The Cost Of Quality

Well, maybe copying the Japanese isn't such a good idea after all. Consider Douglas Aircraft, the troubled subsidiary of McDonnell Douglas Corp. Plagued by poor earnings and richer competitors, the aircraft maker three years ago embraced "Total Quality Management," a Japanese import that had become the American business cult of the 1980s. TQM, as it is known, depends on small teams of workers-all the way down to the factory floor-to clean up poor procedures and work habits. That appealed to Douglas, which dispatched 8,000 employees in Long Beach, Calif., to two-week training seminars. They also spent weeks preparing for TQM on the job. But in less than two years, Douglas's version of quality management was a shambles, largely because the program's advocates hadn't anticipated the massive layoffs that poisoned labor-management relations. At Douglas, TQM appeared to be just one more hothouse Japanese flower never meant to grow on rocky American ground.

Until recently, TQM was seen as the doctrine that would rescue American business from flabby management techniques and shoddy products. Now many executives and their consultants have moved on to other methods, and while several firms remain true to TQM, it has stumbled badly over its early, inflated expectations. Florida Power & Light, winner of Japan's Deming Prize for quality management, has slashed its program because of worker complaints of excessive paperwork. The Wallace Co., a Houston oil-supply company that won the Commerce Department's Malcolm Baldrige National Quality Award, found the honor no protection against bad times-it has filed for Chapter 11 bankruptcy protection. Moreover, recent surveys show that most U.S. companies don't think much of TQM's impact on their ability to dash past competitors.

Of course, a handful of companies, like Xerox, Motorola, Federal Express and Harley-Davidson, have made TQM work, partly because such firms have the patience advocates say is essential. But such companies are exceptions in an American climate where management plans often have the shelf life of cottage cheese. "Managements expect it to be instant gratification, and that is one of the key reasons for failure," said Joe Lutzel, a quality-management executive with High Voltage Engineering in Milwaukee. In Japan, by contrast, managers enjoy easy relations with labor and a government more concerned with a stable economy and long-term growth.

TQM grew from the postwar research and musings of American management consultants like W. Edwards Deming and Joseph Juran. It captivated the Japanese in the 1950s and returned to its birthplace as the hot boardroom fad of the early 1980s. TQM demands re-examination of creaky procedures and investigations of trouble spots by employee teams, a bottom-up approach that emphasizes patience and distrusts obvious answers. A good TQM company studies competitors and successful noncompetitors to reduce shortages, delays and defects.

Two rituals are sacred to the devout TQM congregation. First, managers must act as if they have signs on their backs: HOW ARE WE DOING? ANY COMPLAINTS? CALL 1-800-BLAMEUS. Richard C. Palermo, vice president for quality and transition at Xerox, has on his business card a three-question survey seeking reaction to Xerox products and services. The second ritual is the posse ploy. When something goes wrong, TQM executives recruit a few managers, clerks, assembly-line workers and even customers to ride off, find the problem and literally analyze it to death. For example: Douglas Chamberlain, field-service spares-operations manager at Xerox, spent months with a team investigating repair delays. Friends told him the solution was obvious: more parts on the repair trucks. But his team, after studying a horde of other companies, discovered a cheaper answer: using delivery services like Federal Express to rush the correct part to the customer.

But few companies are as wedded to the TQM mystique as Xerox. A survey by Rath & Strong of Lexin on Mass. released earlier this year graded companies on TQM efforts to improve market share, rein in costs and make customers happy; most rated D's and F's. In a survey of 500 companies by Boston's Arthur D. Little, a slim 36 percent said the process was having "a significant impact" on their ability to quash competitors. Some companies even complain that such management techniques cost more than they're worth. Tamara J. Erickson, a vice president at Arthur D. Little, says one company was so obsessed with improving its inventory process that it spent a fortune on a state-of-the-art computer system. The result: the wholesale cost of producing a 25-cent item soared to a ridiculous $2.89.

More than anything, U.S. companies have soured on TQM because it provides little protection against hard times. Patience and labor peace are the keys to making it work. Trouble comes when companies announce layoffs during economic slumps. Douglas Aircraft, for instance, hoped the system would win savings and lure back customers flirting with the European Airbus consortium, but another costcutting move-the elimination of 4,000 jobs in 1990-forced a premature end to TQM training classes in Long Beach and left many employees wondering if the company cared about their suggestions.

Some TQM programs go on short rations when a new cost-cutting CEO takes over. Kent Sterett, former director of Florida Power & Light's total-quality program, says new chief James Broadhead eliminated most jobs related to TQM because he "wasn't too sure about this quality stuff" allowing him to trim personnel. Broadhead, Sterett contends, didn't embrace TQM because " it tended to produce a significant number of recommendations coming up, which is the opposite of Broadhead's characteristic flow." Broadhead has said he stepped in because workers complained that TQM's "emphasis on indicators, charts, graphs, reports and meetings" took time from "serving customers and participating in community affairs."

TQM devotees shrug off the recent setbacks. The system, they say, should produce results over the long haul. "Most Japanese [companies] began their quality-improvement efforts in the early 1950s and stuck with them religiously, although they didn't begin to see significant payoffs ... until the late 1970s," says Jerry Bowles, author of "Beyond Quality."

Many with troubled TQM programs insist they are still believers. Wallace Co.'s chief, John W. Wallace, insists TQM kept many customers loyal despite his bankruptcy filing. And McDonnell Douglas, Douglas Aircraft's parent, has urged its ailing divisions to "move forward" with TQM despite cost-cutting.

Bowles, echoing other management consultants, says companies may have little choice. In this age of tough competition, he says, TQM is "the minimum requirement for staying in the game." But American firms may not truly embrace Total Quality Management until it makes their shareholders more money than it did the seminar organizers, consultants and book publishers, who reaped the biggest quality rewards of the 1980s.