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Transcript of iurnaC PRODUKTIVITI - MPCilmuonline.mpc.gov.my/elmu-cis/document/JurnalProduktiviti/DIS94.pdf ·...

0000053847Jurnal Produktiviti - [Journal].

iurnaCPRODUKTIVITI

iurnaCmrnai

TPRODUKTIVm

PenasihatI small Adam

(Ketua Pengarah)

Ketua PengarangSharifah Normah Syed Omar

(Pengarah Perhubungan Korporat)

PengarangSujaidi Dasuki

Sidang PengarangDr. Abd. Wahab Muhamad

Pauzi HanipiIsa Abu Dakar

Suhaimy Abdul TalibHamdi OthmanAzlan Kassim

PenerbitPerbadanan Produktiviti Negara

(National Productivity Corporation)Peti Surat 64,

Jalan Sultan 46904Petaling Jaya, Malaysia.

Tel: 03-7557266

Pencetak/PrinterAmpang Press,

No. 6 Jalan 6/91,Taman Shamelin Perkasa,

Batu 3 1/2 Jalan Cheras,56100 Kuala Lumpur.Tel: 948 944 8/5036

Kami mengalu-alukan sumbangan rencana untuk dimuatkan di dalam jurnal ini. 'JurnalProduktiviti' diterbitkan enam bulan sekali, menampung semua aspek ekonomi danpengurusan serta lain-lain bidang yang ada hubungannya dengan konsep produktiviti.Rencana-rencana yang tersiar tidak semestinya merupakan pendapat NPC.

NPCPerbadanan Produktiviti Negara

'Jurnal Produktiviti' diterbitkan oleh Perbadanan Produktiviti Negara(Kementerian Perdagangan Antarabangsa dan Industri) Peti Surat 64,

Jalan Sultan, 46904 Petaling Jaya, Selangor, Malaysia.Telefon : 03-7557266 (15 Talian) Fax : 03-7578068

Editorial

MENINGKATKANKEWIBAWAAN PENYELIDIK

Penemuan kajian yang logikal, rasional danmunasabah berupaya mempertingkatkan kewibawaanpenyelidik. Di bidang penyelidikan produktiviti dankualiti, penemuan-penemuan kajian perlu juga praktikalyang boleh dimanfaatkan oleh organisasi-organisasisektor awam dan swasta.

Justeru itu, hasil kajian-kajian yang dijalankanwajar dikembangkan kepada yang hak menerima danmengetahui. Menyimpan khazanah ilmu tanpadikembangkan kepada orang lain sama sepertimembuat penyelidikan untuk kepentingan akademiksahaja. Oleh itu sumbangan-sumbangan intelektualanda adalah dialu-alukan.- I A

BIODATA:

Dr. Mohamed Zairi is a Unilever Lecturer in Total Quality Management at theUniversity of Bradford Management Centre, teaching at undergraduate, post-graduate and post-experience levels.

Prior to joining the academia, Dr. Zairi had several years field of experience inthe manufacturing and production areas. Dr. Zairi is a renowned author of severalbooks on Total Quality Management and is the editor of the latest journal inquality in the market ie. "Benchmarking for Quality Management and Technol-ogy"-

His current research interests include mission statements and performance meas-urement, TQM implementation and innovation. Dr. Zairi has travelled exten-sively throughout Europe, America and Asia advising and lecturing on qualitymanagement.

MEASURING THE CULTURE OFQUALITY THROUGH SELF-ASSESSMENT:

A BENCHMARKING PERSPECTIVE

Dr. Mohamed ZairiUnilever Lecturer in TQM

University of Bradford Management CentreBradford, BD9 4JL, UK

SYNOPSIS

Self-Assessment is the ultimate way of measuring how effective any qual-ity programme is an indicator of organisations' commitment to continuousimprovement. One of the reasons why Quality Management in Japan iswell embedded into organisational culture is thought to be due to the useof self-assessment based on the Deming Prize framework.

Self-Assessment in Japan is referred to as TQC Audits' Ishikawa1 arguesthat Quality Audits through self-assessment are the best way to involvesenior managers and to examine business organisations from a completeperspective. He concludes:

"In a nutshell, the purpose of an audit is to use Quality as anindicator for judging whether or not a company is well managed."

This paper describes the origins, meaning and workings of different self-assessment frameworks. It also benchmarks experiences with self-assess-ment both in Japan, USA and Europe.

Finally, the paper concludes with guidelines for effective use of self-as-sessment to develop a culture of continuous improvement.

1. INTRODUCTION

Self-assessment is a new phenomenon in the West where most businessorganisations seem to be highly interested in measuring the culture ofquality. Senior managers have come to recognise that there are powerfultools such as the Malcolm Baldrige National Quality Award (MBNQA) orthe European Quality Award (EQA) framework, which can help themassess their strengths and weaknesses in various areas and whether theyare deploying their quality efforts in the right way.

Self-assessment helps organisations in many ways, including for example:

* The opportunity to take a broader view on how TQM isimpacting on various business operations;

* Measuring performance of processes, enablers and thatrelationship to results;

* Measuring in financial and non-financial areas;

* Measuring internally and externally including thecommunity and the environment;

* Objective assessment through third party involvement;

* Opportunity to benchmark and compare like for like;

* Measuring for improvement rather than for hard control;

* Creating the desire to do better and perhaps even win awards.

Self-assessment frameworks are therefore not means to win awards butperhaps more importantly vehicles for embarking on a journey of continu-ous improvement and the determination to become more competitive.

The Malcolm Baldrige Quality Award for instance was introduced to pro-mote:

* Awareness of quality as an increasingly important element ofcompetitiveness;

* Understanding of the requirements for quality excellence, and

* Sharing of information on successful quality strategies andthe benefits derived from implementation of these strategies.

Although self-assessment is a new practice in the West, this is not howeverthe case in Japan. The quality movement in Japan started in 1946 throughthe birth of the Union of Japanese Scientists and Engineers (JUSE). In1949, the Quality Control Research Group in JUSE was formed to givelectures and education on the principles of quality control both in JUSEand the Japanese Standards Association (JSA). In 1950, Dr W E Demingwas invited by JUSE to give seminary on statistical quality control. In1951 the Deming Prize was instituted and the Deming Prize Committeewas formed. In the same year the 1st prize was given to:

* Fuji Iron & Steel Co Ltd* Showa Denko K K* Tanabe Seyaku Co Ltd* Yawata Iron & Steel Co Ltd

2. TYPES OF SELF-ASSESSMENT FRAMEWORKS:

A. THE DEMING PRIZE

The Deming Prize has been around for over four decades. During that timethe following awards were given:

* 53 prizes for individuals' achievements* 126 Deming Application Prizes to companies* 13 divisions among twelve corporations have won the Deming

Prize for division.

The Deming Prize went through various stages of evolution:

* In 1951 the 1st prizes were given at a ceremony in theOsaka Chamber of Commerce and Industry on September22nd;

* In 1957 Deming Prize for Small Companies was created;

* In 1965 Deming Application Prize for Divisions ofCompanies;

* In 1970 the Japanese Quality Control Medal was introducedfor firms who have won the Deming Prize 5 years previous;

* In 1972 a system of honouring a single establishment orplace of business was adopted;

* In 1974, development of the Deming Prize Award forIndividuals;

* In 1984, Deming Prize became international and overseascompanies could apply for it.

Criteria used for assessment of Deming Prize Applications

There are 10 criteria which are used for assessing Deming Prize Applica-tions:

(1) Company policy and planning;

(2) Organisation and its management;

(3) QC education and dissemination;

(4) Collection, transmission and utilisation of information on quality;

(5) Analysis;

(6) Standardisation;

(7) Control ("Kanri");

(8) Quality Assurance;

(9) Effects;

(10) Future plans.

The application document clearly specifies how the assessment is carriedout, as follows:

"The manner in which such activities as investigation, research, develop-ment, design, purchase, production, inspection, sales, etc., which are essen-

tial for the proper control of product and service quality are conducted byeach and every segment of the company is examined and judged.

The term 'quality control' as used in this guide denotes company-widequality control (CWQC) based on statistical quality control techniques."

B. THE MALCOLM BALDRIGE NATIONAL QUALITYAWARD

The MBNQA was established to promote quality and its importance forAmerican business organisations. It was to alert senior managers on theneed for competing with quality as the key driver. The award itself there-fore was seen as a standard of excellence to help promote quality and assuch, help American businesses achieve high standards of competitive-ness. The award was established by Congress back in 1987 to raise aware-ness about quality management and to reward those organisations thathave excelled in having successful quality management systems.

The National Institute of Standards and Technology (NIST) which is adivision of the commerce department was given the task of administeringthe award. NIST had always had a role of promoting advanced sciences,safety, competitiveness of American companies. NIST in the task of im-plementing the new award is assisted by the American Society for QualityControl (ASQC) which is a non-profit organisation serving more than80,000 individual members and 700 corporate members in the UnitedStates and 62 other countries.

The award was named after Malcolm Baldrige who was Secretary ofCommerce from 1981 until his death in July 1987, in a road accident. Hechampioned the whole initiative and in recognition of his efforts, Congressdecided to name the award in his honour.

The award has been running successfully for over 6 years now. So far, thefollowing companies have won it:

* 1988. Motorola Inc., Commercial Nuclear Fuel Division ofWestinghouse Electric Corp., Globe Metallurgical Inc.

* 1989. Milliken & Company, Xerox Corp., Business Productsand Systems.

* 1990. Cadillac Motor Car Division, IBM Rochester, FederalExpress Corp., Wallace Co, Inc.

* 1991. Solectron Corp., Zytec Corp., Marlow Industries.

* 1992. AT&T Network Systems Group., Texas Instruments,Inc., AT&QT Universal Card Services, The Ritz-Carlton HotelCompany., Granite Rock Company.

76 US companies are applying for the 1993 MBNQA. They represent 32manufacturing companies, 13 service companies and 31 small businesses.This compares with 90 applications in 1992, where 5 have won it.

Table 2 illustrates the breakdown of the number of applications, accordingto industry sector, from 1988 to 1993.

Purpose of MBNQA

Only a maximum of 2 awards can be won at any particular year, in thefollowing categories:

o Manufacturingo Serviceo Small Businesses

The MBNQA came under severe criticism in 1991, particularly that someof the previous winners have slipped badly in their competitiveness. Someof the specific cases which were referred to included Federal Express,Cadillac and recently IBM. NIST therefore has now started to really high-light the core objective of the award, and that is to promote quality, sharegood practices amongst American businesses. According to Curt Reimann,the director of quality programs at NIST:

"While the award is the centrepiece, it is important to remember theprogram is more than a contest. It has helped stimulate a grassroots effortthroughout the United States, and the World, to improve quality in manyorganisations."

It is claimed that more than 1 million copies of the award criteria are inuse World-wide, many quality award programmes are modelled after theBaldrige Award.

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Criteria for Assessment

Figure 1 illustrates the MBNQA framework. The latter have 4 key ele-ments:

(i) Driver: Senior Executive Leaderships and their important role;

(ii) System: represents various processes which are well documentedand well managed;

(iii) Measures of progress: performance measures to activate thecontinuous improvement process;

(iv) Goal : results - financial and non-financial.

There are 28 examination items spread in 7 categories. Examinations arecarried out by an approved board of 265 examiners of quality experts.

Scoring System

A maximum of 1000 points can be allocated for each submission. Thepoints are given based on evaluation in the following areas:

(i) Approach: Methods used to deploy the quality effort include, amongstothers:

* Methods, tools, techniques and their appropriateness andeffectiveness;

* How systematic is the approach, how integrated andconsistent is it?

* Use of information, facts and objectivity.

(ii) Deployment: The implementation of the approach includes, amongstothers:

* Pervasiveness and breadth of application in allprocesses, activities and tasks;

* Relevance to products and services;

* Application externally to customers, suppliers.

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(iii) Results: Outcomes from the whole quality effort, include:

* Performance standards;

* Benchmarking;

* Rate of performance improvement;

* Breadth and importance of performance improvement.

Winning scores have varied from year to year. Table 3 shows the distri-bution of written scores from 1988 to 1992. The % of applicants in therange of 401-600 points is 40% in 1992. None of the submissions scoredin the region of 876-1000 points and those companies that scored between751-875 points only did so in 1988, 1989 and less so in 1990.

C. THE EUROPEAN QUALITY AWARD

The European Quality Award (EQA) was developed and introduced by theEuropean Foundation for Quality Management (EFQM) in 1991. TheEFQM itself was created back hi 1988 by leading business organisations,to alert European business organisations on the need to incorporate qualitymanagement in all operations and also to raise the level of knowledge andawareness on the benefits of TQM.

The EFQM was helped by the European Organisation for Quality (EOQ)and the European Commission during the establishment of the award.

The EQA was presented for the first time in 1992. It incorporates:

(i) European Quality Prizes: given to 3 companies for their highstandards of quality and their excellence and commitment tocontinuous improvement.

(ii) European Quality Award: given to Rank Xerox Ltd, the mostsuccessful exponent of TQM in Western Europe.

The EQA Framework

Figure 2 illustrates the EQA framework. Unlike the MBNQA framework,the EQA model is split so that 50% of the assessment marks are given toenablers and 50% for results. 9 Elements represent the model. Enablers

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concern themselves with how results are achieved and results are con-cerned with what the organisation has achieved and is achieving. The 9elements include :

1. Leadership ) Dyiver

2. Customer satisfaction )3. People(Employee) satisfaction ) Achieve through4. Impact on society )

5. Policy and strategy )6. People management ) Leading ultimately to7. Measures ) excellence in8. Processes )

9. Business results.

EQA Assessment

The assessment framework of the EQA award is different from theMBNQA. The method applies differently to the enablers and the results.

Enablers: scores are given based on:

* degree of excellence in the approach* degree of deployment of the approach

Results: scores are given based on:

* degree of excellence of results* scope of results.

This is a big improvement on the MBNQA in that TQM has to show thatit is working, improvements are visible and easily quantifiable and thatbottom line results are also improving.

D. OTHER SELF-ASSESSMENT FRAMEWORKS

i) The Australian Quality Award

Introduced in 1988 for similar reasons to those linked to MBNQA andEQA, mainly to recognise efforts of outstanding organisations, to encour-

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age other companies to follow and to raise the level of education andawareness on the importance of quality in raising competitive standardsand its impact on the community.

The award has 3 sections of potential winners:large organisation section;subsidiaries and divisions section;small enterprise section.

Figure 3 illustrates the Australian Quality Award (AQA) framework. 6Key elements are inter-related, these include:

1. Leadership2. Policy and Planning3. Information and Analysis4. People5. Customer Focus6. Quality of Process, Product and Service.

The assessment includes 3 stages :

(a) The evaluation process: to evaluate all entries.

(b) The Judging Process: site visits and final selection of winners.

(c) The Feedback Report: all companies who enter for the awardreceive a comprehensive report with evaluators' assessment andcomments from the various judges.

ii) The NASA Quality and Excellence Award

This is also referred to as The George M Low Trophy, specifically targetedat the aerospace industry. George Low was a very distinguished scientistand educator in the 1950s and this award is a recognition for his efforts.

The NASA award is to encourage high quality from contractors, subcon-tractors and suppliers to NASA and to reward innovativeness and excel-lence.

The objectives of the award are very similar to the Deming Prize, MBNQAand EQA, namely to:

* Increase public awareness of the importance of quality;

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* Encourage domestic business and enhance competitivenessin the USA;

* To encourage the sharing of successful experiences,successful methods.

The evaluation criteria used is split into two areas: Performance achieve-ments (600 points) and Process achievements (400 points).

5 Criteria are used for assessment. The assessment methodology used isslightly different from that of MBNQA and EQA. If looks at time, per-formance, resource issues and planning and deployment for each 5 criteriabefore a score is allocated.

Some of the winners of the 1990 NASA award include:

Rockwell International Corporation Space Systems Division(Large business category).

Marotta Scientific Controls, Inc.(Small business category).

3. EXPERIENCE WITH SELF-ASSESSMENT IN JAPAN:

NEC KANSAI CO. LTD.

Used to be part of New Nippon Electric Co Ltd. Formed in 1983. Turn-over of Y800 million and employs 4,050 people. Produces VLSIs, Com-pound Semi-Conductors and other electronic parts.

Since the introduction of TQM in 1984, NEC KANSAI has pioneeredmany leading edge technologies and has achieved in various areas ofquality improvement which led to greatly enhanced business performance.

NACHI-FUJIKOSHI CORPORATION

A machinery manufacturer with a turnover of Y13.3 billion. It employs4,866 workers. Mainly designs, manufactures and sells tools, bearings,machine tools, hydraulic machinery and equipment and industrial robots.

Uses TQC for managing all its business operations, relies heavily on team-work and on inter-disciplinary approach to working. Achieved seriousbenefits from the use of TQM.

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HOKUSHIN INDUSTRIES. INC.

This company is a manufacturer of precise-function rubber products forinformation equipment and other related equipment. Turnover of Y278.3million and employs 641 people. TQM was introduced in 1978 atHOKUSHIN for strengthening the company and improving quality stand-ards. The motto used was 'creation and vitality' and through strong lead-ership, HOKUSHIN has managed to reduce customer complaints andimprove sales.

Winners of the Deming Application Prize for Small Businesses include:

SIN'EI INDUSTRIES CO. LTD.

This company manufactures decorative and functional parts (high-classcoating products, highly rust-preventive products.....) for automobile bod-ies. Its turnover is Y180 million, it employs 512 people.

TQM was introduced through strong commitment from the top and involv-ing all aspects of the business. A complete culture transformation wasachieved where various bottlenecks were removed and quality assurancebecame a driving force. Quality improvements started therefore to takeplace at the design stage. The performance was improved considerably.SIN'EI INDUSTRIES CO achieved zero delivery deficiency rate and salesand profit targets were often achieved one year ahead of schedule.

NUGATA TOPPAN PRINTING CO. LTD.

A manufacturer of printed circuit boards and established in 1984. Its turno-ver is Y50 million and it employs 382 people.

TQC was introduced in 1986 to strengthen the performance of variousbusiness operations. Gradually there was a shift from quality assurance tocorporate quality policy and control which led to great reductions in claimsand increased customer satisfaction.

The Deming Application Prize for Overseas Companies was won byPHILIPS TAIWAN LTD in that year. This company is examined sepa-rately as a case study in later sections.

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The Japan Quality Control Medal was awarded to:

AISIN AW CO. LTD.

This company was established in 1969. It specialises in the manufactureof automatic transmissions. Its turnover currently is at Y6,480 million andit employs 4,000 people.

TQM was introduced back in 1973 with the motto 'Quality First'. This ledto AISIN winning the Deming Prize in 1977 and the Japanese QualityControl Medal in 1982.

This company continued to excel in quality standards and to pioneer newideas and concepts. In particular, it has made great strides in introducingan integrated approach to New Product Development (NPD) and Research,driven by quality principles. Amongst the major benefits achieved by thismodel company which has introduced a continuous learning activity, arethe following:

* the realisation of commercially attractive automatictransmissions of best quality world-wide;

* production set-up matching the globalisation of AISIN'soperation and strategy;

* having employees who are highly motivated and full ofcreativity and vitality;

* a culture of teamwork and inter-functional collaboration, basedon the gathering of wisdom, synergy, creativity and theestablishment of an R & D network;

* complete corporate development which is solid andsustainable.

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Winners in 1992 are represented in Table 1:

TABLE 1: DEMING PRIZE WINNERS OF 1992

CATEGORY

Japan QualityControl Medal

Deming prize forIndividuals

Deming Applica-tion Prize

Quality ControlAward forFactories

COMPANY NAME

AISIN CHEMICALCO. LTD.

TAKENAKACORPORATION

MR. MASAONEMOTO

AISAN INDUSTRYCO. LTD.

IATCOCORPORATION

NISSAN MOTORCO. LTD.

TOPPAN PRINTINGCO. LTD. (ElectronicsDivision, KumotoPlant)

INDUSTRY SECTOR/PRODUCTS

Manufacture ofautomotive parts

GeneralConstructions

Function of Counsellor

Manufacturer ofAutomotive parts

Manufacturer ofautomotive automatictransmission

Automotive Assembly

Manufacturing of colorfilters

NUMBEREMPLOYED

825

11,000

-

3,276

2,916

4,287

242

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Benefits of the Deming Prize

* Applications can be received from any industrial sector;

* Applications also encouraged from overseas companies. Atpresent, only two companies have benefited from this: FloridaPower & Light (USA) in 1989, and Philips (Taiwan) in 1991;

* Winners are given the chance to apply for the Japan QualityControl Award every five years, to demonstrate that the questfor quality improvement does not stop but that the journeyfor continuous learning continues;

* Companies can apply for the Deming Prize twice if they haveupgraded/expanded their operations. This particularly appliesto small companies who may expand their operations;

* Winners tend to have similar characteristics such as:

Consistency in managing quality systems

Focus on positive quality in terms of innovation, creativityand adding value to the end customer

Policy management is based on long term goals rather thanyearly financial returns

Various methods are used for managing quality on a dailybasis (e.g., seven new tools of TQM and advanced statisticaltechniques)

Management methods catered specifically for individual firms,climate, culture and style.

4. EXPERIENCE WITH SELF-ASSESSMENT IN THE USA:

Companies in the USA started to experiment with self-assessment sincethe inception of the Malcolm Baldrige National Quality Award in 1987.

A wide variety of benefits have been reported to have resulted from usingthe Baldrige framework. Companies examine themselves in 28-30 areas,

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organised in 7 key categories including:

o Leadershipo Information and Analysiso Strategic Quality Planningo Human Resource Development and Managemento Management of Process Qualityo Quality and Operational Resultso Customer Focus and Satisfaction

Examples of Companies that have won the MBNQA between 1988-1992are illustrated in Table 4.

Benefits of the MBNQA

* Companies that apply for the award receive considerable feed-back on their quality efforts;

* Creates more openness and sharing of information amongstcompanies;

* Encourages the development of a quality culture throughmaking self-assessment an ongoing exercise;

* Key characteristics of high scoring companies tend toinclude:- Aggressive quality goals and plans- Benchmark/response time drivers- Proactive customer systems- Major human resource investment

* Key characteristics of lower scoring companies:- Passive leadership- Reactive customer systems- Limited measures/benchmarks- Quality in key product/service only- Limited closed loop

5. EXPERIENCE WITH SELF-ASSESSMENT IN EUROPE:

Although still lagging behind Japan and USA in terms of self-assessmentquality cultures, the European experience is, however, growing all thetime. A task force from the European Foundation for Quality Management(EFQM) has recently published a report entitled 'Business Improvementthrough Self-Assessment'2 which describes the experience of 7 organisa-tions that have used self-assessment.

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In addition to the wider external benefits of networking for benchmarkingand sharing learning and experience, various internal benefits were re-peated by the various companies concerned, including for example:

* senior management use self-assessment to set targets forcontinuous improvement

* self-assessment frameworks can be used to translatecorporate objectives at all levels

* opportunity to carry out improvements

* awareness of the challenge required to establish a true TQMculture

* the discipline of measurement in financial and non-financialareas

* a disciplined approach for benchmarking

* focus on customer satisfaction

* builds team spirit through wider employee involvement

* can act as a catalyst for setting stretching goals.

6. IMPLEMENTING SELF-ASSESSMENT EFFECTIVELY- SOME GUIDELINES:

The following guidelines are based on experiences from European com-panies using the European Quality Award framework1 and also advicefrom the works of Kaoru Ishikawa2 on the use of the Deming Prize Modelin Japan. It is important to note that for self-assessment to be effective asa tool for developing a sustainable culture of continuous improvement, ithas to look at performance in relative terms and not to set up league tables.

The most common areas which have been reported to impinge most on thedegree of effectiveness of self-assessment tools include the following:

i) Self-assessment should not be run as a separate quality activity. Ithas to be integrated into the business planning process.

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ii) Keeping the process simple and adapting it to fit individual cultures.

iii) Helps produce a more balanced scorecard for managers - looks atperformance much more widely.

iv) A powerful communication tool - encourages wider employeeinvolvement.

v) Any self-assessment framework or its implementation has to leadto a clear action plan following regular assessments and the out-come should be positive improvements.

vi) Any approach taken for self-assessment has to take intoconsideration the organisation's maturity, its culture, itsparticular business environment and strategic issues.

vii) Self-assessment should be carried out from a corporate, long termperspective.

viii) It is more effective to examine things in their own setting withouta lot of rehearsal and preparation.

ix) Important to check that action plans from previous audits (self-assessment exercises) have been carried out and that gaps inperformance have been closed.

x) Audits should be carried out with a friendly attitude and without anypreconceptions.

xi) Advice should be positive and constructive.

As Kaoru Ishikawa1 argues on this point:

"An audit does not consist of picking away at petty details or pointing outweaknesses and putting the screws on people. Holding an audit should belike a doctor making a diagnosis, curing sickness, and producing a healthypatient."

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REFERENCES:

[1] Ishikawa, K. (1989)Introduction to Quality Control', Chapman and Hall, Tokyo, Japan.

[2] Business Improvement through Self-Assessment', EuropeanFoundation for Quality Management (EFQM), Brussels, 1993.

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BIODATA

Dr. Phang Siew Nooi is currently an Associate Professor in the Public Admin-istration Division, Faculty of Economics & Administration, at the University ofMalaya.

She obtained her doctorate degree from University of Birmingham, United King-dom, in the field of Local Government. She specialises in Urbanisation andLocal Government Management.

She has written several articles in this area. She has also written a book on"Sistem Kerajaan Tempatan di Malaysia" (Local Government System in Malay-sia) published by DBF.

Dr. Malcom Norris is the Deputy Dean of the Faculty of Commerce and SocialScience, University of Birmingham, England. He has published extensively inthe area of comparative local government and Personnel Management. His broadexperience covers stints as visiting Professor and Consultant in countries such asMalaysia, Tanzania, Nigeria, Indonesia, Sudan and Brunei. His main researchinterests lie in the areas of public enterprise, local government and personneladministration.

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PERFORMANCE OF A LOCAL COUNCILIN SOLID WASTE MANAGEMENT- A STUDY OF SUPERVISION ANDCONTROL OF HUMAN RESOURCE

Phang Siew Nooiand

Malcom W. Morris

INTRODUCTION

The performance of a local authority in solid waste collection and disposalis critical to the overall well-being of the state and its people. Tliis is oneof many public-orientated functions which local authorities are expected tomaintain and expand. Proper discharge of this service is essential to publichealth, a clean environment and basically good healthy living. Hence, non-performance of this function has far reaching implications both to thepeople and the overall development of the State.

It is crucial for the department that discharges this function to ensure thatthe service is carried out properly and adequately for this itself registers theperformance capability of the council concerned. Solid waste managementinvolves managing a very large work force of workers whose services canbe temporary, contractual or permanent. The department has to ensure thatstipulated duties are carried out and the service delivered. In view of this,the department has a responsible role in ensuring proper supervision andcontrol of its human resource.

In this aspect, the experience of the Penang Island Municipal Council orthe Majlis Perbandaran Pulau Pinang (MPPP) in dealing with its workforcein solid waste management on the island shows the mavericks of humanresource management at the lower hierarchy.

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Solid Waste Management by the Majlis PerbandaranPulau Pinang

Solid waste management for the Island of Penang is provided by the UrbanServices Department of the MPPP. Operationalising of this function is inaccordance with the three main local government Act1 as well as theEnvironmental Act 1974 and numerous Bye-laws. Solid waste manage-ment in Penang Island takes a very large share of municipal resources interms of manpower and expenditure, cited as 38% of total manpower and26% of total expenditure2.

The collection and disposal of refuse provision by this Department can beviewed in terms of those actively delivering this service, namely thoseperformed by the Department itself and those carried out by private con-tractors.3 In both instances, the Department plays an important role inensuring that both parties carry out their functions as stipulated.

Presently refuse collection consists of two independent collection systems.One is the ordinary collection of household refuse done by "double-handling", where the refuse is collected from each house and put into binsat refuse collection centres from where it is taken by vans to the finaldisposal sites. The other system collects waste from the markets, hotels,high rise buildings and flats, generally known as the high discharges.

Disposal of solid waste is also carried out in two ways, i.e. through incin-erators and controlled tipping. Presently, the Department burns the refusecollected but this amounts to only 10% of total waste collected. Disposalof the rest of the refuse is carried out at Jelutong Road and Pantai Achehunder limited controlled tipping conditions for land reclamation purposes.

Amount of Garbage Collected

The collection of garbage by private contractors has not guaranteed effi-ciency, and it appears that the volume collected by them has decreased.Hence the council has to undertake what the private contractors cannotmanage. This is depicted in Table 1. Normally prior to festival days andduring the fruit season, the volume collected increases.

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Table 1

Solid Waste Collection: Private and Council 1985-1989by Year and Day; Total

Year

1985

1986

1987

1988

1989

Collection byCouncil (tons)

7,573 (6%)

6,945 (5%)

7,458 (6%)

15,220 (12%)

18,071 (15%)

Collection byContractors

(tons)

118,165 (94%)

129,327 (95%)

121,121 (94%)

110,718 (88%)

197,920 (85%)

Total Per Year

125,738

136,272

128,579

125,938

215,991

Total Per Day*

344

373

352

344

345

Source: MPPP* includes both household refuse as well as commercial and industrialwaste

It has been projected that an increased quantity of solid waste will begenerated in the future as the population increases. Subsequently solidwaste management will take a yet larger share of financial and humanresources of the Council at the expense of other services that can beprovided. In 1987, the Council spent RM19,393,000 on solid waste col-lection, haulage and disposal. With further increase in waste generation,the costs of operating this service will increase substantially. In view of

27

this the Council has drawn up certain guidelines for improving its services,which it has implemented in 1991. Some of the actions taken includecollection of solid waste disposal at night, actively promoting a cleanlinesscampaign and encouraging the use of plastic bags for disposal of wasteespecially by the petty traders, high-rise dwellers and householders.

With a view towards improving its cleansing function to the public, theMPPP set up in January 1991 an Operations Room where complaints onits cleansing services can be received and promptly dealt with. All com-plaints are dealt with immediately especially those pertaining to cleanli-ness and collection of rubbish. Besides such efforts the Council has alsoadapted certain human resource control and supervision measures to en-sure efficient garbage collection and disposal service.

Supervision and Control Measures

These measures can be seen in two specific areas of control and supervi-sion of council workers, and of work performed by private contractors.

A. Supervision and Control Measures: Council Workers

In the supervision and control of manual workers the Council has to abideby the General Orders of the Government in dealing with the issue ofdiscipline. The collection of rubbish by the Council includes only 15% ofthat collected on the Island, the rest having been contracted out to privatecontractors. The council is therefore responsible for only a small propor-tion of this service, in terms of physical area covered it was more signifi-cant as these places are located in the rural areas where houses are spacederratically. While the areas covered may be large, the amount of rubbishcollected is not substantial and the council maintains a small labour forceto carry out this function. This group falls under the supervision of theUrban Services Department.

Collection is done every day by the Council workers in the areas men-tioned with the provision of a lorry to Teluk Bahang, two lorries to BalikPulau and three lorries to Bayan Baru. Since the collection is done daily,a roll call centre is set up in each of these areas. The lorries will go tothese centres every morning at 6.30 am. where the workers are supposedto have gathered for their attendance to be taken. A 15 minute graceperiod is given to late comers and work officially begins at 7.00 am. Ateach of these centres there is an overseer who, with the help of the Mandors,will arrange for the workers to be assigned to their coverage of work for

28

the day. Supervision is done manually by the overseers who will checkon the performance of the workers by going around the areas supposedlyafter the rubbish had been collected.

The Mandors who are assigned to the lorries will follow the workers toensure that the rubbish is actually collected properly.

While the system as it appears may seem to be workable, assuming main-tenance of schedules and low absenteeism, performance has proved other-wise. The main obstacle to the planned programme is the frequent break-down of council lorries that are needed to collect the rubbish. What issurprising is that new compactor lorries, specially bought for the Depart-ment, suffer from most frequent breakdowns and have been replaced bythe old manual side-loader type of lorries.

Two distinct problems arise from this. Firstly, the compactor lorry, amechanized vehicle with the ability to tilt and compress the rubbish tocreate space for more garbage, is larger and has a capacity to contain morerubbish and needs less workers to manage it. This means a reduction inthe number of workers required to shovel or throw the garbage into thelorry. Secondly, having to replace the compactor lorry with the manualside-loader actually means going back to the old practice of rubbish col-lection. With a side-loader lorry, two men are needed to replace onecompactor lorry at the same time extra workers are needed to shovel andthrow the garbage into the lorries. Consequently man-hours are wasted,schedules are not followed and longer hours are needed to collect the sameamount of garbage. Given that the workers' time-table is from 7.00 am- 2.00 pm every day except Sunday, it can be assumed that there will beareas where garbage will not be collected. While there has been pressurefor rubbish to be collected twice a day if cleanliness is to be improved inPenang, even daily collection will be hard to achieve unless this problemis resolved.

29

Discipline

In terms of discipline, if council workers are absent for one day withouta valid reason, a day's wages will be deducted from them and if they areabsent for three consecutive days they can be recommended for dismissal.

Another system adopted by the Department is known as the "tour of dutyplan" (T.O.D.). On substantiated grounds of indiscipline, as for examplelateness for work or failure to wear uniforms, workers can be transferredto an area away from where they are presently staying and working. Inconsideration of efficiency and convenience, workers are normally givenduties in the area in which they reside so as to facilitate their easy accessto home. Upon committing an act of indiscipline, a worker may be pu-nished by being sent on T.O.D. of perhaps two weeks to a place somedistance from his home. If the worker then improves his performance hewill be transferred back to his original place of work, but if he continuesto be indisciplined, the transfer will be to another place yet further awayfrom the original. As a form of transfer this tour of duty system acts solelyas a deterrent; it hardly contributes to improved performance.

B. Supervision and Control Measures: Private Contractors

In contrast, supervision of the contractor's services relies mainly on theprivate contractors themselves. Each contractor has his own system ofcontrol to ensure that rubbish is collected, otherwise he or she becomesliable to the penalty clause in the agreement. The Council has severalcontractors undertaking rubbish collection in various city areas. Collectionby the private contractors is also on a daily basis, effective from 7.30 am.- 3.00 pm. As far as the Council is concerned, rubbish should have beencollected by then.

In terms of supervision, the Department has a unit of supervisors andoverseers to supervise the work of the private contractors with whom dailymeetings are held. Each private contractor is assigned to an overseer andthe function of the overseer is then to check on the performance of thecontractor and his workers. This is done on a daily basis. Complaintsfrom the public can be directed to the senior overseer through a telephonein the unit within the department. If it is found that rubbish is indeed notcollected from the household concerned, a penalty is imposed upon thecontractor. Guidelines have been established for this purpose under whichfines can be imposed. These are written into the agreement signed bet-ween the contractors and the councils.

30

As an example, for every rubbish bin not collected a fine of betweenRM20.00 to RM50.00 may be imposed on the contractor.

In practice difficulty arises in terms of trying to establish the complaintsfrom house-holders, and to ascertain whether in fact the private contractorshave actually gone to the area to collect the rubbish. There are times whenthe private contractor had made his rounds to collect the rubbish early inthe morning, but certain houses may not have put out their rubbish. Bythis time it is too late for collection and, if this is the case, the councilrecognises that the private contractors should not be faulted and be penal-ised. What the Department then does is to use its own standby lorries tocollect the garbage when the public calls. This type of garbage is termedsecond generation rubbish and more often is the cause of concern to theCouncil. This is because such garbage normally attracts dogs and crows,and spillage on the roads is very noticeable and generates complaints to bemade about Council's inefficiency. This is especially so in places wherehawkers tend to prepare their food in the late mornings and leave theirrubbish in the bins in the afternoons.As for the offices, cleaning is done after 5.00 pm. and as a consequencethe rubbish is then left outside in the evenings. This so-called secondgeneration rubbish tends to bring bad publicity to the council's rubbishcollection service, its quantity depending to a large extent on civic behav-iour.

In the past, in an effort to ensure that solid waste collection was efficientlycarried out, a payment was made to the contractors according to the weightor tons of rubbish collected. This system resulted in abuse, as the contrac-tors were found to be creating unnecessary weight by filling their truckswith heavy building materials and in some cases deliberately dampenedcontents or even water.

As a response the Council is presently making a lump-sum payment to thecontractors. This sum is based upon an estimated amount of rubbish thatcan be collected from a particular area in a month. The estimated weightis based upon the Council's own judgement as to how much a contractorcollects significantly less the Department still maintains the weigh-bridgeto weight the collection and the Department is in a strong position toquestion performance. The private contractor is paid according to thisestimation. The disadvantage is that even though a private contractor maycollect more than the amount estimated he will still only be entitled to bepaid according to the estimated weight.

To compensate for this effect, the Department has also adopted the ap-proach of paying extra money above the estimated weight to the limit of

31

four tons per day. In effect the Department will pay up to 120 tons amonth above the estimated weight to a contractor who collects more thanhis weight for that month. This is done in the hope of encouraging andmotivating the contractors to collect more and not less, and clear theseareas to public satisfaction.

Overview and Suggestion

Having reviewed the whole operation of refuse collection in Penang Islandundertaken by private contractors and the MPPP itself what is apparent isthat garbage collection and disposal is a public service that needs to beprovided and importantly efficiently managed. Suffice to say that thisfunction has been performed amist conditions of tight supervision andcontrols; yet, problems abound especially those related to the employees.The observation is that whether they are employed by the MPPP or arecontract workers, the problem appears to be one of attitude and workethics. Seemingly, the employees derive little satisfaction from their joband on the part of the employers little has been done to motivate andchange the perception of the workers.

Remedial action can be pursued by the local authority concerned whichmay lead to behavioural changes such as organising some short trainingprogrammes for the contractors and employees. These workers must beconvinced that they are rendering an essential function to the public whoexpect quality service for the rates that they pay. In other words, servicestandards and ethics must be consistent with customer satisfaction.

In the light of this, local councils may want to heed the national govern-ment's call for quality standards in service provision as well as meetingcustomer requirements and expectations. Indeed the drawing up of aClients Charter by the local council may be the first step towards achievingquality in service management for the benefit of the public.

Conclusion

Overall, refuse collection is a major on-going challenge to the Munici-pality. It is in its aggregate of costs a very expensive service, commandingfar too high a proportion of municipal revenue. Yet it is an obligatoryservice and one most likely to attract unfavourable publicity from ratepayers, associations within the city, opposition politicians and ultimatelythe highest levels of government. Contracting out has been the adoptedresponse but it has changed the nature of the problem from direct toindirect supervising, without as yet providing a satisfactory outcome.

32

Yet solid waste management is a necessary function which all local coun-cils are expected to provide and manage well. By virtue of its nature,provision of this service entails intensive labour which requires directsupervision and control. As the MPPP has demonstrated, it is with muchresourcerulness that this function is being discharged as best possible tothe public it serves. The MPPP's ability to perform is due to its manage-ment mavericks in supervision and control of human resources.

33

BIODATA

Mr. Ab. Wahab Saad ia a Senior Consultant in NPC. He obtained his Masters ofScience in the field of management from University of Agriculture, Malaysia in1992.

As a consultant, he has conducted courses in the area of Management Develop-ment such as Human Relation, Motivation, Training Methodology, Communica-tion and 5S.

He has just completed two research projects i.e. Comparative Study on Job Sa-tisfaction Among Public And Private Clerical Staff and Employee's PerceptionSurvey In The Port Services. At present he is in P&Q Research section.

34

PRODUCTIVITY PERFORMANCE FORMACHINERY AND ENGINEERING

INDUSTRY (1986-1991)

By Ab. Wahab Saad(National Productivity Corporation)

1. INTRODUCTION

The machinery and engineering industry is currently a vital support toeconomic growth, both in the traditional primary commodities sector andthe new expanding manufacturing sector, hence its designation as a "pro-moted industry" and the pioneer status eligibility for machinery and engi-neering project under the Promotion and Investments Act (PIA) 1986.

This industry has been providing replacement parts, fabricated productscasting, processing and mining equipment components over the last twodecades. Import substitution industrial policies, vehicle assembly, and thedevelopment of petroleum and gas industry in the 1970s also benefitedmachinery and engineering in Malaysia.

Consumption of their products rose from RM6.25 billion in 1981 to RM10.7 billion in 1988, and estimated RM Hbillion in 1991. Locally manu-factured machinery and equipment still accounts for less than 5 percent oftotal consumption.

Exports of machinery and engineering products have grown from RM873million in 1986 to RM5.4 billion in 1991. Office macKinery and dataprocessing equipment lead, rising from RM4 million to RM2.6 billion or43% share of total machinery and engineering products export, followedby general industrial machinery and equipment and machine parts (RM1.2billion) and manufacture of metal (RM627 million). Singapore , the USAand Japan accounted for 70% of RM3 billion worth of total exports.

Investments in the machinery and engineering industry grew from RM536.1 million in 1980 to RM2.1 billion, of which paid-up capital consti-tuted greater proportion (66%) compared with bank loans in 1991. Localinvestors dominated with investment of RM1.1 billion against foreigninvestment of RM724.1 million.

Given the increase in production of the second national car, as well as theproduction capacity of major iron, steel and cement plants, increased

35

manufacturing of component automobile parts, the machinery and engi-neering industry is ready for further injection of capital investment.

2. OBJECTIVES

The overall objective of this report is to present the status of productivityperformance of the machinery and engineering based on the analysis ofsome indicators from 1986 to 1991. Specifically it will focus on the analy-sis of productivity indicators of the industry (3 digit) vis-a-vis the manu-facturing sector followed by trend analysis (1986 as base year), andannual growth rate for the period 1986-1991.

3. DATA SOURCE

The raw data were obtained from the Annual Industry Survey 1986-1991(unpublished) conducted by Department of Statistic (DOS), and thereconfigured into productivity indicators by National Productivity Corpo-ration (NPC).

4.0 LABOUR COST COMPETITIVENESS4.1 Unit Labour CostThe unit labour cost ratio of the industry decreased from 0.17% to 0.09%in 1991 respectively (Table 1). Similarly the manufacturing sector showeda decreased from 0.1 in 1986 to 0.08 in 1991. This means that the industryachieved greater increase in unit labour cost competitiveness vis-a-vis themanufacturing sector in 1991 when compared to 1986.

36

Table 1: Labour Cost Competitiveness of the Industry(3-digit) vis-a-vis the Manufacturing Sector.

YEAR

198619871988198919901991

AverageAnnualGrowthRate (%)1986-1991ORE

Machinery Engineering Industry

ULC

0.17

0.13

0.1

0.09

0.1

0.09

-11.51

AV/LC

1.4

1.66

2.17

2.45

2.45

2.7

12.62

LCE

10129

109561119911,9991157513069

3.73

%LC

17.43

13.65

i 11.62

10.9811.54

10.23

-10.13

Manufacturing Sector

ULC

0.1

0.09

0.08

0.08

0.08

0.08

-1.91

AV/LC

2.03

2.11

2.32

2.492.362.31

2.54

LCE

9290920489739289967310826

2.54

%LC

11.03

9.838.88.739.219.44

-1.51

Source: NPC databaseNote: ULC= Unit Labour CostAV per LC = Added Value per RM of LabourLCE = Labour Cost per Employee%LC = % of Labour Cost to Total Input Cost

Tlie trend analysis (1986 as base year) indicates that the machinery andengineering industry's unit labour cost showed a declining trend from1986-1991. Similarly the manufacturing sector showed a same trend overthat period but recorded higher ratio than that of the industry. This meansthat the unit labour cost of the industry grew more competitive vis-a-visthe manufacturing sector over the years (Fig. 1).

In terms of average annual growth rate results, Table 1 shows that theindustry recorded a negative growth rate of -11.51 as against a negativegrowth of -1.91 for the manufacturing sector for unit labour cost duringthe period 1986-1991. This suggests that the unit labour cost competitive-ness of the industry improved better vis-a-vis the manufacturing sector forthe period.

37

4.2 Added Value per RM of Labour CostThe industry's added value per RM of labour cost ratio increased from1.4% to 2.7% in 1986 and 1991 respectively (Table 1). Likewise themanufacturing sector recorded and increase from 2.03% in 1986 to 2.31%in 1991. This implies that the industry experienced greater increase inadded value per RM of labour cost competitiveness vis-a-vis the manufac-turing sector from 1986-1991.

In terms of trend analysis (1986 as base year), Fig. 2 shows that theindustry's added value per RM of labour cost competitiveness grew fastervis-a-vis the manufacturing sector over the year from 1986 to 1991 asshown by its more drastic increasing trend.

The average annual growth rate results indicate that the industry achieveda positive growth of 12.62% as against a positive growth of 2.54% for themanufacturing sector in terms of added value per RM of labour cost duringthe period 1986-1991 (Table 1). This suggests that the industry's addedvalue per RM of labour cost competitiveness had improved better vis-a-vis the manufacturing sector during that period.

4.3 Labour Cost per EmployeeThe labour cost per employee ratio of the industry increased from RM10,129 to RM13,069 in 1986 and 1991 respectively (Table 1). Similarlythe manufacturing sector showed an increase from RM9,290 in 1986 toRM10,826 in 1991. This implies that both the industry and sector experi-enced a drop in labour cost per employee competitiveness. However theabove data suggests that industry was more competitive in labour cost peremployee vis-a-vis the manufacturing sector.

The trend analysis (1986 as base year) indicates that the industry experi-enced an increasing trend in terms of labour cost per employee from1986-1991. Similarly the manufacturing sector showed an increasing trendduring the same period. However the increasing trend of the industry waslesser than the manufacturing sector.

In terms of average annual growth rate results, Table 1 indicates that theindustry recorded a positive growth of 3.73% during the period 1986-1991suggesting that industry's labour cost per employee competitiveness had areasonable figure due to inflationatory trend within that period. Howeverthis rate was compatible with the manufacturing sector during the sameperiod as reflected by its positive growth of 2.54%.

38

4.4 Percentage of Labour Cost to Total Input CostThe industry's percentage of labour cost to total input cost ratio decreasedfrom 17.43% to 10.23% in 1986 and 1991 (Table 1). Similarly the manu-facturing sector's ratio dropped from 11.03% in 1986 to 9.44% for 1991.However the industry achieved greater increase in labour cost to totalinput cost competitiveness vis-a-vis the manufacturing sector from 1986to 1991.

In terms of trend analysis, it indicates that (1986 as base year), Fig. 3 thepercentage of labour cost to total input cost, the industry experienced amore dramatic declining trend from 1986 to 1991 vis-a-vis the manufac-turing sector, thus suggesting that the industry's labour cost to total inputcost competitiveness grew faster vis-a-vis the manufacturing sector overthe years.

The average annual growth rate results showed that the industry achieveda negative growth of -1.0.1% as against a negative growth of -1.51% forthe manufacturing sector in terms of labour cost to total input cost duringthe period 1986-1991 (Table 1). This implies that the labour cost to totalinput cost competitiveness of the industry had achieved better improve-ment vis-a-vis the manufacturing sector during the period.

5.0 LABOUR PRODUCTIVITY5.1 Added Value per EmployeeThe added value per employee ratio of the industry increased from RM14,287 to RM35,288 in 1986 and 1991 respectively (Table 2). Likewisethe manufacturing sector registered an increase from RM18.174 in 1986to RM25.021 in 1991. This implies that the industry achieved greaterincrease in labour productivity in terms of added value per employee vis-a-vis the manufacturing sector from 1986 to 1991. The above data alsosuggests that the industry attained higher labour productivity in terms ofadded value per employee vis-a-vis the manufacturing sector in 1991 whencompared to 1986.

The trend analysis (1986 as base year) indicates that the labour productiv-ity in terms of added value per employee of the machinery and engineeringindustry grew faster vis-a-vis the manufacturing sector over the years from1986 to 1991 as shown by its more drastic increasing trend (Fig. 4).

The average annual growth rate results in Table 3 shows that the industryachieved a positive growth of 16.83% as against 5.16% for the manufac-turing sector in terms of added value per employee during the period 1986-1991.

39

5.2 Total Output per EmployeeThe industry's total output per employee rose from RM58,647 to RM140,162 in 1986 and 1991 respectively (Table 3). Similarly the manufac-turing sector's total output per employee increased from RM 88,456 in1986 to RM 123,054 in 1991. This shows that the industry achieved greaterincrease in labour productivity in terms of total output per employee vis-a-vis the manufacturing sector from 1986 to 1991 compare to 1986.

As for trend analysis (1986 as base year), Fig.5 shows that labour produc-tivity in terms of total output per employee of the industry grew faster vis-a-vis the manufacturing sector (even though there was a slight drop in1990) over the years from 1986 to 1991 as reflected by its more dramaticincreasing trend especially in 1987,1988, 1989 and 1991.

The average annual growth rate results in Table 2 indicate that the indus-try recorded a positive growth of 17.21% as against a positive growth of4.55% for the manufacturing sector in terms of total output per employeeduring the period 1986-1991. This implies that the industry showed betterimprovement in labour productivity in terms of total output per employeevis-a-vis the manufacturing sector during the period.

6.0 CAPITAL PRODUCTIVITY6.1 Added Value per RM of Fixed AssetsThe added value per RM of fixed assets ratio of the industry showed aslight decline from 1.60% in 1986 to 1.37% in 1991 (Table 3) (unlike themanufacturing sector registered an increase from 0.96 to 1.08 in 1986 and1991 respectively). This implies that the industry was not so competitivein capital productivity in terms of added value per RM of fixed assets in1986 and 1991, although it's ratio in still higher compared to the manu-facturing sector.

40

The trend analysis (1986 as base year) indicates that the industry's capitalproductivity in terms of added value per RM of fixed assets grew muchlower than that of the manufacturing sector over the years from 1986 to1991 as evident by its horizontal trend (Fig. 6), whereas the manufactur-ing sector experienced an upward trend. This reflects that the industry didnot utilize their assets efficiently during that period, so that the industryis not competitive vis-a-vis manufacturing sector.

Table 2: Labour Productivity of the Industry (3-digit)vis-a-vis the Manufacturing Sector

YEAR

1986

1987

1988

1989

1990

1991

AverageAnnualGrowthRate (%)1986-1991(GRE)

Machinery EngineeringIndustry

Added Valueper

Employee

142874

18204

24395

29512

28405

35288

16.83

Total Outputper

Employee

58647

82973

10400

120848

110450

140162

17.21

Manufacturing Sector

Added Valueper

Employee

18874

19438

28846

23148

22841

25021

5.16

Total Outputper

Employee

88456

98673

109129

115626

113331

123054

4.55

Source: NPC database

The industry's average annual growth rate registered a negative growthrate (-2.19%) (versus a positive growth of 1.88% for the manufacturingsector) in terms of added value per RM of fixed assets during the period1986-1991. That means the industry's capital productivity in terms ofadded value per RM of fixed assets was lowest vis-a-vis the manufactur-ing sector during the period.

41

6.2 Total Output per RM of Fixed AssetsThe industry's total output per RM of fixed assets ratio decreased from6.59% in 1986 to 5.47% in 1991 (Table 3) (unlike the manufacturingsector which recorded an increase from 4.48% in 1986 to 531% in 1991).This suggests that the industry was getting worse in capital productivityin terms of total output per RM of fixed assets vis-a-vis the manufacturingsector.

In terms of trend analysis (1986 as base year), Fig. 7 shows that theindustry's capital productivity in terms of total output per RM of fixedassets grew very much lower vis-a-vis the manufacturing sector over theyears from 1986 to 1991 as indicated by its slow downward trend. Themanufacturing sector achieved the best ratio in 1989 but recorded a down-ward trend toward 1991.

Table 3: Capital Productivity of the Industry (3-digit)vis-a-vis the manufacturing Sector

YEAR

1986

1987

1988

1989

1990

1991

AverageAnnualGrowthRate <<£)1986-199!ORE

Machinery Engineering Industry

AV/FA

1.6

1.381.36

1.47

1.35

1.37

-2.19

TO/FA

6.59

6.35.82

6.05

5.28

5.47—————

-1.87

FA/Empl

8897

13153

17867

19958

20910

25603

19.45

Manufacturing Sector

AV/FA——————0.951.011.16

1.29

1.15

1.08——————

1.88

TO/FA

4.48

5.16

6.16.47

5.73

5.31—————

1.29

FA/Empl

19704

19099

17884

17871

19778

23155

3.21

Source: NPC databaseNote: AV per FA = Added Value per RM of Fixed AssetsTO per FA = Total Output per RM of Fixed AssetsFA per Employee = Fixed Assets per Employee

42

The average annual growth rate results in Table 3 shows that the industryachieved a negative growth of -1.87% as against a positive growth of1.29% for the manufacturing sector in terms of total output per RM offixed assets during the period 1986-1991. This means that the industry'scapital productivity in terms of total output per RM of fixed assets hadexperienced the lowest rate vis-a-vis the manufacturing sector during theperiod.

6.3 Fixed Assets per EmployeeThe industry's fixed assets per employee ratio increased from RM8,897to RM25,603 in 1986 and 1991 respectively. Similarly, the manufacturingsector showed an increased from RM 19,704 in 1986 to RM23,155 in1991. This implies that the industry's capital intensity had improved vis-a-vis the manufacturing sector from 1986 to 1991.

In terms of trend analysis (1986 as base year), Fig. 8 shows that the fixedasset per employee of the industry experienced a drastic upward trendfrom 1986 to 1991 when compared to the manufacturing sector. Thisimplies that the industry's capital intensity increased faster vis-a-vis themanufacturing sector over the years from 1986 to 1991.

Table 3 also shows that the industry recorded a positive average annualgrowth rate of 19.45% as against a positive "growth of 3.21% for themanufacturing sector in terms of fixed assets per employee during theperiod 1986-1991. This means that the industry's capital intensity hadincreased more vis-a-vis the manufacturing sector during the period.

7.0 BUSINESS RETURN AND PROFITABILITY7.1 ProfitabilityThe profitability ratios of the industry showed an increase from 0.96% in1986 to 8.89% in 1991 respectively. Similarly the manufacturing sectorincreased from 4.77% in 1986 to 6.8% in 1991 (Table 4). This indicatedthat the industry attained greater qrowth in profitability vis-a-vis the manu-facturing sector from 1986 to 1991.

Also the above data implies that the industry achieved higher profitabilityin terms of business return vis-a-vis the manufacturing sector in 1991when compared to 1986. On the other hand the profitability ratios of themanufacturing sector showed a sluggish growth from 1986 to 1987, butdropped in 1988, increased in 1989 and then dropped slightly in 1990 and1991.

43

Table 4: Business and Profitability of the Industry(3-digit) vis-a-vis the Manufacturing Sector

YEAR

1986

1987

1988198919901991

AverageAnnualGrowthRate (%)1986-1991ORE

Machinery- Engineering Industry

Profitability(%)

0.96

3.297.34

9.619.198.89

108.5

ROA(%)

6.3620.842.7858.23

48.5648.71

104.61

TPM(%)

1

1.03

1.07

1.16

1.1

1.09

1.54

Manufacturing Sector

Profitabilit(%)

4.77

5.154.77

7.94

7.34

6.8

7.21

( ROA(%)

21.45

26.640.4251.3842.0736.14

8.60

TPM(%)

1.051.051.071.081.07

1.07

0.41

Source: NPC database

44

7.2 Return on AssetsThe industry's return on assets ratios showed a similar pattern with that ofthe profitability ratios for the period 1986-1991. The industry registeredpositive steady increasing return on assets from 1986 to 1989, but slightlydropped in 1990 and 1991 (Table 4).

The return on assets of the manufacturing sector experienced an upwardtrend from 1986 to 1991. The ratio rose from 21.45% in 1986 to 51.35%in 1989, but dropped slightly in 1990 to 42.07% and in 1991 to 36.14%.

7.3 Total Productivity MeasureTotal productivity measure ratio of the industry had increased slightlyfrom .1 % in 1986 to 1.16% in 1989 but decreased slightly to 1.1 % in 1990and 1.09% in 1991 (Table 4). Likewise the manufacturing sector registeredan increase from 1.05% in 1986 to 1.07% in 1991 respectively. Thismeans that the industry achieved a greater increase in total productivitymeasure vis-a-vis the manufacturing sector from 1986 to 1991.

The trend analysis (1986 as base year) indicates that the total productivitymeasure of the industry grew slightly faster vis-a-vis the manufacturingsector over the years from 1986 to 1991 as shown by its slower growthtrend (Fig. 9)

45

8. ConclusionTwelve indicators of productivity had been analysed for the machinery andengineering industry (at 3 digit level) for the period of 1986 to 1991. Theindustry achieved good performance in terms of competitiveness with respectto unit labour cost as well as added value per RM of labour cost and labourcost per employee. The industry was efficient in generating added valuefor every RM spent on labour as well as achieving unit labour cost com-petitiveness.

The industry attained good performance in labour productivity growth interms of added value per employee, and total output per employee. Thisreflects the industry's ability in wealth creation relative to the number ofemployees which is influenced by better management efficiency, betterwork attitude, better price effects and better demand for the products.

On the negative side, the analysis also found that the industry of machin-ery and engineering perform sluggishly in terms of growth of capital pro-ductivity with respect to added value per RM of fixed assets as well astotal output per ringgit of fixed assets, reflecting that the industry was notso efficient in capital and assets utilizations. The industry was becomingmore capital intensive as reflected by its increasing growth in fixed assetsper employee.

46

FIGURE 1: UNIT LABOUR COSTof the Industry (3-digit) vis-a-vis

the Manufacturing Sector (Base year = 1986)

120

100

80

60

40

20

INDEX

1986 1987 1988 1989

YEAR

Source: NPC

1990 1991

M10 = ULC (382)Mnfg. Sector (03)

47

FIGURE 2: ADDED VALUE PER RM OFLABOUR COST

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

250

200

150

100

50

INDEX

1986 1987 1988 1989YEAR

1990 1991

Source: MFC

M8 = AD/LC (382)Mnfg. Sector (03)

48

FIGURE 3: INDEX: % LABOUR COST INTOTAL INPUT

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

120

100

80

60

40

20

INDEX

1986 1987 1988 1989YEAR

1990 1991

Source: NPC

% Lab. Cost (382)Mnfg. Sector (03)

49

FIGURE 4: INDEX: ADDED VALUEPER EMPLOYEE

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

INDEX

1986 1987 1988 1989YEAR

1990 1991

Source: NPC

AD/EMPL (382)Mnfg. Sector (03)

50

FIGURE 5: INDEX: TOTAL OUTPUTPER EMPLOYEE

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

250

200

150

100

50

INDEX

1986 1987 1988 1989 1990 1991YEAR

Source: NPC

Source: NPC

TO/Empl (382)Mnfg. Sector (03)

51

FIGURE 6: INDEX: ADDED VALUEPER RM OF FIXED ASSETS

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

140

120

100

80

60

40

20

INDEX

01986 1987 1988 1989

YEAR

1990 1991

Source: NPC

AV/FA (382)Mnfg. Sector (03)

52

FIGURE 7: TOTAL OUTPUTPER RM OF FIXED ASSETS

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

160

140

120

100

80

60

40

20

INDEX

1986 1987 1988 1989YEAR

Source: NPC

1990 1991

TO/FA (382)Mnfg. Sector (03)

53

FIGURE 8: INDEX: FIXED ASSETSPER EMPLOYEE

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

INDEX

1986 1987 1988 1989

YEAR

1990 1991

Source: NPC

FA/EMPL (382)Mnfg. Sector (03)

54

120

100

80

60

40

20

FIGURE 9: INDEX: TOTALPRODUCTIVITY MEASURE

of the Industry (3-digit) vis-a-visthe Manufacturing Sector (Base year = 1986)

INDEX

1986 1987 1988 1989YEAR

1990 1991

Source: NPC

TPM (382)Mnfg. Sector (03)

55

BIODATA

Dr. Ab. Wahab bin Muhamad holds a Doctorate Degree in Business Administra-tion. Currently, he is the Director of Policy Research in NPC where he directsresearches in issues related in Productivity and Quality (P & Q) for the purposeof formulating policy directions.

Guok Eng Chai is currently serving as a consultant in the Directorate of PolicyResearch, NPC. He obtained his Master of Arts degree in the field of manage-ment from Universiti Sains Malaysia in 1991. He has been involved, as coordi-nator, in several NPC's research projects.

Izani bin Ishak graduated with a Bachelor of Science degree majoring in Statisticsfrom Universiti Kebangsaan Malaysia in 1987. As a consultant in the Directorateof Manufacturing Research NPC, he undertakes productivity performance stu-dies.

56

PART 1

RELATIONSHIP BETWEENPRODUCTIVITY AND CHARACTERISTICSOF FOREIGN DIRECT INVESTMENT (FDI)FIRMS IN SELECTED MANUFACTURING

INDUSTRIES

Written by:Dr Ab. Wahab bin Muhammad, Guok Eng Chai

& Izani bin Ishak

ABSTRACT

This article is extracted from the original study1 completed in 1993 by ateam of NPC officers2 from the Productivity Research Unit. The study isan integration of the relevant aspects of the survey questionnaire of theAsian Productivity Organisation's (APO) research on foreign direct invest-ment (FDI) in Asia and NPC's Company Manual for Productivity Assess-ment (COMPASS). The main purpose of the study is to explore the rela-tionship between the productivity and characteristics of foreign direct in-vestment (FDI) firms in selected manufacturing industries in Klang Val-ley, Peninsular Malaysia. However, this article is restricted to the follow-ing headings: introduction; research questions; literature review; concep-tual framework; scope of study; and methodology.

1.0 INTRODUCTION

"Traditionally, there have been two views on the impact of direct foreigninvestment (DF1) in a country. The more liberal school views DPI asbeneficial to output and employment growth and also to balance of pay-

1 The report is entitled "Relationship between Productivity and Characteristics of Foreign DirectInvestment Firms m Manufacturing Industries" Petahng Jaya National Productivity Corporation,1993

2 The officers involved include Dr Ab Wahab b Muhamad (Project Leader), Guok Eng Chai(Project Coordinator), Izani b Ishak, Ghazi b Zakana, Hj Anuar b Mahmud, Ab Rahman bK harms and Rokiah bte Aziz

57

ments. The DPI brings with it imported capital and creates new jobs forthe unemployed, while the government will gain in the form of tax rev-enue. However, a less liberal view questions these benefits and their as-sumptions, and mentions the possibility that DPI tends to be more capitalintensive and may bring with it the problems of high capital outflows inthe future in the form of payments of dividends and other remittancesabroad as well as possible displacement of local entrepreneurship". (Eco-nomic Report 1989/90:104)

In Malaysia, FDI is expected to contribute to overall economic growthwithin the context of Vision 2020 towards achieving the status of anindustrialised nation. Recent studies (Abdul Aziz Abdul Rahman, 1992;Anuwar Ali, 1992, H. Osman-Rani, 1992; Ismail Md. Saleh, 1992;Mohamed Ariff, 1992; Mokhtar Tamin, 1992; Yokoyama, H. 1992) onFDI in Malaysia lack emphasis on the relationship of the characteristicsand productivity of FDI firms.

Hence, in line with its main objective of undertaking research on issuesrelated to productivity and quality, the Productivity Research Unit of NPCconducted the above mentioned study with the view to help increase pro-ductivity in manufacturing industries. Basically, the study attempts to explorethe relationship of productivity and characteristics of foreign direct invest-ment (FDI) firms in selected manufacturing industries.

2.0 RESEARCH QUESTIONS

The following are specific research questions pertaining to the study:* What is the level of productivity of FDI firms?* What are the significant differences in the level of

productivity of FDI firms?; and* What are the significant relationships of productivity and

characteristics of FDI firms?

3.0 SCOPE OF STUDY

The study focuses on FDI firms from developed countries (DCs) in threeselected manufacturing industries with approximately 90 per cent of thefirms located in Klang Valley3. The industries involved are electronic and

•1 Originally, the study was intended to cover FDI firms from both developed countries (DCs) andless developed countries (LDCs) in Peninsular Malaysia. But owing to low responses to themailed questionnaires, the existing data only allowed analysis from the DCs standpoint. See para6.2 for further explanation.

58

electrical products; basic metal products; and chemical and chemical prod-ucts. These industries were chosen based on their significant contributionapproximately 50 per cent to total foreign investment for the period 1980-1990 as indicated in thq MEDA's listing of companies in operation. Tomake the study more extensive and practical, no deliberate attempt hasbeen made to define industry size at this stage.

According to the APO survey guidelines, foreign investment in this studyis defined as the establishment of foreign subsidiaries or branches by firmsbased in both developing and developed countries to carry out manufac-turing activities in the host countries. As far as firms from developingcountries are concerned, their parent firms must be owned and managedby nationals of these countries, and their subsidiaries or branches must beunder the control of the parent firms. Joint ventures were also included asa form of foreign investment. Finally, foreign firms are defined as thosewhich have at least 25 per cent foreign ownership in equity.

4.0 LITERATURE REVIEW

The main sources of reference for this study are the Asian ProductivityOrganisation's (APO) publication in 1990 on foreign direct investment inAsia as well as the NPC's Company Manual for Productivity Assessment(COMPASS) launched in 1992. These two sources of reference providethe basis for formulating the conceptual framework of this study as dis-cussed in para 5.0.

4.1 Asian Productivity Organisation's (APO) Research onForeign Direct Investment in Asia.

According to Chen (1990), the APO surveys on FDI in Asia were moti-vated by controversial issues related to the role of FDI and transnationalcorporations (TNCs). The empirical and theoritical literature had discussedextensively the benefits and costs of FDI. Furthermore, he stressed that noattention has been given to a systematic comparison of the impact ofmultinationals from developing countries and those from developed coun-tries.

Hence, the objective of the APO surveys on FDI was to fill in such a gapin the existing literature. The primary aim of the research was to find outthe differences between developed country foreign firms (DCFF) anddeveloping country foreign firms (LDCFF) in each of the participatingcountries, with the view to assessing the contribution of different types ofTNCs to their national economic development.

59

The questionnaire for the surveys consists of three parts. Part 1 is to obtaininformation relating to the activities and performance of the subsidiaryfirms of multinational corporations (MNCs) from both developing anddeveloped countries. This part is subdivided into the following sections:(1) General; (2) Technology; (3) Marketing; (4) Management and Organi-sation; (5) Motivation for FDI; and (6) Host Government Policy.

Part 2 of the questionnaire emphasises on information relating to the ac-tivities and performance of indigenous firms and it includes the followingsections: (1) General; (2) Technology; (3) Marketing; and (4) GovernmentPolicy. However, Part 3 is to obtain facts and views from the host govern-ment in relation to the performance and behaviour of MNCs from bothdeveloping and developed countries.

The responses for Parts 1 and 2 were obtained from top and middlemanagement, whereas responses for Part 3 came from government offi-cials directly concerned with foreign investment. The results of the surveysgenerally lend support to the established hypothesis concerning the differ-ences between LDC multinationals and DC multinationals.

4.2 NPC's Company Manual for Productivity Assessment(COMPASS)

In its effort to help increase the productivity level of business operations,the NPC launched the Company Manual for Productivity Assessment(COMPASS) in 1992. It is meant for use by organisations especially in themanufacturing sector to gauge and analyse their productivity performanceusing the concept of added value. Hence, the COMPASS provides a com-prehensive and step-by-step approach to the measurement and analysis ofa company's productivity level.

Productivity in the COMPASS is defined as a rate of output generated tothe input consumed. Output is goods produced by an enterprise. It can bemeasured in terms of value of production or added value. Input refer tothat which are utilised in producing the output of an enterprise. However,the COMPASS provides 22 productivity ratios with their respective defi-nitions and interpretations.

5.0 CONCEPTUAL FRAMEWORK

This section explains the conceptual framework which was basically de-rived from the APO surveys on FDI in Asia, as discussed in para 4.1 as

60

Fig. 1: FDI Characteristics Influencing Productivity

Technology

Marketing Strategy

Management &Organisation

Motivation for FDI

Host GovernmentPolicy

Productivity

well as the COMPASS as reviewed in para 4.2. Figure 1 shows the logicalrelationship of FDI characteristics and productivity. The FDI characteris-tics such as technology, marketing strategy, management and organisation,motivation for FDI, and host government policy influence productivity.However, each of the characteristics has its own set of variables. All thesevariables were adopted from the APO survey questionnaire (Part 1).

For technology characteristics, the variables include specialization, auto-mation, labour requirement and cost of technology.

As for marketing strategy characteristics, the variables are price, qua-lity, reliable distribution, and brand name and advertising.

For management and organisation characteristics, there are four vari-ables that relate to the general problems in relation to local employees.These variables are high absenteeism, high turnover, lack of discipline andlack of efficiency.

61

In terms of motivations for FDI, there are two sets of variables. The firstset refers to motivation based on the major reasons for parent firm to makeinvestment in Malaysia. The major reasons include: strengthening of com-petitiveness in the home market by importing product from your firm;access to third country market; home government incentives; home gov-ernment disincentives in growth restriction; home government disincen-tives in environmental protection; effective utilisation of techno-manage-rial resource possessed by the parent firm; export of machinery and capi-tal; small market at country of the parent firm; and strengthening of capa-bility to collect overseas information.

The second set of variables concerned with motivation based on the majorcriteria for parent firm to select Malaysia for FDI. The major criteria are:protection of existing market; diversification of political risk; diversifica-tion of economic and financial risk; circumvention of tariffs and quotas;host government investment incentives; high local returns; ethnic ties withlocal partner; access to raw materials; availability to low cost but relativelyhigh quality of labour; good infrastructure such as transport, communica-tion, banking etc; geographical location; prompt decision making by thehost government; and exposure and access to new sophisticated technolo-gies.

For host government policy, the variables include imposition of restric-tion and provision of incentives.

Finally, the productivity indicators based on added value concept com-prise the following productivity ratios which were selectively chosen fromthe COMPASS: added value per employee or labour productivity; addedvalue per RM of fixed asset or capital productivity; added value content;added value per RM of labour cost or labour cost competitiveness; andlabour share in added value.

6.0 METHODOLOGY

6.1 Hypothesis and Operational Definitions

The hypothesis of the study states that the FDI characteristics in terms oftechnology, marketing strategy, management and organisation, motivationfor FDI, and host government policy influence productivity.

The dependent variables in this study comprise the following productiv-ity ratios and their operational definitions were derived from the COM-PASS:

62

* Added value per employee or labour productivity is definedas the ratio of added value to number of employees and ismeasured in RM per employee. The higher the ratio, thehigher the added value per employee;

* Added value per RM of fixed assets or capital productivityis defined as the ratio of added value to fixed assets and ismeasured in pure number. The higher the ratio, the higheradded value per RM of fixed assets;

* Added value content is defined as the ratio of added valueto total output and is measured in percentages. The higherthe ratio, the higher the added value content;

* Added value per RM of labour cost or labour cost competi-tiveness is defined as the ratio of added value to labour costand is measured in pure number. The higher the ratio, thehigher the added value per RM of labour cost; and

* Labour share in added value is defined as the proportion ofadded value which is allocated to labour cost and is measuredin percentages. The lower the labour share in added valueindicates better utilization of labour.

The value of each of the above productivity ratios was computed based onthe financial data captured in Question 5 of the questionnaire as shown inthe Appendix.

The independent variables of the study include the following which werebased on the APO survey questionnaire (Part 1):

* Technology characteristics focussing on the degree of spe-cialization, automation, labour requirement and cost oftechnology. The variables were measured on a 9-point scaleas shown in the Appendix.

* Marketing strategy characteristics emphasising on the degreeof importance of price, quality, reliable distribution andbrand name and advertising. These variables were meas-ured on a 9-point scale as indicated in the Appendix.

* Management and organisation characteristics focussing onthe degree of importance of general problems in relation to

63

local employees in terms of high absenteeism, high turno-ver, lack of discipline and lack of efficiency. The variableswere measured on a 9-point scale as shown in the Appendix.

* Motivation for FDI emphasising on two aspects: (1) the majorreasons for the parent firm to make investment in Malaysia;and (2) the major criteria for the parent firm to select Malay-sia for FDI. The first aspect stresses on the degree of impor-tance of the following major reasons: strengthening of com-petitiveness in the home market by importing productsfrom your firm; access to third country market; homegovernment incentives; home government disincentives ingrowth restriction; home government disincentives inenvironmental protection; effective utilization of techno-managerial resource possessed by the parent firm; exportof machinery and capital; small market at country of theparent firm; and strengthening of capability to collectoverseas informaton. All these variables were measured ona 9-point scale as indicated in the Appendix.

The second aspect emphasises on the degree of importanceof the following criteria: protection of existing market;diversification of political risk; diversification of economicand financial risk; circumvention of tariffs and quotas;host government investment incentives; high local returns;ethnic ties with local partner; access to raw materials;availability to low cost but relatively high quality of la-bour; good infrastructure such as transport, communica-tion, banking etc; geographical location; prompt decisionmaking by the host government; and exposure and accessto new sophisticated technologies. All these variables weremeasured on a 9-point scale as shown in the Appendix; and

* Host government policy characteristics focussing on theimposition of restriction as well as provision of incentivesby the government. The variables were measured by usingcheck lists as indicated in the Appendix.

6.2 Sampling

The sampling frame comprising approximately 200 FDI firms from bothDCs and LDCs was compiled based on MIDA's list of companies inoperation during the period 1980-1990. As mentioned in para 3, the three

selected industries include electronic and electrical products; basic metalproducts; chemical and chemical products.

This study used 100 per cent sampling. The response rate was about 16 percent constituting 32 firms from both DCs and LDCs. However, the samplesize for the study stood at 23 firms from DCs. The remaining nine firmswere not taken into account in the analysis as five of them constitutedfirms from LDCs and the other four firms were found to be extreme cases.

Table 1: Breakdown of the Sample in terms of Types of Indus-try, Nationality of Parent Firm and Present Ownership.

N___%_* Types of Industry

Electronic & Electrical Products 16 69.6Basic Metal Products 1 4.3Chemical & Chemical Products 6 26.1

23 100.0

* Nationality of Parent FirmJapan 10 43.5USA 5 21.7European Countries 8 34.8

23 100.0

* Present OwnershipWholly-owned (95% or more of the voting 12 52.2stock held by the parent firm)Majority-owned (50-94%) 1 Joint 8 34.8Minority-owned (5-49%) J Ventures 3 13.0

23 100.0

65

Table 1 indicates that 69.6 per cent of the sample (N=23) constitute theelectronic and electrical industry, followed by 26.1 per cent belong to thechemical and chemical products industry, and 4.3 per cent from the basicmetal products industry. As for the nationality of parent firm, 43.5 per centwere of Japanese origin, followed by 34.8 per cent from European coun-tries, and 21.7 per cent from USA origin. Finally, in terms of presentownership, 52.2 per cent were wholly-owned, 34.8 per cent majority-owned, and 13.0 per cent minority-owned.

63 Data Collection Method

The data was collected through mailed questionnaire (see Appendix). Thequestionnaire was designed based on the APO survey questionnaire (Part1) which has been modified to suit the requirements of this study. Therespondents consists of representatives from the participating firms. Theybelong to either the top or middle management level.

6.4 Pre-Test

The purpose of the pre-test was to improve the overall validity and relia-bility of the questionnaire. A FDI firm located in Klang Valley was se-lected for the pre-test of the questionnaire. For this purpose a manager ofthe firm was chosen as respondent for the pre-test based on personalinterview.

Based on the feedback of the respondent, it was found that overall thequestionnaire was relevant. However, certain modifications were carriedout with regard to the questionnaire such as correcting some vague ques-tions.

6.5 Statistical Procedures

The Statistical Package for Social Sciences (SPSS) version 4.0 softwarewas used to analyse the data collected. The statistical techniques used toanswer the research questions were as follows:

* Frequency counts* Non-parametric tests:

- Mann-Whitney- Spearman Correlation

The Box-plot technique in SPSS was used to remove extreme cases.

66

6.6 Limitations of Study

In interpreting the data of the study, the following limitations need to betaken into consideration:

* The sample size is restricted to FDI firms from DCs in Klang Valleyand hence is unrepresentative of all FDI firms from DCs in PeninsularMalaysia;

* The data collected were cross-sectional in nature and the computa-tion of productivity indicators were based on current financial year; and

* The data were supplied by the representatives of the participatingfirms.

REFERENCES

* Abdul Aziz Abdul Rahman (1992). "Determinants of Indus-trial Locations of Foreign Direct Investment: A Case Studyin Klang Valley". Chapter 7 in Foreign Direct Investmentin Malaysia, edited by Mohamed Ariff and HisashiYokoyama.

* Ami war Ali (1992). "Technology Transfer in ManufacturingIndustries via Foreign Direct Investment". Chapter 2 in For-eign Direct Investment in Malaysia, edited by MohamedAriff and Hisashi Yokoyama, Tokyo: Institute of DevelopingEconomies.

* Chen, E.K.Y. (1990). "Foreign Direct Investment in Asia:Developing Country Versus Developed Country Firms."Chapter 1 in Foreign Direct Investment in Asia,edited byEdward K.Chen, Tokyo: Asian Productivity Organisation(APO).

* H.Osman-Rani (1992). "Industrial Decentralisation, ForeignDirect Investment and Regional Competition." Chapter 6 inForeign Direct Investment in Malaysia, edited by MohamedAriff and Hisashi Yokoyama, Tokyo: Institute of DevelopingEconomies.

67

Ismail Md. Salleh (1992). "Electronics and Electrical Ma-chinery Industry". Chapter 4 in Foreign Direct Investmentin Malaysia, edited by Mohamed Ariff and HisashiYokoyama, Tokyo: Institute of Developing Economies.

Ministry of Finance Malaysia, Economic Report 1989/1990.

Mohamed Ariff (1992). "Foreign Direct Investment in Ma-laysia: Trends, Determinants and Implications". Chapter 1 inForeign Direct Investment in Malaysia, edited by MohamedAriff and Hisashi Yokoyama, Tokyo: Institute of DevelopingEconomies.

Mokhtar Tamin (1992). "Foreign Direct Investment in Agro-Based Industries: 1985-1990". Chapter 5 in Foreign DirectInvestment in Malaysia, edited by Mohamed Ariff andHisashi Yokoyama, Tokyo: Institute of Developing Econo-mies.

The Productivity COMPASS (Company Manual for Produc-tivity Assessment), Petaling Jaya: National Productivity Cor-poration, 1992.

Yokoyama, H. (1992). "The Production Structure of Manu-facturing Industries with Foreign Direct Investment: Produc-tion Function Perspectives". Chapter 3 in Foreign DirectInvestment in Malaysia, edited by Mohamed Ariff andHisashi Yokoyama, Tokyo: Institute of Developing Econo-mies.

68

QUESTIONNAIREON

RELATIONSHIP BETWEEN PRODUCTIVITY ANDCHARACTERISTICS

OF FOREIGN DIRECT INVESTMENT FIRMS INMANUFACTURING INDUSTRIES

A. GENERAL

1. Name of Organisation

2. Nationality of the parent firm :

Country Percentage of ownershipof the parent firm

3. Type of industry your organisation belong to :(Please tick in the appropriate box)

Electronic and electrical

Basic metal

Chemical and chemical products

4. Ownership of your firm : (Please tick in theappropriate box)

Wholly-owned (95% or more of the voting stock held by the parent firm)

Majority-owned (50-94%)

Minority-owned (5-49%)

For Office Use

69

5. Quantitative data of your firm : (Please put approximate figures forthe last financial year)

Total output1

(in monetary value)

Total purchases of raw materials(in monetary value)

Total purchases of utilities(in monetary value)

Total allocation of depreciation(in monetary value)

Capital (book value of fixed assetssuch as machines, tools, equipment,plants, buildings, etc.)(in monetary value)

Investment in machinery and equipment(in monetary value)

Overhead cost (in monetary value)

Total labour cost (in monetary value)

Number of direct workers

Average number of hours workedper week by a direct worker

Export sales (in monetary value)

Capacity utilization.

Last Financial Year

I [Net sales + closing stock of finished good - Opening stocks of finished goods] + [Goods-in-Process (WIP) (Closing) ] - [Goods-in-Process (WIP) (Opening) ] + [Own Construction] +[Income from sales of goods purchased in same condition] + [Income from services rendered]

70

B. TECHNOLOGY

6. What are the characteristic of the techno-logy you are now using? (Please circleone score for each of the characteristicsbelow)

9 8 7 6 5 4 3 2 1

StandardisedSpecialised Specialised

9 8 7 6 5 4 3 2 1

Automation:Highly Fairly

Automated Automated HandOperated

9 8 7 6 5 4 3 2 1

Labour Hjghly Medium LOWRequirement:

9 8 7 6 5 4 3 2 1

Cost oftechnology:

Hjgh|y Medjum

For Office Use

71

C. MARKETING

7. Please indicate the emphasis of your marketingstrategy on a scale of 9 (most important) to 1(unimportant) in the following aspect. (Pleasetick in the appropriate box for each of the item)

For Office Use

*rice

Most Important*

9 8 7

Quality

tfost Important"*

9 8 7

6 5 4

6 5 4

Reliable Distribution

Vtost Important.4 ———————

9 8 7 6 5 4

Unimportant

3 2 1

Unimportant

3 2 I

Unimportant—————— ̂

3 2 1

Brand Name And Advertising

Most Important Unimportant

9 8 7 6 5 4 3 2 1

72

D. MANAGEMENT AND ORGANISATION

8. What are your general problems in relation tolocal employees? Please express your view on ascale from 9 (most important) to 1 (unimportant) inthe following aspects. (Please tick in the appropri-ate box for each of the item)

For Office Use

High Absenteeism

Most Important Unimportant

9 8 7

ligh Turnover

Most Important^

9 8 7

6 5 4

6 5 4

Lack of Discipline

Most Important*9 8 7 6 5 4

Lack of Efficiency

Most Important•4 ————————————

9 8 7 6 5 4

3 2 1

Unimportant

3 2 1

Unimportant

3 2 1

Unimportant

3 2 1

°

73

E. MOTIVATIONS FOR FOREIGN DIRECTINVESTMENT

9. What are the major reasons for the parent firm tomake investment in this country? Please expressyour view on a scale of 9 (most important) to 1(unimportant) in the following aspects. (Please tickin the appropriate box for each item)

• Strengthening of competitiveness in the homemarket by importing products from your firm

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Access to third country market

Most Important Unimportant

9 8 7 6 5 4 3 2 1

• Home government incentives

Most Important Unimportant

9 8 7 6 5 4 3 2 1

• Home government disincentives in growthrestriction

Most Important Unimportant

9 8 7 6 5 4 3——

2 1

For Office Use

74

Home government disincentives in environ-mental protection

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Effective utilization of techno-managerialresource possessed by the parent firm

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Export of machinery and capital

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Small market at country of the parent firm

Most Important Unimportant

8 5 4 3 2 1

For Office Use

75

Strengthening of capability to collect overseasinformation

Most•̂ ——

9

Important

8 7

Unimportant

6 5 4 3 2 1

For Offic<

10. What are the major criteria for your parent firm toselect this country for direct foreign investment?Please express your view on a scale of 9 (mostimportant) to 1 (unimportant) in the following as-pects. (Please tick in the appropriate box for eachitem).

• Protection of existing market

Most Important Unimportant

9 8 7 6 5 4

Mversification of political risk

Most Important

9 8 7 6 5 4

diversification of economic and

Most Important*

9 8 7 6 5 4

3 2 1

Unimportant

3 2 1

financial risk

Unimportant

3 2 1

°

76

Circumvention of tariffs and quotas

VIost Important Unimportant

9 £ 7 6 5 4 3 2 1

lost government investment incentives

VIost Important Unimportant*

9 * 7 6 5 4

ligh local returns

VIost Important

*

9 { 7 6 5 4

Ethnic ties with local partner

VIost Important*

9 f 7 6 5 4

Access to raw materials

VIost Important*

9 * 7 6 5 4

3 2 1

Unimportant

3 2 1

Unimportant

3 2 1

Unimportant

3 2 1

For Office Use

77

Availability to low cost but relatively high qual-ity of labour

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Good infrastructure such as transport,communication, banking, etc.

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Geographical location

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Prompt decision making by the host government

Most Important Unimportant

9 8 7 6 5 4 3 2 1

Exposure and access to new sophisticatedtechnologies

Most Important Unimportant

For Office Use

78

BIODATA

J.M. Juran is founder and Chairman emeritus of the Juran Institute Inc.Wilton, CT. He holds a doctorate in law from Loyola University, Chi-cago, IL., Juran is one of ASCQs 14 Honorary members.

80

THE UPCOMING CENTURY OF QUALITY*By

Dr. J.M. Juran

Editor's note: What follows is the presentation made May 24, 1994, byJ.M. Juran at the ASQC Annual Quality Congress (AQC). It was his finalappearance at an AQC, as the 89-year-old quality leader has said he willmake no further public appearances beyond his 1994 schedule of events.

PROPOSE TO EXAMINE THE STREAM OF EVENTS that has broughtthe world of quality to its present state. I will also examine the role ofASQC relative to that world of quality. Finally, I will offer a prognosisof what lies ahead.

Managing for quality has had a long and fascinating history. I wish I hadthe time to tell you about it. Instead, here is a promissory note. CurrentlyI am editing the book History of Managing for Quality. Many authorsaround the world have prepared chapters that tell how managing for qual-ity evolved in their part of the world. That book, sponsored by the JuranFoundation, will be published by ASQC's Quality Press.

In the Beginning

So let us start with the state of affairs as it existed at the beginning of the20th century. At that time, the United States had already emerged as anindustrially developed nation. Starting with an agricultural base, it hasexpanded aggressively into many directions: mining, construction, manu-facture, trade, and so on. Its industrial methods were largely derived fromthe European countries that had colonized North America.

The methods of managing for quality leaned toward informality, but for-mal organization for quality could be found in the large factories. In thosefactories, the production managers and supervisors were responsible formeeting the quality specifications. Skilled craftmen were generally in astate of self-control. They also provided quality assurance relative to theirown work-self-inspection. Supervisors and craftsmen were used to trainunskilled workers and to check their work. This checking was supple-mented by the use of full-time inspectors.

* Copyright 1994 Juran Institute, Inc. Reproduced with permission from the copy-right holder, Juran Institute, Inc., Wilton, CT 06897 U.S.

81

In small shops, the owner was typically a master craftsman. He plannedhow work was to be done, including planning for quality. He trained theworkers and then checked their work to ensure that quality has beenachieved. As workers acquired skill and experience, he might reduce thefrequency of checking their work.

In the early days of this century, it was unusual for a company organiza-tion chart to show a block relating to quality. There were inspectors, butthey were scattered among the various production departments. In somelarge companies, there did exist departments for final inspection and test.The departments typically reported to the production superintendent or theplant manager.

One highly advanced concept of managing for quality was that employedby the Bell system, the telephone monopoly. Under its division of work,the system and product designs were done by Bell Telephone Laborato-ries, manufactures was done by Western Electric Company, and sales andcustomer service were provided by the regional telephone companies.Superimposed on all this was an advanced data system to report fieldperformance, plus an inspirational concept of spirit of service.

When I joined the Bell System's Hawthorne plant in 1924, it lacked allkinds of things that we now say are essential to world-class quality: annualquality improvement, business quality management, strategic quality plan-ning, statistical process control, and so on. Yet the equipment sent out byHawthorne enabled the telephone companies to provide world-class te-lephone service. How did Hawthorne manage to do it? By brute force andat great cost. The production department priorities were to meet sched-ules and maintain picework earning. Understandably, defects abounded,it then took a massive inspection effort to find and remove those defects.That was the inspection system at its best. In many companies, it was notat its best. In such companies, many defects escaped to show up as fieldfailures, requiring repair by customers or by manufacturer's service. Somemight recall that the early automobiles were sold with tool kits.

The Century of Productivity

Let us now embark on a journey through the 20th century. It has broughtmuch turbulence and change to the world of quality. Future historians,however, will likely record the 20th century as the Century of Producti-vity. Yet quality and productivity are so closely intertwined that our lookat the world of quality must take into account the events relating to the

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world of productivity.The Taylor Revolution

The driving force of the Century of Productivity was the movement knowas scientific management. It was launched by the American engineer andmanager Frederick W. Taylor. It made a basic changein managerial practice - the separation of planning from execution. Thepremise behind the change was that the workers and supervisors of that eralacked the education needed to do planning. Hence Taylor gave the plan-ning function to managers and engineers. He limited the supervisors andworkers to the function of executing the plans,

Taylor's system was stunningly successful in raising productivity, and itwas widely by American companies. It probably was the major reasonthat the United States became the world leader in productivity. Taylor'soriginal applications were in the production departments of the factory. Indue course, his followers (today known as industrial engineers) extendedtheir activities to nonproduction functions and later to service industries.

Adoption of the Taylor system soon stimulated some unwelcome sideeffects. It upset the balance that had previously existed between qualityand productivity. The upper management emphasis on productivity be-came intense. Factory supervisors were forced to make productivity theirtop priority. The associated piecework systems generated a correspondingpriority among the workers. The priority on quality went down due toshortcuts during production, shipping of unfit products, and so on.

Response to the Taylor Revolution

The upper managers responded by revising the organisation. They movedthe inspectors out of the production departments and into a central inspec-tion department headed by a chief inspector. To provide added indepen-dence, the chief inspector now reported to the plant manager or to the vicepresident for manufacture. Those central inspection departments becamethe quality workhorses during the first half of the 20th century.

In due course, the central inspection departments grew into the qualitydepartments that today are a feature of so many organization charts. Oftenenough they are headed by a vice president for quality who report directlyto the chief executive officer (CEO). It is a far cry from the days of theearly 1900s. It is tempting to smile benignly on today's quality managers;

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You've come a long way.Events in the service industries followed a different course. Their ap-proach to managing for quality had been less systematic than that of themanufacturing sector. Service companies tended to rely more on super-visory review and less on formal systems of inspection and test. In addi-tion, the service industries were wary of adopting the Taylor system. Asa result, they lagged behind manufacture in raising productivity. They did,however, avoid much of the resulting damage to quality.

Creation of central quality departments also led to two developments thathave done a lot of damage:

• Many upper manager concluded that quality is the responsibilityof the quality department. This belief made it easier for departmentssuch as production to give top priority to other parameters.

• Upper managers became detached from the quality function. Manyconcluded that by delegating quality to the quality manager, theycould devote their own time to other matters. As they did so, theybecame progressively less informed about quality. Then when thecrisis came, they lacked the knowledge needed to choose a propercourse of action.

Tn retrospect, the use of inspection to attain quality involved inherentweaknesses, such as high costs and shaky habits. Nevertheless, it madecompanies competitive in quality on the condition that their competitorsused the some strategy. That condition was largely met until the Japanesequality revolution came over the horizon.

An important handicap to progress in managing for quality was lack ofcommunication among companies. Early in this century, there .was noprofesional society oriented to quality. The occasional published papersfocused mainly on technological topics, such as metrology. The confe-rences of the engineering societies sometimes included sessions devoted toquality. For example, my first published paper was presented at a sessionof a regional conference of the American Society of Mechanical Engineers(ASME). All the papers at the session focused on inspection and test.About 50 people attended.

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The Effect of World War H

World War II had a profound effect on the American approach to mana-ging for quality. I recently examined that effect in a paper published inQuality Progress. Here are some key points of that paper.

The United States became involved in World War II during the late 1930s,first as a supplier to the allies, and then in 1941 as a combatant. Thegovernment created the War Production Board (WPB) to harness the ci-vilian economy to the war effort. One department of the WPB had the jobof helping industry meet the quality requirments of military goods. Thefocus of that effort was to offer free training courses in the use of statisticaltools, notably control charts and sampling tables based on probabilitytheory. These tools had evolved within the Bell System during the 1920s.

The WPB course gave many companies their first exposure to statisticaltools. For various reasons, the effect on the war effort was minimal.There were, however, residual effects of other sorts. One was the creationof quality specialists who were assigned to make use of the new tools.These specialists prepared training manuals and conducted in-house train-ing course. Some were young enthusiasts who went further. They estab-lished data systems, investigated abnormal conditions, initiated qualityplanning, prepared procedures manuals, conducted quality audits, pub-lished reports, and so on.

Collectively such activities came to be known as quality control enginee-ring. Large companies tended to create departments of quality controlengineering to house these new specialist. Such departments were notmade subordinate to the chief inspectors. Instead, a new office - thequality control department - was created and headed by a quality controlmanager. This new department then presided over the inspection depart-ment and the quality control engineering department. The quality controlmanager was assigned to report to the plant manager or to the vice presi-dent for manufacture.

A second residual effect of the World War II training courses was thecreation of ASQC- All attendees relished the chance to meet for twoweeks and share experiences with people who faced the problems of qualitycontrol in other companies. For most attendees, this opportunity wasunprecedented. The attendees then proceeded to create quality controlsocieties in their respective areas to enable such sharing to continues.

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These local societies then merged to form ASQC.The Effect of the Shortages

During the war, goods for the military received priority in allocation offacilities, materials, skilled manpower, and services of all sorts. Produc-tion of many civilian products came to a halt, including automobiles,household appliances, and others. All the while, employees in defensefactories were working overtime and building up a great hoard of purcha-sing power.

By the end of the war in 1945, a massive shortage of civilian goods hadbuilt up. It then took years to refill the pipelines. During those years, thetop priority of the companies was to meet schedules so as to secure maxi-mum share of market. Quality of products deteriorated to scandalouslevels. (Quality always goes down during a time of shortages.) Theshortages also attracted the entry of new competitors whose inexperiencecontributed further to the decline in quality.

By the time the pipelines finally filled up, the lowest quality producers haddisappeared. The survivors, however, were forced to take steps to repairthe damage to their quality reputations. One of those steps was to strenghtenthe status of the quality control department to help it deal with the nowentrenched habit of giving top priority to meeting schedules, to providethis new status, the department name was changed (typically) to qualityassurance department. The chief was given (typically) the title of qualitymanager, and he typically reported to the vice president for manufacture.

Considering that, early in the 20th century, the organisation charts weredevoid of anything onented to quality, this was a high status indeed.

The Japanese Quality Revoluation

By far the most important event that followed World War II was theJapanese quality revoluation, which opened the way for Japan to becomean economic superpower.

Japan's efforts to achieve greatness through military conquest had failed.Now it would have to be done through trade. Lacking natural resources,this meant importing materials, processing them into finished goods, sel-ling these goods, importing more materials, and so on. The major obstacleto creating such an upward spiral was Japan's reputation as a producer ofshoddy goods.

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To improve that reputation required some fundamental changes in habitpatterns. The Japanese CEOs were prepared to make such changes - theshock of losing the war had opened up their minds. So they set out toimprove their quality reputation. Through the Keidanren (Japanese Fe-deration of Economic Organizations) and JUSE Union (Union of JapaneseScientists and Engineers) the companies acted collectively:

• They sent teams abroad to learn how foreign countries achievedquality

• The translated foreign literature into Japanese

• They invited two American experts, W. Edwards Deming and me,to give lecturers.

Deming's lectures were on statistical methods, especially the control chartdeveloped by Walter A. Shewhart. My lectures were on managing forquality, especially on the concept and methodology of annual qualityimprovement. Let me here deal with a widespread misconception.

Some people believe that had these two American not given their lecturers,the Japanese quality revolution would not have happened. In my view,this belief has no relation to reality.

Had Deming and I never gone there, the Japanese quality revolution wouldhave taken place without us.

Each of us did bring to Japan a structured training package the Japanesehad not yet developed. In that sense, each of us gave the Japanese adegree of jump start. But we also did the same for many other countries,none of whom succeeded in building such a revolution. That is why I tellmy audiences that the unsung heroes of the Japanese quality revolutionwere the Japanese managers.

The American Response

The Japanese quality revolution brought great benefits to American con-sumers, but at the expense of other parts of the economy:

• Manufacturers lost large shares of market.• Huge numbers of jobs were exported,.

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• The national trade balance was badly upset.Early American efforts to respond to the Japanese quality revolution con-sisted mainly of:

• Keeping the imports out through restrictive legislation and quotas,criminal prosecutions, civil lawsuits, and appeals to "By American". Theseefforts yielded some relief, but did nothing to improve American competi-tiveness in quality.

• Solving the companies' quality problems by exhorting the workers tomake no mistakes: to "do it right the first time". This simplistic approachwas persuasive to many upper managers who, at the time, through! that theprimary cause of the company's quality problems was the carelessness andindiference of the work force.

• Training supervisors and specialists in statistical methods. The stimu-lus for this came from a widely viewed telecast title "if Japan Can ........Why can't We?" It included a discussion of the Japanese success inquality and implied strongly that this success was solely the result ofJapanse use of statistical methods for quality control. The telecast wasinfluential in persuading companies to train many employees in basicstatistical methods for quality control. Such training has undoubted merit.It provides the trianees with a useful set of tools. Yet it was premature.The companies had not defined their quality goals or the strategies neededto reach those goals. In a sense, the personnel were given a remedy whenthe diseases had not yet been diagnosed.

• Undertaking quality improvement on a project-by-project basis. I pleadquality to creating the videocassettes that stimulated this response. Somecompanies achieved notable improvements; other did not. The decisivevariable was the degree of personal leadership provided by upper managers.In retrospect, the American responses of the \9*7Qs and 1980s were ina-dequate and disappointing. The good news is the some U.S. companiesdid reach world-class quality. In addition, there were enough of them toprove that it can be done within the American culture, and to show howit can be done.

Life Behind the Quality Dikes

A further mighty development during this century has been the growth ofpublic suspicious and fears relative to the negative side of industrial progress.These fears are evident in multiple trends, all of them quality related.

• Growing concern about damage to the environment• Fear of major disasters and near disasters• Action by the courts to impose strict liability• Growth of consumer protection organisations

Collectively, these trends are traceable to markind's adoption of techno-logy and industrialization. Technology confers wonderful benefits on so-ciety, but it also makes society dependent on the continuing performanceand good behaviour of a huge array of technological goods and services.This is the phonomenon of "life behind the quality dikes" - a form ofsecuring benefits but living dangerously. Like the Dutch, who have re-claimed so much land from the sea, Americans secure benefits form tech-nology. They need protective dikes in the form of good quality, however,to shield society against service interruptions and to guard against disas-ters.

These concerns have led to legislation that, at the outset, was bitterlyopposed by U.S. industrial companies. Since then it has become clear thatthe public is dead serious about its concerns and is willing to pay for gooddikes. In additon, the ingenuity of companies has begun to find ways toreduce the costs of providing solutions. American seem to be well on theway to dealing with these prickly problems.

Where are We Now

The United States has already passed the most difficult milestone: havingrole models. Engough U.S. companies have gotten to world-class qualityto prove that it can be done in this culture. In addition, companies haveidentified how the role models did it - what they did that was differentfrom before. Companies have also learned from the numerous failures:why they failed and what not to do.

Scaling Up

The United States does have a massive problem of scaling up, and someprogress is being made. The success stories are being disseminated.Successful companies are shrinking their supplier bases, and a major cri-terion for supplier survival is to get to world-class quality. Self-assessmentusing the Malcolm Baldrige National Quality Award criteria is helpingsuppliers identify their strenghts and weaknesses.

The biggest single obstacle to scaling up is the absence of upper manage-

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ment leadership. Many, perhaps most, U.S. upper managers still don'tunderstand the actions needed to achieve world-class quality. Neither dothey understand their role in bringing it about - what are the nondelegableactions that upper managers must taken, personally (see the siderbar "CEOs1

Nondelegable Roles").

CKOs* Nondelegable RolesIn the article. "Mide in USA - A Renaissance in Quality", J.M. Juran details what he

galls the nondelegable roles of chief executive officers (CEOs) that relate to qualityimprovement.

"'The new impetus for quality", he writes, "will be limited only by the pace at whichour CEOs accept responsibility for their nondelegable roles. There are .seven steps thata responsible CEO must take to achieve quality in any organisation. They are strikinglysimilar to the steps that CEOs already routinely take in managing for financial results. Tolead a revolution in managing for quality, every CEO must:• Set up and serve on the company's quality council, the quality equivalent of the

finance committee.• Establish corporate quality goals, including quality improvement goals, and

make them a part of the business plan.• Make provisions for training the entire company hierarchy in Managing for Quality.• Establish the means to measure quality results against quality goal.• Review results against goals on a regular basis.• Give recognition for superior quality performance.• Revise the reward system to respond to the changes demanded by world-class

quality"Prior to presenting his paper "The Upcoming Century of Quality" at the ASQC AnnualQuality Congress. Juran was asked which of the seven nondelegable tasks was the mostimportant. His concise response" "It's an inseparable package".

ReferenceI. J.M. Jura. "Made in USA - A Renaissance in Quality". Havard Business

Review. July-August. 1993.

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Buzzwords

To make matters worse, much of our society seems to be mesmerized bybuzzwords, such as excellence or re-engineering. Often these are merelyattractive new labels for old, well-known concepts. Some upper manag-ers, however, are not aware that those concepts are old and well-known.So there is a market for buzzwords, and the opportunists know this. Themedia amplify the effect. They are ever on the lookout for new hot topics.If they can't find a hot one, they warm up a cold one.

It is tempting to dismiss the game of buzzwords as an innocent diversionfrom the serious grim realities of managing enterprises. But experienceshows otherwise. During the exhortation era of the 1980s, with its colour-ful benners and slogans, gullible managers lost year of potential progressas well as their credibility.

As for buzzwords, how about total quality management (TQM)? It isastounding how that term is tossed about without defining what it means.To me TQM consists of those actions needed to get to world-class quality.Right now, the most comprehensive list of those actions is contained inthe Baldrige Award criteria. The quality field has endured some bad pressrelative to TQM, and much of it is traccabel to a failure to explain themeaning of TQM to the journalists.

Notice also the importance of distinguishing the basic quality goals fromthe means for reaching those goals. For operating managers, the basicgoals are to cure the sick, educate the student, provide for national defense,and produce salable products. TQM and its many components - annualquality improvement, business process management, statistical processcontrol and so on - are all means for reaching the basic goal.

The Taylor System

The Taylor system is still very much with us. As a result, companies arefailing to use a huge underemployed asset: the education, experience, andcreativity of the work force. Companies generally agree that the Taylorsystem is obsolete and should be replaced, but don't agree on what shouldreplace it. There are many options, all of which have been undergoingtest. The options include:• Creating the conditions for worker self-control• Creating the conditions for worker self-inspection• Job enlargement, both horizontal and vertical

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• Self-directed teams.Each option involves extensive transfer of work from supervisors andspecialists to the work force. As a result, each is meeting much culturalresistance. In my view, replacing the Taylor system is an idea whose timehas come. So the Taylor system will be replaced despite the culturalresistance. I believe that all of these options will grow, but that the majorreplacement for the Taylor system will be self-directing teams of workers.

The Crisis of Opportunity

Earlier this year, I was invited to attend a worldwide conference of XerorCorporation executives. As a part of their forward planning, they hadcome up with a concept called Crisis of Opportunitiy. It was quite intri-guing.

Most human being prefer a peaceful, predictable life despite the fact thatlife includes much turbulence. So when things go bad, and then from badto worse, most people tend to delay making a responsive change until acrisis forces them to act. By that time, much damage has already beendone and a sense of urgency has closed in. Few options remain, and noneof them is attractive.

The concept of Crisis of Opportunity is to act on opportunities and not towait for a crisis before doing so. Instead, the approach is to go afteropportunities when things are going well. People can all agree that thebest time to be looking for a job is when they are already comfortablyemployed. The critical difference between responding to an opportunityvs. a crisis is taking an initiative vs acting deffensively.

Opportunities for improvement abound, but they provide no wake-up calls.So companies must take positive steps to find them. They are then facedwith a decision on priorities. To what extent are they willing to invest inimprovement? Until the 1980s, priorites favorsed quality control overquality improvement by a wide margin. The major exception was in thearea of new product development. Companies are now faced with makinga drastic revision in priorities.

There should be not let up on quality improvement. Many U.S. companieshave accepted the concept of annual improvement, and some have becomeproficient at it. Yet making improvements annually is no longer goodenough. In addition, companies must improve the planning process to shutdown the hatcheries that in the past have created so much chronic waste.

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Some Backward Giant Industries

Progress among U.S. industries has varied widely. The manufacturingsector, having endured the worst cirsis, has made the most progress. Theservice industry giants - health care, education and government - havebeen slow to respond but now shown signs of progress. Some islands ofexcellence have emerged and are serving as role models for scaling up.

A development of great promise has been the formation of local alliances.These consist of numerous organs of society: government, industry,academia, chambers of commerce, etc., all local to some geopgraphic area.The activities of these alliances include committee meetings, luncheondiscussions, conferences, and other forms of sharing experiences. Manyof them have created local quality awards that are presented at memorableaward ceremonies. The interchanges among people from such diverseactivities are not informative and stimulating. They also provide oppor-tunity for wide dissemination of knowledge about quality problems andsolutions.

The Role of ASQC

Let me now turn to ASQC as it has evolved during this century.

ASQC Origins

The origin of ASQC is traceable to the training courses conducted by theWPB during World War II. Attendees at those courses relished the op-portunity to meet with others in the same field. On return to their ownarea, they created local societies that then merged to form a national so-ciety. So ASQC was born in 1946 48 years ago.

During its formative years, ASQC groped to find its scope of activity. Themajor question was whether to focus on the quality function generally oron the application of statistical methods to control quality. This questionwas resolved when a study showed that most of the membership hadinterests beyond statistics.

During those early years, the statistical advocates were rather naive withrespect to managing for quality. But they exhibited enthusiasm and eveneuphoria relative to the new statistical tools: control charts, sampling ta-bles, and probability theory. These tools had been developed during themid-1920s by a team in the Bell System. (As it happens, you are reading

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words from the sole surviving member of that team). In addition, thestatistical advocates were quite vocal and influential. An example is seenin the evolution of the awards created by ASQC.

The first national ASQC award was the Shewhart medal. It is statisticsrelated and was established in 1948. The second national award, theEdwards medal, is oriented to managing for quality. It was created in1959, 1 1 years later.

The Awkward Years

During its early years, ASQC exhibited all the features of a young society:large sails and a small rudder.

The Soceity income came mostly from membership dues. That is thesecond worst form society income. The worst is government subsidies.The organisation structure of ASQC vested the bulk of the decision ma-king in the elected officers. With few exceptions, the elected officerslacked experience in managing an enterprise. . Their full-time jobs werethose of middle managers or specialists in industrial companies.The full-time staff was limited to doing housekeeping chores. Theseoffered no inspiring career opportunities, so morale was low and turnoverwas high.

Progress toward solving these problems was interrupted during the late1970s and early 1980s. A procession of oppotunities presidents plus somemismanagement conver to create a financial crisis that threatened to bank-rupt ASQC. Heronic measures had to be taken. The society survived,amid deep concern by the membership and a wrenching experience for thestaff.

That procession of opportunistic presidents deserve some comment. Asset out in the constitution and by laws. ASQC is a democratic society. Inpractice, the national nominating committee chooses the national officers,since u single slate is presented to the membership.

In my experience, the great majority of ASQC officers have been dedi-cated professionals. The presidents have increasingly included men ofstatesmanship stature. The exceptions have included opportunists andoccasional lowlifes. For such people to become presidents is a disgracethat only the nominating committee can avoid. In turn, the nominatingcommittee should consist of statesmen and no one else. Selection of thenominating committee is clearly one of the most critical decisions faced by

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the ASQC leadership.During the 1980s, external forces converged to solve ASQC's financialproblems. The crisis of international competation raised quality to anunprecedented level of priority. ASQC membership soared. There emergeda huge demand for training and consulting services. In turn, this stimu-lated attendance at ASQC's conferences and training courses. Publicationof books grew from a trickle to a torrent, and book sales grew by ordersof magnitude. (Some of these books should never have seen the light ofday). There sprang up a cottage industry of consultants, with an associatedsurge in ASQC's advertising revenues. The Society's accounts have re-cently been showing delicious annual surpluses.

ASQC and Service to Society

Most of us have an instinctive urge to contribute to public service. Theprofessional society is one mechanism for doing that, and for some peopleit is the chief meachnism.

In its early years, ASQC was preoccupied with service to its members.Service to society ranked a distant second. I once tried to quantify theproportious by analyzing the membership of ASQC's committees. I foundthat in 1969, there were 6.30 people listed as members of various societyboards, councils, committees, etc. Of these 630 people:

• Five hundered fity-five, or 88%, served on bodies devoted mainly tointernal society matters.

• Seventy-five, or 12%, served on bodies devoted mainly to externalaffairs.

I don't know what the proportious should be, but 88 to 12 seems toolopsided.

This situation has not escaped the attention of outsiders. During a break-fast I has in July 1983 with the late Kaoru Ishikawa, he made the obser-vation: JUSE serves society; ASQC serves its members.

Another effect of looking inward was that ASQC was seldom invited toparticipate in discussion of national affairs. There was little indication thatit had a contribution to make. This has little indication that it had acontribution to make. This has since undergone a change for the better.For example, during the congressional hearings on creating the BaldrigeAward, ASQC was invited to testify.

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Recently, the ASQC revised its vision statement, it included a specificitem of being useful to society. That was good news to me. The U.S.economy has numerous unsolved quality problems, and ASQC is uniquelysituated to assist in their solutions, provided it mobilizes to do so. Morerecently I learned that ASQCs is poised to create pilot efforts to providequality training to teachers and administrators of our schools. Such projectsmerit the support of all of us. They also require the support of professionalstaff. To my knowledge, the number of quality professionals on ASQC'sstaff is well below the level in other professional societies of comparablesize ASME; and ASQC have comparable numbers of members, but theprofesional on the ASME staff outnumber those in ASQC by more thanan order of magnitude.

ASQC and Upper Management

In its early years, ASQC had few contacts with upper managers. The twogroups had little in common. To ASQC, quality had top priority, but thefocus was on techniques and tools. To upper managers, the focus was oncompany goals and results. Quality, though desirable, did not have toppriority. An added fact of life was that upper managers prefer to meet withother upper managers. At the time, ASQC's membership was essentiallydevoid of people in senior managerial posts.More recently there has been some convergence of interest. Quality hasrisen dramatically in importance, forcing upper managers to raise the pri-ority of quality and to create vice presidents for quality. In turn, ASQCmembership now includeds such vice presidents, and ASQC has broa-dened its scope to include managing for quality. ASQC has also begunto take positive steps to create linkages with upper managers. The annualTotal Quality Forum was established in 1989. It has brought CEOs ofmajor companies into an initiative to raise awareness of the role of qualityin the economy.

I would like to see ASQC get more involved in relations with uppermanagers. This could be done through committees to identify the majorquality problems as seen by upper managers and to mobilize ASQC'sresources to help deal with these problems. I see no present likelihood ofinducing CEOs to become active in such committees. ASQC's member-ship, however, now includes vice presidents for quality who are able toreflect the views of CEOs and who can be induced to the active on suchcommittees. In fact, there is precedent for such an approach. One suchcommittee has been active in the Conference Board. Its chairman has beenDavid Luther, who is now president of ASQC.

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Research in the Quality Function

There is great need for research in the quality function, especially inmanaging for quality. ASQC has recognized this need and in 1987 createdthe nonprofit American Quality Foundation. I have recently reviewed theprincipal research project undertaken by that foundation: the InternationalQuality Study.

The concept was to indentify the best practices in managing for qulaity inCanada, Germany, Japan and the United States. Questionnaires weredesigned and sent to a sample of companies in several industries: automative,banking, computers, and health care. The responses to those question-naires became the data base for the study. The conclusions were thenpublished in a series of reports.

The study was carried out by the consulting arm of a major accountingfirm, under an agreement with American Quality Foundation. This firmalso provided the funds, which were substantial.

I learned that there has been no site visits to the comapanies. When I triedto secure a copy of the questionnaire, I was informed that it was restricted,but if I brought the accounting company some consulting business, theywould permit me to see the questionnaire.I drew the following conclusions:

• The research was of dubious value, given the dubious state of the datebase.

• There is nothing wrong with a consulting company undertaking sucha study with its own funds and then using the findings to help marketits services.

• It is entirely inappropriate, however, for a nonprofit foundation to lendits name to such a venture.

Meanwhile, the American Quality Foundation has been shut down. ASQCis now participating with the National Science Foundation in a promisingproject to encourage people in academia to team up with business manag-ers to study issues of importance.

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A National Quality Center

There has been much discussion about the merits of creating a nationalquality center for the United States. Some of this is stimulated by organi-sations that would love to become such a center. Additional stimuluscomes from those who look sideways at the role of JUSE.

JUSE was created right after World War II as a nonprofit corporation. Itmission was to help in Japan's reconstruction after its crushing defeat. Atthe outset, it was supported by subsidies and by the work of volunteercommittees. Its first managing director, Kenichi Koyanagi, understood theimportance of changing Japan's quality reputation as a producer of shoddygoods, so he focused the activities of JUSE on quality. JUSE then playedan increasing role in conducting training courses, sponsoring conferences,publishing books and journals, providing consulting services, administer-ing the Deming Prizes, etc. These activities played a major role in helpingJapanese managers to create the Japanese quality revolution. Those sameactivities have also made JUSE self-supporting financially.

JUSE is now the de facto quality center of Japan. It reached that statusby earning it. It has a near monopoly in the quality field, with limitedcompetition from Japan Standards Association and Japan ManagementAssociation.

The United States has no de facto national quality center. The countrydoes carry out the same activities as JUSE, but these are scattered amongmany entities: consultants, industrial association, universities, communitycolleges, local governments, the National Institute of Standards and Tech-nology (NIST, which administers the Baldrige Award), the Federal Qual-ity Institute, and still others, including ASQC.

Can any of these earn a de factor status of national quality center? It mightbe too late; some organisations have become quite competent and have putdown deep roots. In any case, the likely key parameters can be identified:

• An organisation not for profit• A staff that includes some of the leading professionals in the field.• Conducting of research at the cutting edge.• A high priority on service to society.

Meeting those parameters is, in any case, a challenge to ASQC. Right

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now, it meets only the parameter of being not for profit.The Upcoming Century of Quality

Let us now turn to the 21st Century. I am wary of going on record as towhat lies ahead. Last year, at the annual MIST conference, DeputySecretaryof Commerce David J. Barram quoted my prediction at the 1966European conference in Stockholm. I had told that conference: "TheJapanese are headed for world quality leadership and will attain it in thenext two decades because no one else is moving there at the same pace".

As Barram was talking, I though I heard a small voice saying, "You oughtto quit while you are ahead".

Nevertheless, I suspect that future historians will refer to the 21st centuryas the Century of Quality. Certainly there are some mighty forces thathave become drivers for quality:

• Intense international competition in quality as demonstrated by theJapanese quality revolution

• Relentless demands arising from the concept of life behind the qualitydikes.

Prognosis: The United States

I believe that the United States is now well-poised to respond to theseforces. Role models have shown that world-class quality is attainable inthis culture. America has an immense job of scaling up, but some po-werful forces are urging that it do so. In addition, U.S. companies nowunderstand what the role models did to attain world-class quality, and theyare disseminating those lessons learned.

The lessons learned from the role models make it clear that attainingworld-class quality requires making some revolutionary changes in man-aging for quality:

• The entire managerial hierarchy must be trained in how to manage forquality.

• The upper managers must personally take charge of managing forquality, much as they have long done in managing for finance. (Thisputs a limit on what they may delegate. We have identified thenondelegable roles of upper manager).

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• The business plan must be enlarged to include quality goals.

• Managing for quality must be integrated into managing the business.

• Quality improvement must become an ongoing process, year afteryear.

• New measures must be evolved to enable upper managers to followthe progress of parameters such as customer satisfaction, competitivequality, performance of business processes, cost of poor quality, etc.

• The work force must be given the training and empowerment neededto enable them to participate widely in job planning and improve-ment.

• The reward system must be revised to take account of the changesin job functions and responsibility.

That is an extensive list of musts, but I believe Americans are on the roadto accepting them as a way of life.

In looking ahead to the next century, let us also look briefly at the situationin Japan and Europe.

Prognosis: Japan

The Japanese have been improving quality for over four decades, and theyshow no signs of letting up. Their quality torch has been passed success-fully through several turnovers of upper managers. They are quite awarethat their achievements in quality are the chief reason for their status asan economic superpower. I believe that they will remain among the worldquality leaders during the next century. Nevertheless, the Japanese facea serious threat that is waiting in the wings: the threat of "Buy American".

There are, of course, some consumers who favour imported goods, espe-cially in the world of fashion. But many other consumers prefer to buyAmerican, all other things being equal, so the urge to buy American wasovercome by the superior quality and value of Japanese products.

More recently, during the 1980s, the gap between Japanese and Americanquality was narrowed noticeably by some of our companies. That enablethose companies to recapture some of the market share they had lost. We

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can expect the quality gap to continue to narrow in the years ahead. Thatwill translate into growth in market share as customer perception catchesup with the facts. The more U.S. companies narrow the competitive gapin quality, the stronger will be the urge to buy American. I believe thatsome of this has already taken place, thereby helping to reverse the exportof jobs as well as the trends in share of market.

There is also a further stimulus to buy American . The Japanese have^lienated the U.S. government and U.S. companies by their restrictions onimporting American goods. I suspect that this alienation extends to theAmerican public as well. Beyond the effect on imports from Japan, itwould not surprise me if the urge to buy American will in due courseaffect the market share of Japanese-owned companies that produce goodshere in the United States.

Prognosis: Europe

In Europe, the national approaches to managing for quality vary greatlydue to local history and culture. 'They have role models, but their majorpreoccupation is with registration to ISO 9000.

ISO 9000 is a lable for a series of international standards for qualitysystems that were published by the International Organization forStandardizaiton. The standards are valuntary; they are not a legal prere-quisite to selling products in Europe. They have been so cleverly mar-keted, however, that whoever hopes to sell products in Europe must be-come registered as meeting the criteria of ISO 9000. Registration to ISO9000 has become a de factor license to market in Europe.

The ISO 9000 standards have a degree of merit. The criteria define acomprehensive quality system. The registration process might well get ridof the plague of multiple assessments that has burdened companies in thepast. The criteria, however, fail to include some of the essentials neededto attain world-class quality:

• Personal leadership by upper managers• Training the hierarchy in managing for quality• Quality goals in the business plan• A revolutionary rate of quality improvement• Participation and empowerment of the work force

All in all, my prognosis for Europe is gloomy. Already there is evidenceof a lag: The European quality awards have gone mainly to

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American-owned subsidiaries despite their small numbers. In my view,many European companies are in for a massive letdown. They will all getregistered to ISO 9000, but this alone will not enable them to attainworld-class quality.

And Now, Sayonara

The publicity for this AQC said that this will be my final appearancebefore an ASQC audience. That is essentially correct. I still have somaall-day seminars to conduct this year in various cities around the UnitedStates. Collectively they will conclude my last hurrah. In December, Iwill be 90 years old and will have completed 70 years in the field ofmanaging for quality, less four years devoted to service in the federalgovernment during World War II.

Starting in 1995, I will devote my time to tackling a huge backlog ofneglected family and personal matters. I will also get into the formidablejob of writing my memoirs -1 have promised that to my grandchildren. Inaddition, I hope to be granted the time to sneak in a few books and paperson the subject of managing for quality. So I will remain fully occupied,but I will be free from deadlines that must be met. You can be sure thatin December of this year, I will be shouting "Free, free at last".

Although I will remain fully occupied, I will miss the excitement of actionin the arena and the association with managers who face the realities. Ihave been facing a different reality, so I have been backing off fromconsulting engagements. As a result, the active world has been recedingfrom me and I am becoming increasingly out of touch. My future writingswill relate to history rather than to current events.

I am looking forward to those memoirs. They will make clear the natureof the journey I have traveled. During some of that journey I met SamuelJohnson's definition of a lexicographer: a harmless drudge. But much ofthat journey has been challenging in the extreme.

As related to quality, my journey began in 1924, when as a youngster outof engineering school I joined the Hawthorne Works of the Bell System.There the powers that be tossed me into what they called the InspectionBranch. I had no idea what they did there, and I didn't care. Whatmattered was that for the first time in my life I became financially secure- I had a steady job at steady pay.

During those 70 years, the subject of quality grew and grew, both in

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importance and complexity. It exposed its practitioners to the turbulencethat accompanies a series of convulsions. That growth and turbulence arestill in progress.

My association with ASQC began at the beginning. I was one of manyfounding members of the society. In the decades that followed, I becamequite active in some of its functions. I have served on some of its com-mittees, attended most of its congresses, addressed many of them, contri-buted numerous published papers to its journals, perhaps over 200, andengaged in extensive correspondence with many members.

I welcomed those opportunities to contribute to good cause. Yet, I foundthat I was being repaid. Sharing experiences with other society membersgave me inputs that I was then able to put to good use when writing books,preparing training materials, or providing consulting service to clients.Beyond those tangible repayments, I relished the exhilaration of contrib-uting to the common good.

All of you attending this Congress have an interest in the subject of man-aging for quality. Some of you are fully immersed in it. I believe I cansafety promise you that it will continue to grow during your lifetime andwill offer exciting challenges as well as drudgery. I hope that during yourown journey, you, too, will avail yourself of the opportunities provided byASQC and other professional societies to gain from sharing experience inthe field. And I hope that you, too, will come to relish the exhilaration ofcontributing to the common good.

c. Copyright belongs to Juran Institute, Inc. of Wilton, CT, TheUnited States of America

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References

1. J.M. Juran, "The Taylor System and Quality Control" QualityProgress" May 1973 through December 1973. (It was a series ofcolumns presented under the headling of "Management Interface").

2. J.M. Juran, "World War II and the Quality Movement." QualityProgress" December, 1991.

3. J.M. Juran, "Made in USA - A Renaissance in Quality'" HarvardBusiness Review, July-August, 1993.

4. J.M. Juran, "Juran on Quality Improvement," a series of 16video-cassettes plus associated manuals (Wilton, CT: Juran Institute,Inc., 1980).

5. J.M. Juran, " Mobilizing for the 1970s," Quality Progress, August,1969.

6. Donald M. Berwick, A. Blanton Godfrey, and Jane Roessner, CuringHealth Care: New Strategies for Quality Improvement (San Fran-cisco, CA: Jossey-Bass Inc. Publishers, 1990).

7. A. Blanton Godfrey, Donald M. Berwick, and Jane Roessner, "CanQuality Management Really Work in Health Care?", QualityProgess, April, 1992.

8. J.M. Juran, "Directions for ASQC," Industrial Quality ControlNovember, 1951.

9. J.M. Juran, "ASQC and Public Services." Quality Progress, July,1974.

10. Juran, "Made in USA - A Renaissance in Quality".

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ABBREVIATIONSAIAG Automative Industry Action GroupANSI American National Standards InstituteAPI American Petroleum InstituteAPQC American Productivity and Quality CenterASME American Society of Mechanical EngineersASQC American Society for Quality ControlASTM American Society for Testing and MaterialsBABT British Approvals Board for TelecommunicationBSI British Standards InstituteCAD Computer-aided designCAE Computer-Aided EngineeringCIM Computer-integrated manufacturingCMC Certified Management ConsultantCMI Certified Mechanical InspectorCMM Coordinate Measuring MachinesCNC Computer Numerically ControlledCOQ Cost of QualityCQA Certified Quality AuditorCQE Certified Quality EngineerCQI Continuous Quality ImprovementCRE Certified Realibility EngineerCSA Canadian Standards InstituteDFM Design for ManufacturabilityDOD Department of DefenceDOE Department of EnergyDOE Design of ExperimentsEFQM Eropean Foundation for Quality ManagementEPA Environmental Protection AgencyFAA Federal Aviation AdministrationFDA Food and Drug AdministrationFMEA Failure Mode Effects AnalysisFMECA Failure Mode Effects and Criticality AnalysisFRACAS Failure Reporting and Corrective Action SystemGD&T Geometric Dimensioning and TolerancingGLP Good Laboratory PracticesGMP Good Manufacturing PracticesGR&R Gauge Repeatability and ReproducibilityGSP Good Sanitation PracticesHACCP Hazard Analysis of Critical Control PointsIEEE Institute of Electrical and Electronics EngineersIQA Institute of Quality AssuranceISO International Organisation for StandardizationJIT Just-in-TimeJUSE Union of Japanese Scientists and EngineersMBNQA Malcolm Baldrige National Quality AwardME Mechanical Engineer

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MRP Material Resource PlanningMSA Measurement Systems AnalysisMTBA Mean Time Between FailuresNACCB National Accreditation Council for Certification BodiesNASA National Aeronautics and Space AdministrationNDE Nondestructive EvaluationNOT Nondestructive TestingNIST National Institute of Standards and TechnologyNQC Nuclear Quality AssuranceOSHA Occupational Safety and Health AdministrationPE Professional EngineerQA Quality AssuranceQC Quality ControlQEIT Quality Engineer in TrainingQFD Quality Function DeploymentQMI Quality Management InstituteRAB Registrar Accreditation BoardR&D Research and DevelopmentRvC Road Voor de CertificateSPC Statistical Process ControlSQC Statistical Quality Control3-D Three DimensionalTQM Total Quality ControlTQM Total Quality ManagementTQS Total Quality Systems2-D Two Dimensional

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