999-2000.

"Why is our marketshare not growing, Madhu?" asked Kumar.

Parekh was quiet.

''I don't know why, but I have this gnawing doubt that our declining marketshare has something to do with our approach to quality improvement. Is it really TQM that we need?'' said Kumar.

''Instead of implementing TQM selectively, may be we should have made it an organisation-wide affair,'' Parekh opined. He, in fact, was summing up the views of Total's four divisional Presidents (Srikant Suresh, Durables; Manoj Kohli, Switchgears; Ratika Sahai, Batteries; and Guneen Roy of Soaps). They had wanted TQM to encompass all of Total's activities. But Kumar had vetoed the idea.

''You know why I was against a blanket TQM,'' Kumar interjected. ''First, I didn't want to create new systems and structures at a time when we were trying to de-layer the organisation. Besides, I was quite sure that once we became leaner and improved our internal response time, we would move closer to the customer. So, if we could become more customer-oriented through structural changes alone, why bother with TQM?''

The good thing about Kumar was that he was open to new ideas and allowed his executives to challenge his own. Parekh planned to make the most of it.

''TQM is not just about getting closer to the customer, Abhi,'' reasoned Kumar. ''It is a way of securing customer satisfaction, and sustaining it. The continuous monitoring of key indices allows a company identify opportunities for improvement. Be it in terms of product quality, strategic management, hr, infotech, marketing, or even leadership.''

''I know you are passionate about TQM, Madhu, but we have to weigh it against the results it has brought in. If there's nothing wrong with the concept, are we then implementing it wrongly?''

''Sure, it's different. But wrong? I don't think so.''

''Do you think it was a bad idea not to rope in external consultants for TQM implementation?''

''Getting external consultants makes sense when the top management needs convincing. In our case, the senior executives were almost sold on TQM.''

''What about the implementation part?'' Kumar popped the question again.

''A little different, but certainly not irrational. We have a seven-member apex council, comprising the four business heads and the chiefs of finance, hr, and corporate. And you are the chairman of the council.''

''And the council has met only four times in the last one year,'' peeved Kumar.

''Each of the four businesses,'' Parekh continued, ignoring Kumar's jibe, ''has a similar seven-member TQM council, chaired by the business head. Before the cascading TQM structure was identified, we carried out an organisational self-evaluation. The subsidiary councils did a series of brainstorming sessions on the kind of issues that we should address.''

''Give me a quick recap,'' said Kumar.

''First, we decided to revisit the key business drivers in each of the divisions. Low cost, we said, would continue to be a key determinant of our success. Second, we constructed a quality profile for each business. This outlined the basics on which we would not compromise even if it meant a loss of business in the short run. Third, we identified what we called Opportunities For Improvement (OFIs) to act as the focal points of action in future.''

''It seems we did a lot of right things after all.''

Parekh smiled. ''That done, we educated supervisors and managers in TQM. Finally, we identified some quick hits. The idea was to facilitate the creation of a positive mindset towards TQM. Last year, we identified about 75 projects-mostly process-related-where improvements would yield immediate benefits. We also fixed milestones in our TQM journey. The idea was to celebrate our achievements-no matter how minor-to win support within.''

''Until those COPQ figures started showing up,'' mock-sighed Kumar.

It was while tracking the COPQ that Total got the first whiff of TQM's success, and, ironically, of its failure too. Computed as a percentage of manufacturing cost, COPQ comprises a number of items which together contribute to what are usually called hidden costs of operation. For example, waiting, queuing, and searching for inputs at the shopfloor; delays in quality control; equipment downtime; defects in raw materials, and a whole lot of other things. In most manufacturing companies, the COPQ is between 25 and 30 per cent of the ex-factory cost.

''How did we manage a dip in COPQ in 1998-99?'' Kumar asked.

Parekh explained: ''The COPQ for June, 1999, was 36.2 per cent. For March, 2000, it was 32.2 per cent. This difference of 4 per cent constitutes an improvement in COPQ. And if you look at the ex-factory cost of Rs 5,094-crore and take 5 per cent of it as savings due to a decline in COPQ, you get Rs 254.70 crore.''

''Wasn't Roy (of Soaps division) making some projections?''

''Yes, he said that we could save around Rs 300 crore at this rate.''

''The figure sounds too good to be true,'' a sceptical Kumar said.

Part of the reason why Kumar was growing critical of TQM was its supposed impact on the switchgear business. From 23 per cent a year ago, the marketshare had dropped to 22 per cent, despite two factors that should have bolstered the marketshare. First, user industries were booming. The power transmission sector, which used 70 per cent of Total's switchgear output, was growing at the rate of 20 per cent.

Second, TQM was supposed to take Total Industries closer to its customers. But the drop in marketshare indicated that things were going wrong.

''Why is the marketshare of Switchgears down, although we've improved quality?'' queried Kumar.

''Kohli, President (Switchgears), tells me that the marketing team was misled by TQM.''

''How so?'' Kumar asked.

''According to him, Total has traditionally considered dealers as its customers, but once TQM was operational, the marketing team started targeting the end-users to get closer to the customer. It also led to the marketing team focusing on customised, special-purpose switchgears. But then, volumes started falling.''

''I remember Kohli talking about this to me,'' Kumar said.

''But I find it hard to believe that TQM was to blame. In the past, the switchgear division had derived 60 per cent of its switchgear sales from the retail segment. It was wrong on their part to cut back on general-purpose switchgears.''

''I am sure that Kohli and his team must have carried out a detailed customer survey before cutting back on the economy models,'' said Kumar.

''Kohli says that they did.''

''You do realise, Madhu, that we are spending a lot of money, management time, and manhours on TQM,'' noted Kumar, trying a different approach.

''I do. But there is no doubt that our internal processes have become efficient. Take batteries, for example. We have removed seven non-value-added intermediate steps in manufacture last year. Durables also benefited from TQM. Perhaps, TQM has not been understood by all, or it is sending out mixed signals.''

''In that case, is it a question of making a mid-course correction in our TQM journey?"

"I think so," replied Parekh.

''As far as I am concerned, the objective of any quality-control programme should be to make the company more competitive. Can TQM do this?''

THE DISCUSSION