TQM: making Sona a partner of choice to global customers
Total quality management (TQM), which has been called a management philosophy, a business strategy, a company culture and a systematic, scientific, company-wide activity, is an holistic approach to managing quality; it requires development of a quality strategy and a framework for its implementation.
The three popular award frameworks – i.e. the Deming Application Prize (DAP), the Malcolm Baldrige National Quality Award (MBNQA) and European Foundation for Quality Management (EFQM) Excellence Model – seek to promote excellence through the implementation of TQM. However, with sustainability of excellence becoming a challenge, these models are drawing criticism for lacking a scientific approach in their development and insight into “internal relations and the value generation processes”.
Addressing the issue of sustainability of excellence, we look here at the effectiveness of quality strategy in a DAP-winning company.
Sona Koyo Steering Systems Limited
Sona Koyo Steering Systems Limited is a technical and financial joint venture company of JTEKT Corporation (created with the merger of Koyo Seiko Company and Toyoda Machine Works).
It produces complete steering systems, for manual, hydraulic and electronic power steering systems, and driveline products including case differentials, axle components, rear axle assemblies and propeller shafts, for passenger cars and medium utility vehicles (MUVs) in India.
The company's clientele includes Maruti Suzuki with a 58 per cent share in sales, Hyundai, JTEKT, Tata Motors, Toyota, General Motors and several others. Established in 1985 and named a “global growth company” by the World Economic Forum (WEF) in 1998, it is the world's first steering systems company to have won the DAP, in 2003.
Sensing overseas opportunities for the auto-components business at the beginning of the new century, the company identified its mission: to “Create a company that India is proud of” and articulated its goals in its Vision 2010 statement (released in 2003), reproduced below:
To make Sona a partner of choice to global customers:
- An organization of energized and involved employees.
- Growing & achieving high profitability.
- Supplying to major global OEMs directly or indirectly.
- At least 45 per cent of the sales are to overseas customers.
- Continue to be no. 1 steering systems company in India.
Beliefs – respect for the individual; service to the customer; excellence in the pursuit of goals.
It set the first milestone target of net sales of INR5 billion ($0.125 billion) and exports worth INR1 billion by 2006-2007.
Vision-business strategy relationship
With over 45 per cent (by volume) of domestic sales, Sona Koyo is the leader in steering systems business in India. It sees future growth opportunity in the compact car, low-cost entry level car, light commercial vehicle and off-highway vehicle segments and considers Rane (Madras) Limited, which has a higher share in terms of value as its major competitor.
The company has adopted a growth posture and has set ambitious corporate and business goals, especially the goal relating to overseas sales: to move from a situation of insignificant exports to a company earning 45 per cent revenues and targeting INR1 billion (20 per cent) by 2006-2007 from overseas markets. The basic components of its business strategy, aimed at achieving the above objectives are:
- scaling up volume, capacity and manpower;
- establishing alliances and partnerships;
- building technology, R&D and testing capabilities;
- diversifying its product portfolio;
- expanding customer base;
- de-risking the business-reducing share of Maruti Suzuki in sales;
- increasing exports; and
- excelling through TQM.
Quality strategy and the implementation of TQM
Sona Koyo began its TQM journey in 1997 when, faced with high customer rejections and returns, it joined the Maruti cluster of suppliers. With “TQM led and Toyota production system (TPS) and total productive maintenance (TPM) supported integrated approach”, it has implemented its quality strategy through policy deployment in three phases:
- improvement; and
Starting with simple techniques like exactness, pokayoke, visualization and a suggestion scheme in 1997, moving forward to applying gap analysis, deep analysis, and why-why analysis, it has implemented kaizen, just-in-time (JIT) and TPM, and taken some unique initiatives like “quality gate 20” for the development of new products and “high-volume production trial [HVPT]” for judging the feasibility of its production.
The company is penetrating specific market segments like off-highway vehicles, collaborating with the Indian Institutes of Technology (IITs), developing niche products and trying to become a Tier I supplier in the non-passenger car segment. New products introduced during the past three years account for over 44 per cent of total sales. However, its R&D expenditure of 0.8 per cent of revenue is quite low. Its approach to implementing TQM, with beliefs related to customers, people and excellence, is aimed at achieving the business goals and aligned to the business strategy. However, the real test of effectiveness of the strategy is the achievement of business goals and meeting the expectations of the DAP.
Evaluation of outcomes
Sona Koyo witnessed 100 per cent or greater growth in the production and sales of all steering system and driveline products, and an improvement in operator efficiency and the cycle time of new products during the 2003-2007 period.
The analysis of selected measures in balanced scorecard format from 2003-2004 to 2005-2006 reveals improvement, barring an increase in supplier rejections in 2004-2005, in learning and growth and in internal business processes. There is improvement in customer and financial processes also, with consistent improvement (year-on-year) in return on capital employed (ROCE) and return on net worth (RONW). However, achievements in operating profit (increased cumulatively but not uniformly) and exports (increased from INR30 million ($0.75 million) to INR500 million ($12.5 million) but low in percentage terms) are not satisfactory.
In 2006-2007, the company derived 84.7 per cent (product wise) of its revenues from steering systems products and 58 per cent (customer wise) from Maruti Suzuki, whose share remained at the same level. Its sales touched $78 million and there were year-on-year increases of 59.3 per cent in profit, 27.8 per cent in ROCE and 20.8 per cent in RONW. However, exports stagnated.
Mid-course review of performance against 2010 goals and first milestone targets set by the company for 2006-2007 and the benefits expected of winning the DAP reveal increased growth, increased profit (though declining gradually), improvement in productivity and quality, but poor performance in exports (attributed to a delay in launching a vehicle on the part of a client), limited expansion in overseas market and revision of export target (in percentage terms) for 2010, indicating the impact of two risk factors for auto-component suppliers, i.e. dependence on vehicle manufacturers and currency fluctuations.
The effect appears to have been augmented by high employee attrition (mostly at the middle management level) and increased human resource (HR) strength (286 in 2003-2004 to 689 in 2006-2007), leading to a changed employee profile (three-quarters of the workforce were new). This may have caused a discontinuity in functional tactics and contributed to sub-optimal performance in the competitive global market.
Effectiveness of quality strategy
Adoption of the DAP framework and implementation of a TQM-led and TPS- and TPM-supported integrated approach at Sona Koyo has led to improvements in management processes and strengthened its competitive position in the domestic market. However, the inability of the company to meet completely its strategic goals and the expectations of the DAP shows gaps in respect of the HR, technology and marketing components (included in basic categories in the DAP framework) of the quality strategy.
Impact of TQM on business performance
The improvement witnessed in the case company shows that TQM has a positive impact on business performance and the gains increase with the proliferation of TQM across the organization with time.
Suitability of TQM techniques (best fit versus best practice)
Sona Koyo went through a period of crisis in 1997-1998; faced with high in-house rejections and supplier returns and low net profit, it started its TQM journey and adopted a comprehensive three-phase strategy for TQM implementation. Change has come with time and a higher level of TQM implementation has led to higher performance. Extrapolating this, it should continue learning and implement techniques matching market, product and production process requirements.
Factors critical for sustaining excellence
The study has identified strategic focus, process objective alignment, change, broadening of the customer base, flexibility, empowerment and speed, distinctive competencies and continuous improvement as critical factors. With emphasis being placed on efficiency and effectiveness in TQM implementation and flexibility being considered a prerequisite for sustaining competitive advantage, the generation of flexible options becomes a necessary requirement.
Towards sustainable excellence
The above analysis leads to the belief that sustenance of excellence requires ensuring stability through cultivating a blend of dynamism and wisdom, learning and developing competencies; outside dependence may affect a firm's future degree of freedom. “Learning is connected with change, development and transformation”. As the world becomes more interconnected and business becomes more complex and dynamic, work must become more “learningful”.
The organizations that will truly excel in the future will be the organizations that discover how to tap people's commitment and capacity to learn at all levels in an organization. And this question of “how?” needs further probing.
This is a shortened version of “Quality strategy for transformation: a case study”, which originally appeared in The TQM Journal, Volume 23 Number 1, 2011.
The authors are S.K. Breja, D.K. Banwet and K.C. Iyer.