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Total Quality Management and Employee Ownership

By Fred Freundlich and Christopher Mackin, Ownership Associates
Published by The National Center for Employee Ownership
in Employee Ownership Report, September/October, 1992.


“Quality” has become the mantra of American business. By the 1970’s and 80’s, American companies, complacent after a generation of post-World War II dominance, began to lose to international competitors, most conspicuously the Japanese. Total Quality Management (TQM), developed in large part in this country in the 1950’s by the well known gurus, Deming, Juran, and Crosby, has been put into practice on a wide scale in Japan, while ignored here. In the 1980’s, in response to competitiveness crisis, it was brought back to American shores, reshaped our culture.

What is TQM ?

The term “Total Quality Management” is actually a bit misleading. It does mean improving quality (reducing defect rates, meeting products spec’s, etc.) and giving quality at least equal, if not higher, priority relative to concerns about volume, cost, and schedule, but it also means much more than that. TQM redefines quality. The new definition might be summed up as: meeting or exceeding the customer’s requirements with respect to cost, delivery, product features, and quality. This broad redefinition is markedly different from the traditional business strategy of most American companies. For generations, American management has been driven almost exclusively by short-term profit goals and standardization, focusing on “getting the products out”. TQM is driven by opposite long-term growth goals and flexibility, focusing on the “bringing the customer in”.

A number of general principles, developed by Deming, Juran, Crosby, and the Japanese, have been adapted by U.S. companies to guide the process of focusing on the new “quality”. Though they are often called by different names and given varying amounts of emphasis, the main principles are; (1) Customer Satisfaction, (2) Continuous Improvement, (3) Extensive Measurement, and (4) Employee Involvement.

  1. CUSTOMER SATISFACTION: the ultimate goal of TQM is to please customers. Meeting or exceeding customer requirements means shifting emphasis from the short-term to the long-term, from the product to the customers-listening to them, adapting to their needs. TQM teaches that customer satisfaction is not only a measure of quality; it is a whole new approach to doing business. TQM has popularized a different way of thinking about organizational structure, workflow, and relations among departments and employees. The new idea is often characterizes as the customer chain: the final user of a company’s product - the consumer in the showroom - is not an employee’s only customer. Everyone in the organization who is affected by a given person’s work is also that person’s “customer”. Pleasing these “internal” customers is fundamental to satisfying the final “external” customer. Building the customer chain also has profound implications for the organization as a whole, flattening out the hierarchy, re-designing work, sharing information, shifting responsibility, and empowering employees.
    Another key to customer satisfaction is the integration of quality concerns into the day-to-day work of everyone in the company. TQM proponents argue that “quality control” should not be a separate department, but rather that quality is everyone’s responsibility and should be built into each person’s work practices.

  2. CONTINUOUS IMPROVEMENT: American companies have tended to think in very finite, short-term, and programmatic ways. If a problem arises, there must be a program to fix it. End of story. The message of continuous improvement is that, in the global business arena, things are never truly going to be “fixed”. Markets shift with dramatic speed and are highly specialized. Responding to these markets requires constant change, innovation, and also prevention, addressing potential problems before they occur. Continuous improvement, then, is a whole new orientation to work and management. Achieving world class quality is not just another program; it is an ongoing process.

  3. EXTENSIVE MEASUREMENT: For customer satisfaction and continuous improvement to be possible, proponents of TQM believe it is essential to measure the results of the company and to perform measurements in radically new ways. In the past, most firms did relatively little serious measurement. When they did, they relied mostly on traditional, short-term financial criteria to measure overall results, and a series of isolated, somewhat haphazard, micro-measures of departments or functions to evaluate internal initiatives. First, TQM recommends that measurement and problem-solving practices of various kinds be used more extensively, at all levels of the company, and that the results of measurement be communicated much more widely. Measurement should be based on the scientific method of careful observation and controlled experimentation as far as possible. Second, the criteria for measurement should be determined with customers, to meet their needs. The impact of activities should be measured at the level of the system, not by individual function, machine or department. Performance should be measured over the long-term and include a range of criteria beyond quarterly or annual profits.

  4. EMPLOYEE INVOLVEMENT: Widespread employee participation in local decision making is central to the logic of TQM. Employees must be empowered to be flexible and make decisions if customers are to be satisfied. They must be able to take action to prevent and solve problems, and be committed to the organization. If decisions are made by a few peole at the top, not only are employees’ insights and experience lost and problems allowed to fester, but employee commitment is undermined as well. Further TQM-mandated measurement is impossible with traditional, top-down decision making. Shop- and office-floor employees should, as far as possible, perform the measurement and solve the problems themselves.

Cautionary Notes

TQM is not without its critics. A number of respected studies suggest that TQM efforts have not often been as successful as hoped. Many companies only pay lip service to the ideas, and TQM becomes just the latest fad. Other firms have tried to do too much at once and lost focus. We suspect, in addition, that many employees have often been skeptical. Companies’ emphatic, new messages about quality, while inspiring if they are perceived as sincere, can be alienating and even insulting for employees if they are perceived as a kind of religious evangelism.

TQM & Employee Ownership-Natural Synergy

One of the apparent shortcoming of quality experiments to date has been maintaining the kind of consistent, long-term level of employee involvement and effort that real TQM demands. When internal customers are comprised of owners, however, there is reason to believe that the TQM disciplines are much more likely to be sustained. Total Quality teaches employees how to convert employee-owner self-interest into effective organizational work practices that serve customers.

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