Re-engineering: the LG-Way

Ranju Sarkar

As an avid golfer, Kwang Ro Kim, the 45-year-old CEO of LG Electronics India Ltd.(LGEIL), knows that stretching a shot can sometimes pay. Which is why he is using the rules of the greens to achieve difficult business targets. After clocking a sales turnover of Rs 480 crore in its maiden year (1998), LGEIL set a basic target of Rs 694 crore and a stretch target of Rs 800 crore, and a super-stretched target of Rs 1,000 crore for 1999. The last two targets are internally called the Super-A target and the Tear Down and Re-engineering (TDR) target.

As often on the fairways, Kim bettered himself. In 1999, the company clocked a topline of Rs 1,056 crore and net profits of Rs 40 crore in 1999. But just how did it manage the spectacular feat? Through a company-wide cost-and-productivity innovation programme, called TPI: 50 (Total Productivity Innovation by 50 per cent). TPI:50's objective was to increase productivity of all business systems by 50 per cent. Says Yasho V. Verma, Vice-President (Human Resources & Management Support): ''Our target is to become one of the best companies in five years. If we have to survive and do well, the only way out is improvement and innovation.''

The tools for achieving TPI:50? Process innovation and high morale. The latter is achieved through motivation of employees, stretch targets and appraisals, and mind-setting. Although LGEIL used several tools like restructuring ECRS (Elimination, Combine, Re-design, and Simplify), re-engineering, the 3Ts, Fi-10, six-tool, 100 PPM, and six-sigma for process innovation, it was Tear Down & Re-engineering--or TDR--which has proved to be the most effective tool in the TPI:50 concept. TDR is a re-engineering process, which aims to increase working quality through speed, quality, and teamwork.

THE GENESIS: HOW IT BEGAN

LG re-launched its operations in India in April, 1997. In September, 1993, it was the first transnational brand to enter the Indian market, but withdrew in February, 1995, after its joint venture with the Delhi-based Bestavision broke down. A lot of systems were laid down, but the efficiency--or the inefficiency--of the systems could not be determined at that point of time. Its predicament was worse since raw material costs--LG had a local content of 50 per cent, which it plans to increase to 70 per cent by end of this year--were increasing by 20 per cent due to the devaluation of the rupee.

As a first step, Kim formed a core team of four people--called the Super-A Team--whose key responsibility was to drive productivity innovation. Headed by C.S. Kim, the team included K.R. Kim (the CEO), Verma (the HR head), and a couple of other senior managers from production, planning, and manufacturing. Their key-role is to ensure mind- and technical innovation. So, they conduct mind-innovation training and coordinate technical innovation in the factory. The Super-A Team takes up small projects, coordinates with the line people so that there's a focus. Although the Super-A team has initiated a host of technical tools to promote innovation, TDR has emerged as the most effective tool in achieving TPI:50.

THE TDR PROCESS: HOW IT WORKS

The TDR process starts with the establishment of a Super-A Plan and drawing up an action plan to achieve the Super-A target--which, for instance, was achieving a sales turnover of Rs 1,000 crore in 1999. Each department analyses the critical issues that will help them achieve the Super-A target. They identify problems which are related to the department's Key Performance Index (KPI). The guiding principle: they should contribute directly to the company's operations, and lead to cost, quality, or productivity innovation, improve processes, or enhance customer-satisfaction. Once a TDR theme is decided, the concerned department head nominates a TDR leader, who, in turn, selects his team members and draws up a TDR target and schedule. But most often, it's either the Super-A team or Kim himself who sets a target.

After a basic TDR plan is established, the TDR theme is registered with the Super-A Team, while branch TDRs are registered with the HR department. The process is formally launched when the TDR leader reports his or her TDR theme to the CEO, which is followed by a signing-in ceremony to register the TDR--an agreement directly between the CEO and the TDR leader. Kim, personally, reviews the progress made by each TDR on a weekly and monthly-basis, and often suggests major changes. His direct involvement ensures that decision-making is fast. For instance, if the achievement of a TDR target requires additional investment, Kim can sanction the same if the investment is feasible. At the end of each quarter, all TDRs which attain their targets make a presentation to Kim. The best three TDRs in a year are awarded at the end of the year--as a token incentive, the 1999 winners were given a microwave oven each.

Thanks to the TDRs, LG was able to achieve a cost-innovation of $5 million (Rs 22 crore) in 1999, by improving the productivity of people and processes. In 1998, for instance, LGEIL was recording a high rejection rate for colour picture tubes (CPTs) sourced from CPT manufacturers like Samtel Color and group company LG Hotline. Kim initiated a TDR to bring down rejection rates. A cross-functional TDR team, comprising one member each from manufacturing, quality, and purchase, along with two members from CPT manufacturers, was formed. With the vendors' representatives on line, the problems were quickly rectified. Within a couple of months, the rejection rate came down from 10 per cent in 1998, to 4.8 per cent in March, 1999; in February, 2000, the figure was down to 1 per cent.

Similarly, to extend LG's stretch philosophy, a TDR was taken up to increase the production of CTVs from 750 pieces per day in 1998, to 1,500 pieces per day by January, 1999, in the existing line, whose design capability was 1,000 sets per day. In other words, this meant a reduction in the Takt Time--the most time taken at a process area in the line--from 33 seconds in December, 1998, to 18 seconds by January, 1999. Says C.S. Kim, 44, who heads the Super-A Team: ''We wanted to increase productivity. If we cannot improve our production by 1 set per day, this factory would die. TDR is like life. Without it, people would stop thinking and innovating.'' A business mantra that seems to work for CEO Kim--both on and off the fairways.

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