Total Quality Management

Why TQM?
Ford Motor Company had operating losses of
$3.3 billion between 1980 and 1982.
Xerox market share dropped from 93% in 1971
to 40% in 1981.
Attention to quality was seen as a way to
combat the competition.
Total Quality Management
TQM: A Buzzword Losing
Popularity
For many companies, the term TQM is associated
with corporate programs (mid 1980s ~ early
1990s) aimed at implementing employee teams
and statistical process control.
Unfortunately, many companies were dissatisfied
with the perceived results of these programs,
concluding TQM does not work.

Question: Why were they dissatisfied?
Were they justified?
Total Quality Management
TQM
Total - made up of the whole
Quality - degree of excellence a product or
service provides
Management - act, art or manner of planning,
controlling, directing,.

Therefore, TQM is the art of managing the
whole to achieve excellence.


Total Quality Management
What does TQM mean?
Total Quality Management means that the
organization's culture is defined by and
supports the constant attainment of customer
satisfaction through an integrated system of
tools, techniques, and training. This involves
the continuous improvement of organizational
processes, resulting in high quality products
and services.
Total Quality Management
Whats the goal of TQM?

Do the right things right the first
time, every time.
Total Quality Management
Another way to put it
At its simplest, TQM is all managers leading
and facilitating all contributors in everyones
two main objectives:
(1) total client satisfaction through quality
products and services; and
(2) continuous improvements to processes,
systems, people, suppliers, partners, products,
and services.
Total Quality Management
Productivity and TQM
Traditional view:
Quality cannot be improved without significant
losses in productivity.
TQM view:
Improved quality leads to improved productivity.

Total Quality Management
Basic Tenets of TQM
1. The customer makes the ultimate determination
of quality.
2. Top management must provide leadership and
support for all quality initiatives.
3. Preventing variability is the key to producing
high quality.
4. Quality goals are a moving target, thereby
requiring a commitment toward continuous
improvement.
5. Improving quality requires the establishment of
effective metrics. We must speak with data and
facts not just opinions.
Total Quality Management
The three aspects of TQM
Counting


Customers


Culture
Tools, techniques, and training in their use
for analyzing, understanding, and solving
quality problems
Quality for the customer as a
driving force and central concern.
Shared values and beliefs, expressed by
leaders, that define and support quality.
Total Quality Management
Total Quality Management
and Continuous Improvement
TQM is the management process used to
make continuous improvements to all
functions.
TQM represents an ongoing, continuous
commitment to improvement.
The foundation of total quality is a
management philosophy that supports
meeting customer requirements through
continuous improvement.

Total Quality Management
Continuous Improvement versus
Traditional Approach
Market-share focus
Individuals
Focus on who and why
Short-term focus
Status quo focus
Product focus
Innovation
Fire fighting
Customer focus
Cross-functional teams
Focus on what and how
Long-term focus
Continuous improvement
Process improvement focus
Incremental improvements
Problem solving

Traditional Approach
Continuous Improvement
Total Quality Management
Quality Throughout
A Customers impression of quality begins with
the initial contact with the company and continues
through the life of the product.
Customers look to the total package - sales, service
during the sale, packaging, deliver, and service after the
sale.
Quality extends to how the receptionist answers the
phone, how managers treat subordinates, how
courteous sales and repair people are, and how the
product is serviced after the sale.
All departments of the company must strive to
improve the quality of their operations.
Total Quality Management
Value-based Approach
Manufacturing
Dimensions
Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived quality
Service Dimensions
Reliability
Responsiveness
Assurance
Empathy
Tangibles
Elements for Success
Management Support
Mission Statement
Proper Planning
Customer and Bottom Line Focus
Measurement
Empowerment
Teamwork/Effective Meetings
Continuous Process Improvement
Dedicated Resources


Measurement
M
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a
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Measurement
Empowerment/
Shared Leadership
Process
Improvement/
Problem
Solving
Team
Management
Customer
Satisfaction
Business
Results

The Continuous Improvement Process
. . .
Total Quality Management
The TQM System
Customer
Focus
Process
Improvement
Total
Involvement
Leadership
Education and Training Supportive structure
Communications Reward and recognition
Measurement
Continuous
Improvement
Objective
Principles
Elements
MANAGEMENT OF
PROCESS
QUALITY
HUMAN RESOURCE
DEVELOPMENT AND
MANAGEMENT
STRATEGIC
QUALITY
PLANNING
INFORMATION
AND ANALYSIS
CUSTOMER
FOCUS
AND
SATISFACTION
QUALITY
AND
OPERATIONAL
RESULTS
SENIOR
EXECUTIVE
LEADERSHIP
System Approach for TQM
Driver
System
Characteristics of TQM Leader
Visible, Committed and Knowledgeable
A Missionary Zeal
Aggressive Targets
Strong Drivers
Communication of Values
Organization
Customers Contact
TQO HRM
Five Principles are:
Quality Work the First Time
Focus on the Customer
Strategic Holistic Approach to Improvement
CI as a Way of Life
Mutual Respect and Teamwork
Customer Satisfaction
Three Part System
Customer Expectations
Company Operations
(Processes)
Customer Satisfaction
Quality Costs
COST OF QUALITY IS THE COST OF
NON QUALITY

1: 10:100 Rule
A stitch in time saves nine
Types of Quality Costs
The cost of quality is generally classified into
four categories

1. Cost of Prevention
2. Cost of Appraisal
3. Cost of Internal Failure
4. Cost of External Failure
Quality Costs
Cost of Prevention
Prevention costs include those activities which remove and
prevent defects from occurring in the production process.
Included are such activities as quality planning, production
reviews, training, and engineering analysis, which are
incurred to ensure that poor quality is not produced.
Appraisal
Those costs incurred to identify poor quality products after
they occur but before shipment to customers. e.g. Inspection
activity.
Quality Costs

Internal Failure
Those incurred during the production process.
Include such items as machine downtime, poor quality
materials, scrap, and rework.
External Failure
Those incurred after the product is shipped.
External failure costs include returns and allowances,
warranty costs, and hidden costs of customer dissatisfaction
and lost market share.

Six Sigma Roadmap (DMAIC)
Next Project
Define
Customers, Value, Problem Statement
Scope, Timeline, Team
Primary/Secondary & OpEx Metrics
Current Value Stream Map
Voice Of Customer (QFD)
Measure
Assess specification / Demand
Measurement Capability (Gage R&R)
Correct the measurement system
Process map, Spaghetti, Time obs.
Measure OVs & IVs / Queues
Analyze (and fix the obvious)
Root Cause (Pareto, C&E, brainstorm)
Find all KPOVs & KPIVs
FMEA, DOE, critical Xs, VA/NVA
Graphical Analysis, ANOVA
Future Value Stream Map
Improve
Optimize KPOVs & test the KPIVs
Redesign process, set pacemaker
5S, Cell design, MRS
Visual controls
Value Stream Plan
Control
Document process (WIs, Std Work)
Mistake proof, TT sheet, CI List
Analyze change in metrics
Value Stream Review
Prepare final report
Validate
Project $
Validate
Project $
Validate
Project $
Validate
Project $
Celebrate
Project $
Six Sigma Organization
Benefits of TQM
Greater customer loyalty
Market share improvement
Higher stock prices
Reduced service calls
Higher prices
Greater productivity


Growth Strategies
Increased scale of operations
Enhanced utilization of resources
Ultimately to increase the size.

Judgement of business growth is
Increase in sales volume
Increase in output
Increase in capital employed
Increase in productive capacity
Want to Achieve??



Growth Strategy- An organization substantially broadens the
scope of one or more of its business in terms of their
respective customer group, customer functions and
alternative technologies to improve its overall performance.


Types of Growth Strategies
Internal
External

Definitions
Intensive/Internal
Growth
Expansion
Modernisation
Diversification
External/Integrative
Growth
Integration
Joint Ventures
Mergers
Internal Strategies
Expansion
Diversification

New Functions
New Products
Related Technology Unrelated Technology
Firm its own customer - Vertical Integration
Same type of Product - Horizontal Integration
Similar type of Product
Concentric
(Market and Technology
related)
Tea and Coffee
Concentric
(Market related)
Hire purchase co. Providing
lease for other items
New Product
Concentric
(Technology Related)
Tomato Ketchup & Maggi
Noodles
Conglomerate
External Strategies
When two or more firms combine
together in some form.
Joint Ventures
An entity formed between two or more parties to undertake a specified
activity together. Parties agree to create a new entity by both contributing
equity, and they then share revenue, expenses, and control of the
enterprise. The venture can be for one specific project only or a continuing
business relationship Eg: Sony Ericsson.

Unlike mergers and acquisitions, in joint venture the parent companies
does not cease to exist.

Types of Joint Ventures
(a) Between 2 Indian org. in one industry
(b) Between 2 Indian org. across different industries.
(c) Between an Indian org. & a foreign org. in India.
(d) Between an Indian org. & a foreign org. in that foreign country.
(e) Between an Indian org. & a foreign org. in third country.
JOINT VENTURE

Maruti Suzuki is one of India's leading automobile manufacturers and the
market leader in the car segment, both in terms of volume of vehicles sold and
revenue earned.

Until recently, 18.28% of the company was owned by the Indian government,
and 54.2% by Suzuki of Japan.

The Indian government held an initial public offering of 25% of the company in
June 2003.

As of May 10, 2007, Govt. of India sold its complete share to Indian financial
institutions. With this, Govt. of India no longer has stake in Maruti Udyog.

During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were
exported.

In all, over six million Maruti cars are on Indian roads since the first car was
rolled out on December 14, 1983.
Joint Venture
Maruti Udyog Ltd. & Suzuki Motor Corp.
Mergers

Merger Vs. Takeover

Usually Mergers are friendly

Hostile Merger = Takeover

Merger Vs. Amalgamation
In merger two firms, agree to move ahead and exist as a single
new company. Merger can be
merger of equals : both companies are of equal sizes.
merger of unequal's : large company merge with smaller one

Voluntary process : consent of both companies.
Name of new merged entity is usually a combination of both
parent companies

Mergers are mostly financed by a stock swap. Both companies
surrender their stocks and stock of the new company is issued
as a replacement.
MERGERS
Horizontal merger : When two merging companies are of the same
industry and produce similar products.
Example : Footwear Company Merging with Footwear company
Vertical merger : When two companies are producing the same
goods, but are at different stages, it is a vertical merger.
Example : Footwear Company Merging with Leather Tannery
Concentric merger : when two companies are related to each other
in terms of customer functions or customer groups.
Example : Footwear Company Merging with another specialty
Footwear Company
Conglomerate merger : When two companies operate in different
industries.
Example : Footwear Company Merging with Pharmaceutical
Firms

Types of Merger
Hindalco (metal maker of Birla group) acquired Novelis for a staggering $
5.76 billion.
Novelis , on a net worth of $ 322 million, had a debt of $ 2.33 billion

Hindalco took $ 3.13 bn loan to aquire Novelis. Right after the acquisition
hindalco came on a rough road. With the debt market tightening , the
metal maker is left with no choice but to dilute its equity through a 1:3
rights issue.

Further, high interest costs, which rose by over 490 % loan increased from
Rs 3.13 billion in FY 07 to Rs 18.49 billion in FY 08.

Finally Hindalcos earning per share in FY08 dropped to Rs.15.76, from Rs.
26.73 in FY07, a fall of 41% !

Are all Mergers successful?
Hindalco-Novelis (failure)
Acquisition is a deal when one company takes over another
company and buyer becomes sole proprietor.

At times takeover occurs when the target company does not
want to be purchased. However with better offering of prices
shareholder are attracted by acquirer.

In legal terms, the target company ceases to survive. The
buyer swallows the company and the buyer's stock continues
to be traded.

Unlike mergers which are friendly, acquisitions can be friendly
and unfriendly.

AQUISITION
Why M & As?
To reduce competition.

To increase growth rate & capture a greater market share

To improve value of organizations stock.

To acquire a needed resource quickly.

To take advantage of synergy.

To acquire resources to stabilize operations.

To achieve economies of scale.


Reduced competition may even facilitate monopolistic or
oligopolistic tendencies among firms.

Increase of prices.

Job losses for employees.

Difficulties in cultural integration of the merging firms.

Interest of minority shareholders is not protected.
Disadvantages of M&A
On January 31, 2007, Tata Steel Limited, one of the leading steel producers in
India, acquired the Anglo Dutch steel producer Corus Group for US$ 12.11 billion.
Corus was 2.5 times bigger company than TATA.
It took nine rounds for Tata to acquire Corus. In the first bid Tata had closed the
deal at US $ 7.6 bn and later it ended up by paying US $ 12.11 bn, making it an
expensive turnover.
This acquisition was the biggest overseas acquisition by an Indian company. Tata
Steel emerged as the fifth largest steel producer in the world.
After acquisition Tata benefited itself from Corus:
1. Distribution network of Europe.
2. expertise in steel making for automobiles.
In return Corus benefit itself from Tata Steel's expertise in low cost manufacturing of
steel.


Tata Steel and Corus
Integartion
Forward Integration
Backward Integration
Strategic Alliance
A strategic alliance is a form of affiliation that involves a mutual sharing of
resources or partnering to improve efficiency.
In strategic alliances, the focus is on sharing of resources rather than seeking
change in control. Equity investment in each others company is not any focus.

Types of strategic alliances :

Non competitive alliances : Intra industry partnerships b/w noncompetitive firms
like two firms in same industry but different geographical locations.
Competitive alliance : partnerships which brings two rival firms in a cooperative
arrangement where intense interaction is necessary.
Pre competitive alliance : partnerships which brings two firms of different industry
together to work on well defined industries such as new technology development.
Strategic alliances
Market entry -A strategic alliance can ease entry into a foreign market .
Eg: strategic alliance between British Airways and American Airlines.

Share risk & expenses -firms involved can share risks. Eg: In early 1990s
film manufacturers Kodak and Fuji joined with camera manufacturers
Nikon, Canon, and Minolta to create cameras and film for an "Advanced
Photo System.

Synergistic Effects of Shared Knowledge and Expertise- help a firm gain
knowledge and expertise
Skills+ brand + market knowledge+ assets= synergizing effect
Eg: For example, in the early 1990s, Motorola initiated an alliance among
various partners, including Raytheon, Lockheed Martin, China Great Wall,
and Nippon Iridium, to develop and build a global satellite-based
communications network.
Gaining Competitive Advantage
Reasons for Strategic Alliances
Lack of trust & commitment.
Perceived misunderstanding among partners.
Conflicting goals & interests.
Inadequate preparation for entering into partnership.
Hasty implementation of plans.
Pitfalls

Economic slowdown and high ATF prices resulted in decline of air travel both in
international and domestic segments of the air travel market.
Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year

Thus Jet and Kingfisher have decided to form an alliance in fields including fuel
management, ground handling, sharing of technical resources and crew for training and
cross-utilization on similar aircraft types.

This will help both carriers to significantly rationalize and reduce costs and provide
improved standards of service and a wider choice of air travel options to consumers
with immediate effect.

They could not merge as of rule that two airline companies with
combined market share greater than 40 % can not merge in India. So they formed an
alliance.

Jet airways-Kingfisher Alliance
market leaders with share of
Jet 30% kingfisher 29%
MERGER


AQUISITION
JOINT VENTURE STRATEGIC ALLIANCE
Usually two companies of equal size merge
Together.

Voluntary and friendly process

Stock swap : both companies surrender their
stocks and stocks of new companies are given
as replacement.

Parent companies cease to exist.
Large company takes over the smaller
Company.

Often forceful or unfriendly where larger
company attracts the shareholders of target
company by offering them better price for
their shares.


Parent companies cease to exist.


Two or more companies agree to form an
Entity for a specific task or period.

Always friendly.

One company receives financial assistance,
Managerial inputs and technological inputs
from superior company.

Parent companies keep functioning in their
Respective areas.
To improve efficiency of companies.

Includes no equity investments.

Parent companies keep functioning
as normal by supporting each other.
Queries????