Planting the Seeds

Amit Majumdar beak the total quality process diviion of the Steel Authority of India, Ltd., in New Delhi. Megan Smolenyak, IRD’s program director for the SAIL undertaking, is a consultant Spe- cializing in TQM. Nancy Yencho isa consultant in the total quality management divkion of the Insti- tute f w Resource Devehpment, a subsidiary ofMacro International, Inc., headquartered in Silver Sp?ing, Maryland.

of TQM Amit Majumdar, Megan Smolenyak, and Nancy Yencho

Emetging overthe last ten years from aprotected and regulated role, the Steel Authority of India (SAIL) is now facing the realities of international competition. Using the principles and took of total quality management OQM), SAIL is undergoing a total quality tramfornation. Poor quality has cost the company in t m of greater inventoty, scrap costs, and by-product ratings, and therefore values have been degraded. SAIL 3 new companywide TQM program focuses on quality of products and services, human re- sources, continuous innovation, customer service and satisfaction, and capitalization of corporate resources.

In a governmental, protectionist environment, it is extremely difficult for the corporate tenets of success, motivation, and productivity to flourish. Great challenges face a company locked in such a regulated climate. But even under these trying circumstances, many corporate entities have found the key to competitive success in the implementation of a total quality program (TQP) and philosophy. The Steel Authority of India, Ltd. (SAIL), which is among the largest steel manufacturers in the world, is one such company that is currently undergoing a total quality transformation.

SAIL joined forces with the Institute for Resource Development, Inc. (IRD), a subsidiary of Macro International, Inc., a U.S. management consulting firm, in January 1991. By early next year, the collaborative efforts of SAIL and IRD will result in a cadre of TQP trainers and facilitators who will expand the quality efforts already underway at SAIL. Any description of the total quality transformation taking place at SAIL requires a review of three systems: the SAIL organization and the Indian economy and government.

SAIL’s organizational structure is essentially a by-product of the dictates of the Indian government. In 1950 when India became a republic, the country’s first prime minister, Jawaharlal Nehru, stated that quick emanci- pation for the new republic would occur through concentration on the core sector-steel. Three one-million-ton steel plants were set up by the late fifties. These were subsequently expanded. Another steel plant was established in the early seventies. In 1973 SAIL was created, bringing all the public-sector steel plants under its umbrella.

Most of SAIL’s integrated steel plants were set up on greenfield sites, largely undeveloped areas where only random villages had existed before. With these major plants sprang up steel townships, much like the traditional company towns of early industrial America. SAIL is responsible for

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township development and maintenance, including the provision of extensive social amenities, such as education, housing, and health care for its employees and their dependents. Driven by this social profit motive and operating within a regulated economy with administered pricing, SAIL managed to maintain a near-monopolistic position in its national market.

By 1985 SAIL‘S territorial control of the steel industry began to wane, however. Employee motivation, quality, and customer service were at a minimum, technology and maintenance neglected, and missions and goals practically nonexistent. The monopolistic status of the organization had shielded it from the typical business demands inherent in the industrial sector, leaving SAIL virtually defenseless against the onslaught of economic liberalization and rising competition.

SAIL quickly realized that survival in this new era would depend on drastic measures. The organization could no longer maintain a passive stance. The government’s mandate for enterprises to become self-sufficient and generate surpluses in exchange for budgetary support stimulated the decision to undergo a total quality transformation.

SAIL recognized that all the actions that contribute to doing jobs right the first time every time affect the bottom line. By permitting errors, a company incurs greater inventory and scrap costs. The resulting degrada- tion of products results in lost revenue. In essence, SAIL management surmised that poor quality cost them more. It cost SAIL more to produce a ton of substandard steel than to produce a ton of good-quality steel. Nehru’s words that “corporations often forget that the very ground under their feet is always changing and may be slipping away, and unless they change with it, they will stumble or be left behind” were ringing all too true for SAIL. To become financially viable and internationally competitive, the company had only one option-total quality.

SAIL adopted total quality as a company mission for the year 1989-90. Its goal was to build a new consciousness throughout the organization by focusing on five fundamental values: quality of products and services, human resources, continuous innovation, customer service and satisfac- tion, and capitalization of corporate resources. A steering committee identified the need to establish quality principles, goals, and objectives; an implementation strategy; and training for TQP implementation. Because of the lack of in-country experts in the field of total quality management, SAIL approached the World Bank for a loan for obtaining training services from abroad.

In the late 1980s, IRD was also going through a major transformation. In July 1989 the company was purchased from the Westinghouse Electric Corporation by Macro International, Inc. (Macro), headquartered in Silver Spring, Maryland. IRD and SAIL decided to increase their international competitiveness at approximately the same time. I D ’ S decision to target the Indian market was spurred by a Total Quality Tour of America conducted in 1989 in conjunction with the Confederation of Engineering Industry (CEO from India. For two weeks twenty senior executives from

The organization could no longer ma€n-

a passive stance.

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various Indian industries travelled throughout the United States visiting a number of companies closely associated with the tenets of total quality. Westinghouse, Xerox, and several other Malcolm Baldrige National Quality Award winners were among the corporations visited during the tour. Several managers from SAIL were included in the group. Consequently, when SAIL requested bids for TQ implementation, IRD was asked to draft and submit a proposal. IRD was awarded the contract.

THE TRANSFORMING PLAN The contract between IRD and SAIL became effective on January 23,

1991, after an extensive series of negotiations concerning proposal modifications. Executive meetings were held in both India and Maryland over a period of months until the two companies were satisfied with the plan and conditions.

After discussing a number of considerations, the SAILARD team resolved to emphasize a hands-on training approach. Because of SAIL’s geographic dispersion and large employee population of 235,000, an intensive screening and selection process was used to develop a core group of facilitators and trainers. This body of trainers constituted a cross-section of SAIL’S many sites.

Forty-six individuals were chosen from a pool of several hundred qualified candidates. The core group of trainers was appointed based on responses to specific questions on past experiences in team activities: fundamental TQ issues and concepts, and personal perceptions of TQ in SAIL. Each of the candidates presented a total quality topic to a panel of IRD and SAIL top executives at SAIL‘s Management Training Institute in

After a full year of comprehensive.. . training...the core

be respon- sible for communicat- ing the acquired TQ techniques and train- ing to employees at all levels in their home plants.

Ranchi, India. This group of forty-six trainers will eventually be divided into two

teams of fifteen facilitators and a sixteen-member team of trainers. After a full year of comprehensive classroom training and extensive participation in assimilated pilot programs with a cadre of IRD experts, the core group will be responsible for communicating the acquired TQ techniques and training to employees at all levels in their home plants.

In addition to selecting a qualified training body, IRD personnel visited SAIL‘S headquarters, training institute, and five steel plants to review SAIL’s TQ approach. A representative sample of SAIL employees was interviewed to gauge current progress, identify potential impediments, formulate potential pilot projects, and determine which total quality concepts should be stressed in the customized courses for SAIL.

In May 1991 the core group attended in a comprehensive total quality awareness training program in the United States. The classroom training included an introduction to the three techniques that the trainers and facilitators will implement in their plants and was immediately followed by a Total Quality Tour of America. Beginning with Federal Express in Memphis, Tennessee, the group visited a wide array of corporations that practice total quality. Although most of the companies on the tour were

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Malcolm Baldrige National Quality Award winners, several organizations currently employing IRD tools and techniques also were included. After returning to SAIL's Ranchi facility in India, the core group was trained on quality techniques by IRD personnel. IRD also conducted total quality appreciation seminars for SAIL's top management.

With the second phase successfully completed, the next stage will commence with the installation of IRD tools via pilot projects. IRD quality experts will monitor the implementation of two simultaneous projects in separate SAIL plants. At the conclusion of two total quality assessments, the pilot organizations will gauge current quality progress.

The primary focus of the fourth stage will be the customization and use of two IRD proprietary tools, RENEW and PRIME, in the SAIL operating environment. RENEW is a computer-aided process that analyzes work activities and business processes and identifies opportunities for improve- ment. Highly participatory in nature, it is based on input from within the organization. PRIME, or Process Reduction-Investment Management Ex- cellence, is applied principally in production environments. This cycle- time reduction tool exposes hidden inventory and compensation expenses and, thereby, helps an organization significantly cut costs. PRIME is used in a team approach that draws on expert and company-specific knowledge and on operating techniques to identify problems and formulate solutions.

PRIME and RENEW will target a manufacturing operation and a service function each in two plants within SAIL. The thirty SAIL facilitators will be directly responsible for disseminating the information gathered through the use of these tools throughout the organization. As PRIME and RENEW are implemented, the sixteen trainers also will be conducting a series of presentations and total quality awareness courses tailored for SAIL.

At the conclusion Of two total quality as- sessments, the pilot organizations will gauge current quality progress.

"RACKING PROGRESS The last phase of the project, a review of the year's efforts, will take

place at SAIL's headquarters in New Delhi, India. With this in mind, SAIL and IRD have developed a system for evaluating the progress made during their first year of TQ partnership.

Although SAIL'S past quality efforts, particularly those involving quality circles, have produced quantifiable results, it is too early in the SAIWIRD venture to claim credit for any progress beyond improved stage-setting. It is obvious that an undertaking of this scope would be incomplete without some means of tracking results. For this reason, the two companies have worked toward developing a system designed to assess progress that comprises the following:

Before and after total quality assessments (TQA) Tool and project-specific measurements Interim progress checks on pilot projects Participant reviews of training

It has become increasingly popular in recent years for companies undertaking total quality programs to compare their performance to

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The matter of social employment is of great concern in India.

Baldrige Award winners’. IRD’s total quality assessment is a tool that makes this type of comparison easy to make. Just as a school report card is used to track a student’s performance in various classes, a TQA may be used to assess a company’s progress over time in different aspects of total quality. A TQA will be conducted in each of the SAIL departments selected for pilot PRIME and RENEW projects. This will provide a starting grade for these organizations. After the pilots have been carried out, a second round of TQAs will allow SAIL to measure improvement.

Both PRIME and RENEW include components for measuring improve- ment. Extensive data-gathering gained through the PRIME process, which delivers time and financial savings to the user, facilitates the quantification of results. Similarly, one component of RENEW is data collection on the cost of quality associated with particular processes and activities. When improvement ideas are implemented, it is possible to assess their impact in terms of reduced costs.

Periodic reviews also are planned to discuss the progress of the actual pilot projects. These sessions will involve SAIL‘s corporate TQP secretarial council, the appropriate plant TQP secretariats, the pilot organizations, the SAILtrainees, and IRD personnel. The participation and input of SAIL‘s TQP steering committee also will be sought.

Finally, a survey will be administered to provide feedback from class participants after each total quality awareness course. In the spirit of continuous improvement, the course will be modified as a result of participants’ suggestions, praise, and criticisms. In addition to these four tracking methods, IRD recommended the use of customer satisfaction surveys on a regular basis to collect the opinions of both internal and external customers and plant-by-plant cost of quality (COQ) measure- ments.

At present, most SAIL employees consider the cost of quality to be lost opportunities and revenues due to low quality or substandard materials. When a steel product fails to meet certain standards, it is downgraded to the next lowest product level and sold as such. The loss in potential sales that results from selling a lower grade product is taken as the cost of quality. Although “downgradation” is undoubtedly a part of COQ, it represents a fraction of the total. For this reason, IRD included a cost-of-quality module in SAIL‘S total quality awareness course. When a more definitive under- standing of the concept exists, IRD would like SAIL to implement and track COQ measures for each plant.

THECHALLENGESTHATLIEAHEAD Those in theTQM field frequently ask if there are any special challenges

associated with implementing total quality in India. The answer to this question is a qualified yes. There are certain issues that should be considered in any TQM effort, but that hold greater importance in the Indian context.

The matter of social employment is of great concern in India. In a country with a population of 840 million, there is no shortage of labor. One

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... a person does not have to be especially articulate or well- educated to partici- pate in TQM efforts.

of the primary objectives of public-sector companies such as SAIL is, in fact, to provide employment and a range of social benefits for a large number of people. Given this scenario, there is a natural concern that improve- ments achieved through TQM will eliminate the need for many jobs, some of which are already admittedly surplus.

The possibility of downsizing is a difficult issue anywhere, but in India it is a politically and economically sensitive issue. SAIL‘s steel townships employ up to 65,000 people per site and provide the primary means of support for hundreds of thousands. Employees leaving SAIL generally lose not only their salary, but also their housing. In a country where the average per capita gross domestic product was $324 in 1989, downsizing to any great degree could result in considerable social upheaval. The best way to cope with this is to seek to intelligently reallocate human resources, rather than dispense with them if the need arises. Even though it is possible that they may still be somewhat underutilized, they will at least be providing more value to the company.

It should be noted that in the case of SAIL, retirement policies provide a convenient safety valve. “Superannuation,” or retirement, is mandatory at age fifty-eight. Because several of SAIL‘s major plants were built roughly thirty years ago, the company is entering a period of heavy retirement. Still more workers are accepting early retirement incentive packages. There is, in effect, a natural downsizing occurring within the company.

The literacy issue is also of concern to SAIL. Many people in India speak three or more languages, with Hindi and English being the most prevalent. It is possible for a person to know several local languages and still be considered illiterate if he or she does not read, write, and speak Hindi a n d or English. One way SAIL deals with this problem is by providing education for its employees and their dependents. In all the steel townships, SAIL runs schools of all levels for the children residing there. In this manner, it is training its next generation of workers. But it is important to note that a person does not have to be especially articulate or well-educated to participate in TQM efforts. In recent meetings with shop operators involved in quality circles, some of the local workers were able to sketch examples of Pareto and Ishikawa diagrams. They may not have used textbook terminology, but they were able to understand and apply the principles.

A third challenge in working with SAIL in India is the geographic dispersion of the company. There are five integrated plants and several other specialty plants that operate almost as separate companies. Whereas complete uniformity in TQ implementation across all sites is not necessary, a degree of consistency is desirable. This issue has yet to be resolved.

THE GLOBAL IMPACT OF TQM The principles of total quality management have been embraced

around the world-from Haiti to Hungary, from Indiana to India. American firms just learning about total quality, however, often latch onto the fact that many of the early American practitioners of TQM were motivated by

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...dozens of other countries are gearing up to improve the

exportability of their products and services.

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corporate survival. Therefore, they tend to question why companies should adopt TQM if they are not in a crisis-control or survival mode. Reasons such as growing global competition still seem too hazy to many U.S. executives.

The best response to this is to simply look at what the rest of the world is doing. Everyone knows the familiar “Made in Japan” vignette. Not so many people realize, however, that South Korea may soon make Japan’s success story seem like a long, drawn-out affair. South Korea entered the steel scene rather late, its first steel plant having been built in 1973. Today, Korea is exporting some of the best steel in the world. More important, dozens of other countries are gearing up to improve the quality and exportability of their products and services.

Spurred on by smaller domestic markets and the need for foreign exchange earnings and hard currency, more companies in developing and formerly Eastern Bloc countries are launching TQM efforts to gain entrance to the global marketplace. American laggards in TQM, still comforting themselves with the myth that Japan’s success is a unique case, may well end up being motivated by the need to survive when faced with shrinking market shares caused by increasingly fierce international competition.

Although TQM tools and techniques must be slightly modified to suit each user organization, they generally supercede both geographic and industrial boundaries. With some modifications, what works in the United States also works well in other countries, including India. A tool that functions well in the chemicals industry will also be of profit to the steel industry.

Naturally, there are some differences in preferred implementation tactics. Just as quality circles have been more effective in Japan than in the United States, they also enjoy a wide acceptance in India. SAIL has used some form of circles since 1983 and appears quite satisfied with their results. Attempting to persuade SAIL to endorse the current American disinclination for quality circles would have been inappropriate. Rather, the goal is to work with SAIL to help its existing quality-circle program yield more significant results. Despite the special challenges that the SAIL project presents, the company believes that TQM principles are universal, and it aims to have a success story to share in support of this conviction by early next year. 0

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