Achieving market excellence through quality: the case of Ford Motor Company

Business Horizons, May-June, 1995 by Thomas L. Zeller, Darin M. Gillis

The popular press seems to have soured recently on the Total Quality Management, or TQM, philosophy. Rahul Jacob (1993) reports that in organizations trying TQM, two out of three managers believe it has failed. Grant, Shani, and Krishnan (1994) maintain that TQM programs lose momentum because of disagreements over goals, middle management's failure to embrace employee empowerment, top management's failure to understand TQM fundamentals, incorrect implementation procedures, skeptical employees, management's lack of commitment, and more. For instance, naive managers think an organization can simply buy a TQM program, or credulous managers simply contract with a consulting firm to implement a quality program. Instead, practical experience indicates that a TQM initiative is ongoing and requires three to five years to operationalize. Troy and Schein (1993) report that it takes eight to ten years to fully implement TQM within a company.

Ronald Henkoff's (1994) survey found that CEOs of Fortune 500 companies evaluate performance the old-fashioned way--by profits and stock performance. Top brass simply pay lip service to customer satisfaction, quality, and other emerging management perspectives. These circumstances, however, are merely symptoms of a deeper concern. Grant et al. contend that the real problem rests with management attempting to implement a TQM philosophy that clashes with the traditional "economic model of the firm," which is based on the principle of maximizing shareholder value.

This article illustrates how a successful American auto manufacturer operationalizes an ongoing transformation of its organization from an economic model to a TQM model of the firm. A transformation is necessary because a business enterprise organized around a TQM philosophy draws upon human capital to meet and extend international competitive forces. Competition in most industries, including the auto industry, forces costs to decrease while quality, productivity, and rate of innovation must increase.

Specifically, we shall demonstrate how Ford Motor Company and PPG Industries-Chemfil Corporation are building a long-term supplier-assembler relationship based on a TQM philosophy. This relationship helps Ford meet and win against automobile industry competitive forces. A 1994 J.D. Power study on initial car quality, in fact, reports that the quality of Ford products continues to improve in a period when industry-wide quality has slightly declined.

Through this article we hope to rekindle the optimism originally generated by the TQM philosophy. In addition, we shall try to demonstrate for management a framework for the implementation of total quality as well as a compellingly new model of the firm.

MANAGEMENT PARADIGMS: TQM AND THE TRADITIONAL ECONOMIC MODEL

Many, if not most, TQM applications fail because management does not understand the significant differences between the traditional economic model and the TQM model of the firm. Grant et al. (1994) provide an excellent contrast between these two paradigms, as shown in Figure 1. The models contrast organizational goals, individual goals, time orientation, coordination and control, role of information, principles of work design, and company boundaries.

The primary difference between the two models rests at the organizational structure level. Typically, under the economic model a hierarchical organizational structure functions to maximize value for one set of stakeholders: those holding an equity interest. Business decisions are made at the top and orders are driven down through the organization (Figure 2). Individuals respond to orders in isolation, reacting to immediate financial goals. Upon entering work, employees check in their brain at the door and receive a pair of tunnel vision blinders. This type of employee behavior has been reinforced over time, with good suggestions being placed on indefinite hold because of, for example, cross-functional implementation problems.

Under the TQM model, organizational structure is set in place to serve several stakeholders, with customers--internal, external, or both-as the primary focus. Typically, business decisions are made by management and the work force with joint responsibility for successful implementation. This concept is represented by the cone-shaped organizational structure in Figure 3, with all efforts directed toward meeting the customer's needs and wants. Individuals and departments must communicate and exchange information to meet customer needs and make a profit. This concept is represented by the cross-section in Figure 4, with lines drawn to connect different business activities. Employees are responsible for their own actions, which should contribute to sewing the customer and securing the financial success of the firm. Stakeholders in this model include, for example, the employee, customer, supplier, and equity holder. Equity holders still expect a competitive financial reward, but the emphasis is long-term.

Why is the TQM approach to organizational structure necessary? Today the "customer is king," demanding ever-increasing quality at a reduced or equal price. The economic model no longer provides the organizational framework to meet these customer demands. A TQM philosophy develops the most important resource of a business enterprise--the work force for sewing the customer at a profit. Work force members are in direct contact with the customer and production process. Logically they are best suited to identify customer needs and production methods for improving the process. For example, customer service representatives should directly communicate with people in design and production for quick response to a customer's concern about a new product. The long-standing economic model does not enforce this interaction. Moving information up and down the traditional chain of command is too slow, and the customer's concern is likely to be lost among management levels. The result is that firms structured under the traditional economic model are operating at a competitive disadvantage.