oversight

Comprehensive Quality Management

Published by the Government Accountability Office on 1990-03-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     United States General Accounting        Office
                     Testimony




For Release          Comprehensive   Quality    Management
on Delivery
Expected at
9:30 a.m.   EST
Tuesday
March 20, 1990




                      Statement of
                      Allan I. Mendelowitz,      Director
                      International  Trade     and Finance    Issues

                      Before the
                      Subcommittee on Science,    Research, and Technology
                      Committee on Science,   Space, and Technology
                      U.S. House of Representatives




 GAO/T-NSIAD-90-22                                                     GAO Form 180 (12/87)
Mr. Chairman           and Members of the                  Subcommittee:


We are pleased               to be here        today       to discuss        with     you the       progress           of
our ongoing           study      of comprehensive              quality      management            systems       in
the     private       sector.          This    study,       undertaken        at the       request         of
Representative               Don Ritter        and endorsed            by 29 other         Representatives,
will     assess       the     impact      of formal         quality      management             on the
productivity            and profitability               of American          companies.            The study
is     important       because         comprehensive           quality       management           has
significant           implications            for    the    international            competitiveness              of
U.S.     industry.


Until      a few years           ago,     U.S.      business      believed          that   performing           fina
inspections           of a product            was the       way to ensure            quality.           General
industry          practice       was to accept             a certain        level      of defects          because
the     highest       level      of quality          was thought         to be too costly.
However,          intense       foreign       competition         in general           and Japanese
competition           in particular            have forced            some American             companies       to
reappraise           their      traditional          views     of quality.


In prior          GAO work we have noted                   how foreign        competition            has
stimulated           attention         to quality          management        in U.S.       companies.             In
September          1988,      we testified           on our work on foreign                     investment        in




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the     U.S.     automobile             industry.1                We concluded                 that     the management
systems         used by Japanese                      auto      assemblers             operating            in the United
States         were the        primary           source          of their          production               efficiency           and
product         quality.           Japanese              assemblers'              success           in the      United          States
is having          a demonstrable                     effect.           U.S.      automakers,               recognizing              the
benefits         of Japanese              production              and management                    methods,       have begun
to implement               many of these                 same processes.


Our observations                  today         are based on our initial                              work on Congressman
Ritter's          request,           including               a review          of current             literature          on the
subject         as well         as interviews                   with      national            quality        association
officials,           corporate            executives,                  and quality             experts.            We note           that
there        is no single              formal          definition              of what constitutes                   a
comprehensive               quality        management                   system.         However,            we did       find
agreement          that       such a system                   involves          designing             the    product        for
customer          needs,        producing               the product             to consistently                 meet the
design         specifications,                  and achieving                  total      customer           satisfaction.
In addition,               virtually            all      of the people                 with      whom we talked                 said
they       regarded         the      criteria            used in the              Baldrige            award process               as
excellent          guidelines             for         a comprehensive                  quality          management          system.
The Baldrige               award,       as you know,                    recognizes            the     achievements              of
U.S.       companies          that      significantly                    improve        the      quality        of their
products          and services.

1Foreign Direct    Investment    in the U.S. Automobile   Industry
Testimony  before the Subcommittee       on International   Economi; Policy,
House Committee on Foreign Affairs,        September 22, 1988.     Also see
Foreign Investment:       Growing Japanese Presence in the U.S. Auto
Industry  (GAO/NSIAD-88-111,       March 7, 1988.)
                                                                    2
DEVELOPMENTS IN THE QUALITY MANAGEMENTAREA


A number of developments                      over    the       past      several       years     have advanced
the    level      of skills,          knowledge,         and implementation                     of quality
management          in America          companies.


--    Major      corporations,           such as Westinghouse                       Electric      Corp.,      have
      established          quality       and productivity                  centers;


--    National       associations,             such as the American                     Society      for     Quality
      Control,       the     American         Productivity               and Quality           Center,      and the
      Association          for      Quality      and Participation,                    are     continuing         to
      enhance       knowledge         of quality            management;


--    The Baldrige           award winners             and the           Florida       Power and Light
      Company (the           only     American         company to win the                    Deming prize)             have
      achieved       great       success       in institutionalizing                      comprehensive
      quality       management          practices:              I will     elaborate           on both      of these
      awards      later;


--    The Society          for      Quality      Control          and the          Productivity          and Quality
      Center,       in cooperation             with     Department            of     Commerce,       are

      successfully           publicizing             the Baldrige            award and its            criteria;




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--   The federal            government           has set          up a quality            management
     institute        to develop              skills       and knowledge;


--   Organizations             such as the              Conference           Board,       PIMS Associates,                the
     Society        for     Quality          Control,       the General             Systems        Co.,       and the
     Productivity            and Quality               Center      have conducted               a few studies             of
     quality       management               and its      benefits;           and


--   Further        studies,          such as the Joint                   International            Quality          Study,
     commissioned            by the          American        Productivity             Foundation,             are
     underway.


In addition          to the          reports       of quality             management          successes         achieved
by the      five     Baldrige          award winners               and the         Florida        Power and Light
Company,         we found        a few corporate                  case studies              describing         similar
achievements.               However,          despite        such        success      stories,         the     vast
majority         of chief        executive             officers          have not embraced                a
comprehensive              quality          management          system       for    their       companies.


 BARRIERS TO IMPLEMENTING A
 COMPREHENSIVE QUALITY MANAGEMENTSYSTEM


 In the     course         of our work,            corporate             executives          and quality
 management         experts          told      us that       there        are substantial              barriers          to
 implementing             a comprehensive               quality          management          system.          These
 include:

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--   A belief       that         no change           is necessary.                Some chief       executive
     officers       are not convinced                    that      they    need to focus                on
     comprehensive               quality          management         practices         because          their
     companies           are doing          well      financially;


--   An absence           of change - inducing                     competition;


--   A short-term               view     of the       need for         profits.         This      view creates             an
     unwillingness               to commit           resources         to establish            a culture          and
     systems       in which             quality       management          can florish.              Furthermore,
     available           data     show that           such a commitment                can take          years      before
     the   full     benefits             are      realized;


--   A reluctance               to change the            corporate          culture.            Examples         of such
     changes       include             giving       employees        greater        authority           to effect
     change       and reducing              multiple          layers      of management;


--   A perception               that      raising       quality        means increasing                 costs,      such
     as higher           expenditures               on training,          and hiring           more consultants;


--   A view       that      comprehensive               quality        management         is     just        another    fad
     and will       go away;             and


--   The need for               committed           and involved          leadership            by top
     executives,           which         takes       a large       investment          of their          time.

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RESULTS OF EXISTING                   STUDIES SUGGEST QUALITY PAYS


we have identified                  a few completed                 studies          of comprehensive                 quality
management.              The fol .lowing           list       describes             these     studies        and their
major       findings:


--   The Conference                Board,       Inc.,       issued          a 1989 report             based on a
     questionnaire             sent      to senior            executives             of large         U.S.
     corporations.                  The board             found     that      of the         149 firms        answering
     the     questionnaire,              62 firms           attempt          to measure          how improving
     quality          management         affects           profitability.                   Of these       62 firms,            47
     said      that      profits       had increased                noticeably              because      of lower
     costs        and/or     because          of increased             market         share      due to better
     quality          management.2              Another           report,       based on interviews                    with
     the     board's        U.S.      Quality           Council,       found         a conviction            that
     relying          on comprehensive                  quality       management             should      be the
     strategy           of choice        to assure            a prime         economic         position         for      the
     United        States      in the global                marketplace.3


--   PIMS Associates,                 Inc.,       (a subsidiary               of the         Strategic        Planning
     Institute,            Cambridge,           Mass.)        correlated             data     collected         on more
     than      1,000       businesses           and concluded                that     those      selling        high

2Current   Practices in Measuring Quality,                                     The Conference                Board,
Inc.,  N.Y., Research Bulletin   No. 234,                                    1989.
3The Road to Total Quality:     Views of Industry                                            Experts, The
Conference  Board, Inc.,  N.Y., Research Bulletin                                             239, 1989.
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     quality       products          and services             were generally              more profitable
     than      those      with     lower     quality          offerings.            They found            that        both
     return      on investment              and market              share      rose as relative              quality
     increased.


--   The American            Society        for    Quality           Control       commissioned            the        Gallup
     Organization            in     1986,     1987,        and 1989 to conduct                  telephone
     opinion       surveys          of senior         business          executives          about     quality
     management           issues.          Their      1989 survey              found     that     while
     executives           were aware of the                  role      of quality          management            in
     meeting       foreign          competition,             senior         executives          regarded         the
     greatest          challenge        as coming            from other           U.S.     companies.             In
     addition,           one in five          executives              had no idea          of what producing
     poor      quality       products         cost        their       company.


--   The General           Systems          Company,         Inc.,      a quality          management
     consulting           firm,      has developed                a proprietary            database        of its
     clients       that      shows positive                long-term           results      for     return        on
     investment           following          initiation              of quality          management        systems.


--   The American            Productivity              and Quality             Center      has prepared                a
     number of reports                 and case studies                  on individual            companies                that
     have adopted            quality         processes            and, as a result,               have achieved
     various       degrees          of performance                success.




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--   A 1983 report                 on Japanese               Deming prize               winners,        published              by the
     Japanese             Union        of Scientists               and Engineers,               found        that        the
     financial             performance             of the          winners         was above the               average           of
     their          industries.


THE BALDRIGE AWARD AND THE DEMING PRIZE


Both the            Baldrige           award and Japan's                  Deming prize                are     intended           to
raise        the     quality           levels      of industry                 in the     United        States           and
Japan.         Criteria             for     earning          these       awards         are    regarded         as useful
bases for            enhancing             many companies'                quality         management            processes.


The Baldrige               award,          named after             the     late     U.S.       Secretary            of
Commerce,            is    2 years          old.       It     can be given               to large           manufacturing
firms        or their            divisions,           smaller           firms,      and service               companies.
The award process                      is competitive                  and requires            that     applicants               meet
specific            criteria.              The criteria                are more results                oriented           than
process            oriented.              Judges      of applicants'                qualifications                  must have
no consulting                   relationships               with       the contestants.                     Each year          as
many as six               applicants            can earn the               Baldrige           award.


The Deming prize,                      named after            the quality               management             consultant              W.
Edwards            Deming,        is      39 years          old.        Like      the    Baldrige            award,       it     can
go to a small                firm,         a large          one,       or a division            of a large               firm,
although            the prize             categories           differ          somewhat        from     those         of the
 Baldrige           award.           There      are also           Deming prizes               for     individuals               for

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contributions              to quality        control.             Applicants         must meet the
specific          prize      criteria,       which         stipulate          improvement           of quality
control         methods.          Judges     of contestants'                  applications           are
permanent          and are certified                by the        Japanese        Union      of Scientists               and
Engineers.            As with        the Baldrige             award,      Deming examiners                 must
disqualify           themselves          from      judging         companies       with      which     they       might
appear       to have a conflict                 of interest.              In contrast          to the          limited
number of Baldrige                  awards      given       yearly,       however,         there      is no limit
on the       number of applicants                   that      may win the           Deming prize              each
year.


POSITIVE          IMPACT OF BALDRIGE AWARD ON CORPORATIONS


In the       course          of our work,          we learned           of some positive              effects
that      the     Baldrige        award is         having         on corporations.                 For example,
many companies                are using      the      Baldrige          award criteria              to evaluate
the     quality       management           programs          of their         own business           units:       to
judge      these      programs'          progress:           to    identify       problem      areas;          and to
determine           what more needs to be done,                         rather      than     just     to submit           a
winning         award application.                  Also,         suppliers       to corporations               that
embrace         comprehensive            quality        management            have benefited            from      the
spillover           effect       of being       encouraged             to increase         their      own quality
control         efforts.
In conclusion,         our     initial        work has shown that                     public      and private
interest      in and concern             about       the quality          of American             products      and
services      is growing.            Also,       some companies            are        receiving      dramatic
benefits      from    embracing          comprehensive           quality         management          systems.
While      our work    is    still       in   its     initial      phase,        it     has become clear
to us that       adoption        of comprehensive               quality      management             systems      by
American      companies        is one of the             most promising                ways to strengthen
American      competitiveness             in world          markets.


Mr. Chairman,         this     completes            my statement,          and I will             be happy to
respond      to any questions             you or other           members of the                committee        may
have.




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