Case Study: The Case Of TQM And Innovation

CASE STUDY
The Case Of TQM And Innovation

By R Chandrasekhar

The Case Of TQM And Innovation SYNOPSIS:
He was sure that he had, finally, identified why there was such a dearth of innovation in the organisation. Operational Efficiency programs--like Total Quality Management, Business Process Reengineering, and Activity Based Costing--were, under the guise of bettering the company's systems and processes, conditioning its employees to think only in deterministic fashions. Which could leave the company bereft of a future despite its access to technology from a transnational partner. Piramal Enterprises' Leonard D'Costa, SRF's N. Ramanathan, Qimpro Consultants' Suresh Lulla, and NOCIL's V.K. Rajpal debate the roots of Horizon's affliction. A BT Case Study.

At 1:00 a.m. on a cool February night, Ranjan Jetley knew he had the answer.

He closed the book he was reading, and put it back on the table alongside a huge pile of almost every tome ever written on TQM, switched off the small, but effective table-lamp that had illuminated his efforts, and went to bed. As he drifted off, Jetley was still thinking about the origins of the problem that had, so successfully, taken him back to B-school.

He was, essentially, a change artiste. His business card read Vice-President (Business Planning), but Change Manager would have described his role better. A civil engineer and an MBA, Jetley worked for Horizon, one of India's largest manufacturers of two-wheelers, and a joint venture between the S.V. Group of Companies (the major partner, with a 40 per cent equity stake) and Hideo Motor Co. of Japan (a technology collaborator, with a 5 per cent stake).

Jetley still remembered the day, almost 4 months ago, when his CEO, H. Narayanan, had sent for him. Narayanan was the typical hands-off CEO, content to let his managers run the company while he spent his time plotting its future. Knowing him, a sudden request for a meeting could only mean one thing: a problem.

As he was being ushered into Narayanan's room, Jetley realised that he was not the only one who had been sent for. Raman Bhatia, Horizon's President (Operations), and Rahul Kansal, President (Marketing), were already there. Quick greetings were murmured all around as he took the chair Narayanan pointed at.

"Gentlemen," began the CEO, "we have a problem on our hands. Something that could threaten our very survival if it is not attended to immediately. Rahul, I do not know if everyone has had the time to go through the audited marketshare figures for 1998. Could you sum up the state of the market for us?"

"Certainly. The two-wheelers market is fragmented into 6 segments: mopeds, scooterettes, scooters, step-throughs, two-stroke motorcycles, and four-stroke motorcycles. We are the largest player in the mopeds segment, with a 45 per cent share. In the scooters and motorcycles segments--in both of which we are late entrants--we have marketshares of 12 and 16 per cent, placed at the fifth and the fourth positions, respectively. Although these figures represent a growth over our 1997 marketshares, it is becoming increasingly difficult to keep pace with customer needs"

"That's a sea-change from the time when we had no marketing department and sold everything we produced. Today, inventories are the biggest drain on our working capital," added Bhatia.

"But that isn't the only operations-related issue we need to address, is it, Raman?" asked Narayanan.

"Not quite. There are more. One, the emission norms that will be stipulated by 2001. To meet them, most of our models will have to be scrapped or changed radically. The second issue concerns the continuing pressure to indigenise our components. We source almost 70 per cent of our components locally, but our efforts in this area--in the face of a weakening rupee-- need to be stepped up."

"Thanks. Now, these are ordinary issues, ones that any business faces. Right? What worries me, though, is our ability to find answers to them. Let me put it simply. I think we have, somehow, lost our innovative edge. Innovation, gentlemen, is a rare commodity in our company."

Jetley, Bhatia, and Kansal were dumfounded. Bhatia was the first to react. As the person directly responsible for the company's manufacturing and product development, it was evident that Narayanan's observation had stung. "What about Zap?" he stuttered, referring to the 60-cc step-through developed in-house in 1994. "It cost us Rs 6 crore to develop the product, and we recovered this investment in 2 years. Had we not done this, and been content to live off Hideo's technology pool instead, we would have had to pay out around Rs 20 crore as technology fees"

Kansal had been waiting for Bhatia to finish. "Remember our cost-cutting drive in 1992? After months of trying unsuccessfully to meet absolute targets, we decided to change our approach. And just focus on weeding out any activity that did not add value to the customer. We managed to save over Rs 100 crore in a 2-year period. That was an innovative masterstroke How can you say we are not innovative?"

Narayanan did not try to refute what either of his functional heads said, but there was a smile in his voice as he answered: "We are not innovative, Rahul, and that includes me. These instances are from the past. In the last 2 years, I have not encountered a single path-breaking idea in this company. Have we been able to repeat the Zap experience? Have we been able to innovate around our cost-management initiatives? No. We have not been able to indigenously develop a four-stroke motorcycle. And every time someone from our collaborators visits us, and speaks of kaizen or continuous improvement, I feel a twinge of guilt. How long has it been since a worker came up with an improvement technique, however marginal? How long has it been since one of us came up with an innovative way to, say, beat the recession? If this goes on, we could soon be dead."

Kansal and Bhatia couldn't really argue with that. Busy with the details of actually managing the company on a day-to-day basis, neither had noticed the absence of the innovative spark. But what Narayanan was saying did, in hindsight, make sense.

"The only way to solve this problem," said Narayanan, "is to get someone to study it, and find out what is killing the innovative streak in our people and the company. That is what I want you to do."

He was looking at Jetley.

Four months later, Jetley finally knew what was wrong.

The meeting was scheduled for 8:30 a.m. in a small conference-room adjoining Narayanan's office, but Jetley was there at 8:15 a.m., with a sheaf of slides and pre-prepared answers for the questions he knew he would be asked. Kansal, Bhatia, and Narayanan walked in.

"Ready?" asked Narayanan.

Jetley nodded.

"Let's go."

Without a preamble--everyone knew why they were there--Jetley began. His first question was addressed to Narayanan.

"When do you believe the rot set in at Horizon?"

"Top of my mind, I would say 1995."

"1995, coincidentally, was also the year when we launched our TQM initiative, with the ISO-certification programme. This imposed a discipline on our people, and ensured that they conformed to pre-determined norms. On the flip side, it may have also created a bureaucracy of its own. It discouraged any attempt on the part of an individual to think outside-the-box. We fared no better with TQM, which we adopted quickly thereafter. I believe that there are several things wrong with TQM at a conceptual level. First, the focus is on gradual, incremental change. Second, by making team-work, consensus, and minimum confrontation the tripod of its ethos, TQM has cut off the roots of individual creativity, which drives innovation."

The first question came from Bhatia. "What, if I may ask, is the exact problem with TQM?"

Jetley loaded another slide onto the projector. "You must all be familiar with this. It is the self-assessment framework that forms the basis of our TQM efforts."

"I know," interrupted Kansal, "and I remember receiving a memo last month that highlighted the fact that our score had increased from 600 points in 1996 to 850 points in 1998"

"On a maximum score of 1,500," Jetley completed. "But, I suspect, the issue at Horizon is more fundamental. And the problem lies with the model that we have been using. Its parameters, and their weightages, have remained static over the past 3 years. I know that the weightages attached to the criteria for the Malcom Baldrige Award are changed at regular intervals to reflect the changing conditions. Aren't we stifling ourselves by sticking to the same parameters?"

"You may have a point there," accepted Narayanan, "but do you have any other evidence to prove this?"

"One of the highlights of a survey we conducted before launching our TQM drive was that customers wanted lower costs, higher quality, shorter delivery-schedules, and continuous product-innovations. That was when cost, quality, and shorter lead-times were the differentiators in the auto industry, and they became the prime objects of our attention. The between-the-lines conclusion that we all seem to have missed is that customers want not any one or two of these, but all 4. Not only did we ignore innovation, our success in the other 3 areas has only eroded the innovativeness of our employees."

"If we are looking at the rigidity of TQM as a reason for the death of innovation, what about systems-driven approaches, like ABC (Activity-Based Costing) and BPR (Business Process Reengineering), which we subsequently implemented?" asked Bhatia.

"I was just coming to that. I believe that it may not be possible to focus on innovation using techniques like TQM, BPR, and ABC. Innovation requires a unique culture, which none of these techniques may be able to provide. By burdening low-volume new products with punitive levels of overhead, ABC poses a threat to innovation. True, it has enabled us to capture our costs with mathematical precision. But when you consider what it has done to innovation, I wonder if we did the right thing in adopting ABC"

"What about BPR?" prompted Kansal.

"BPR does not fare any better. Designed as an initiative which brings about the radical redesign of business processes through dramatic improvements, it has its flip sides too. BPR has crippled the support functions at Horizon simply because those are always the most vulnerable to retrenchment. By fostering anxiety, and promoting a cautious approach, it has nipped creativity in the bud. How do we now undo the damage? When it comes to that, your guess is as good as mine."

Narayanan was the first to congratulate Jetley. "I think you may have hit upon the source of our problem, Ranjan. In our quest for quality, in our desire to perfect our processes, we could have created a system that stifles creativity in any form. Not overtly, but covertly, with our emphasis on cycle-times, the number of defects, and conformance. In the process, Horizon's culture has undergone a shift. I believe it is less-vibrant, and more sanitised than it was before we went in for these operational effectiveness improvement techniques. I am not saying that we haven't achieved anything with them, but the death of innovation is a most undesirable side-effect. What do we do now?"

Do techniques like TQM, BPR, and ABC really stifle innovation? Does their design inherently discourage innovation? Is there a trade-off between change-initiatives and an organisation's power to innovate? Or does the problem lie in the way Horizon has adopted these improvement techniques? How can Narayanan ensure that Horizon regains its lost focus on innovation without losing whatever it has gained from its operational improvement initiatives? Will changing the parameters and the weightages assigned to them in the TQM self-assessment framework help? Or must Horizon forsake operational effectiveness in favour of chaotic innovation?