MS-96

MANAGEMENT PROGRAMME

Term-End Examination

December, 2009

N-O MS-96 : TOTAL QUALITY MANAGEMENTt'r)O

Time : 3 hours Maximum Marks : 100

(Weightage 70%)

Note :

There are two sections : A and B.

Attempt any three questions from Section A, which carry

20 marks each.

(iii) Section B is compulsory and carries 40 marks.

SECTION - A

1. (a) What advantages a firm could reap if itimplements the concept of Kaizen ? andwhat are the techniques that it could usefor operationalizing this concept ?

(b) "The basic strength of TQM is that it restson the principle of proactive action ratherthan reactive." Elucidating the statement,discuss how increased market share andprofitability can result from improvedquality ?

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1 P.T.O.

(a) How could a firm pursue both the strategiesof Cost Leadership and Differentiationsimultaneously ? Explain with examples.

(b) Briefly explain the various types of qualitycosts. Why should prevention costs takeprecedence over other types of costs ?

(a) Explain, with their applications, thetechniques of (i) Pareto Analysis, and

(ii) Control Charts.(b) Briefly explain Taguchi's method of quality

control, outlining its strengths andweaknesses.

(a) How does TQM integrate a humanisticapproach with scientific methods ? Can youidentify some elements of each ?

(b) What do you understand by "Cross-functional Management"? What problemsdoes it resolve, particularly from theviewpoint of TQM ?

(a) How does the implementation of ISO 9000QMS encourages transparency andaccountability ? Explain.

(b) "Awards are not the end in themselves buta beginning to progress further." Commentand discuss the general requirements in anAward process ?

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SECTION - B

6. Read the following Case carefully and answer the

questions given at the end.

N- Hate to interrupt you, boss, but the meetingN- starts in another 10 minutes," said a male voiceV over the intercom.Q

"I am almost through," replied the maninside the big corner room. On any other day,Abhinav Kumar-CEO of the diversified TotalIndustries-wouldn't have needed a reminder. Buttoday, he had been on a half-an-hour longconference call with one of Total's globalcustomers. And having just finished the call,Kumar was making notes to circulate to hisA-team.

The note finished, Kumar poured himself acup of coffee and darted off to the conferenceroom. It was Vinod Rao, head of HR, who gotthe ball rolling. "One of the biggest benefits ofthe ongoing change initiatives at Total is thesharpening of the company's focus. In each ofthe four divisions-consumer durables, soaps,switchgears, and batteries-there have been bothtopline and profitability gains. Besides,programmes like Total Quality Management(TQM) have been great levellers."

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"I agree," quipped Manoj Kohli, president

of the switchgears business. "Special GroupActivities (SGAs), which we have introduced aspart of TQM, have dismantled hierarchicalbarriers." Kohli was right. Cross-functional incomposition and aimed at solving specificproblems, the SGAs were all headed by individualswho were chosen for their expertise rather thanrank. Other initiatives like supply-chainmanagement and Activity Based Costing (ABC)had also helped foster an integrated view ofbusiness among employees at Total.

"I believe," Rao continued, "this is the righttime to tie our reward system to teamperformance. Identifying new measures ofcollective contribution and linking them with asystem of team rewards is not only a logical stepforward, but also the best way to sustain thechange momentum."

What Rao was suggesting was relatively anew concept at Total. Traditionally, the family-managed company had encouraged individualexcellence. The individual had been central to itsappraisal, reward, and compensation systems,even as the appraisal system underwent changes.For instance, Total once had a trait-basedappraisal system, where everyone above the levelof a supervisor was evaluated on five traits :commitment, communication, responsibility,

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integrity, and intelligence. Carried out by theimmediate boss, personal evaluation was the basisfor deciding the quantum of individual incrementsand promotions.

Total, then, moved from traits to goals. Theindividual goals, which were meant to be specific,measurable, achievable, realistic, and time-bound(SMART), became the basis of performanceevaluation. Currently, Total was using the 360-degree appraisal system, which enabled everymanager to be appraised by his subordinates and

peers.

"But the individual," Rao pointed out, "isthe axis around which our assessment and rewardsystems revolve."

"The focus on the individual shouldremain," said Guneen Roy, head honcho of thesoaps business. "After all, in any group situation,there are only a few individuals who perform.High-fliers must be rewarded more than theothers. We need role models."

"I see it a little differently," said SrikantSuresh, the chief of consumers durables. "Thereis no place for Prima donnas in the current context,simply because our basic purpose as anorganisation is to serve our customers. And teamsare the basic platforms on which customer focuscan be built."

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"Srikant has a point," said Ratika Sahai, theyoung division head of batteries. "What getsmeasured and rewarded is what gets done. It isthe undue emphasis on individual performancethat generates a feeling that an organisation is runby a few heroes. That is why we should take afresh look at our compensation plan. Look at ourlimited experience with SGAs. They have enabledindividuals develop under peer pressure."

"What I meant," Roy clarified, "was thatwe should look at team compensation as an add-on to the existing system of individual rewards.Otherwise, you would have a number offreeloaders whose contribution to the team maybe marginal, but get rewarded anyway becausethe team would have delivered. We need to strikethe right balance between the individual rewardand the team reward."

"I think Roy has a point," said Kumar. "ButI am curious. Tell me how do our competitorslike CPL manage performance rewards ?"

"1 have a fair idea how it works at CPL,"replied Rao. "CPL is working out a system ofwhat it calls Pride Money. Meant to replaceexisting bonuses and commissions for everyoneabove the supervisor level, it is linked to threefactors : individual performance, performance ofthe CTV division, and the overall performance ofthe company."

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"Sounds interesting," quipped Kumar.

"It is," agreed Rao. "Paid twice a year,Pride Money is an add-on to the regular monthlysalary. The idea is to make the monetaryequivalent of each measure of performance sotransparent that anyone can ascertain his PrideMoney well before he or she receives the cheque."

"From what I know," Suresh pointed out,"there could be a problem with this kind of asystem. For one, it breaks up compensation intofixed and variable, and further links the variablecomponent to the unit's capacity utilisation."

"Explain," said Kumar. "If the monthlysalary of a manager is, say, Rs. 40,000, the figureis split up into a fixed base of Rs. 25,000 and therest variable, linked to a 100-percent efficiency.If the efficiency falls below that level, there wouldbe a proportionate fall in earnings. But if itexceeds 100 percent, the gains would begeometric. That is how CPL will reward bothindividual and team performance, and alsoestablish the right link between productivity andreward. The variable pay is called the PrideMoney, which is basically a team reward."

"So, what's the problem ?" queried Kumar.

"What if the efficiency falls due to externalfactors; say, a slowdown in consumption, higher

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interest rates, or change in product technology.Will our managers accept blame for that ? If not,we will continuously need to redefine what wemean by efficiency."

"Besides," added Rao, "managers long usedto fixed salaries will need a lot of convincingbefore they agree to anything like this. Theimplications of variable elements on net earningswill need to be properly conveyed andunderstood. What might be acceptable in theshort run is a system that protects current earningsand looks at team reward, as Roy said, as an add-on."

"That will straightaway increase the costsof operations," said CFO Vikas Singh. "Andunless the gains in productivity make up for thenew expense, we will end up with lowerearnings."

"It simply means," Kumar pointed out,"that we design the measures and rewards in sucha way that they automatically lead to highperformance levels. This also means that theweightage for intangibles—like quality, customerorientation, and on-time delivery—should behigher in a team reward system."

"I agree," said Suresh. "Continued customersatisfaction is crucial to our success. And building

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multi-disciplinary teams around customer groupsis one way of getting close to the customer. Thisnecessarily entails making team performance acrucial element of our appraisal system."

"That's why, when the meeting began, I

said that the time was ripe for a change in theappraisal system," said Rao. "Frankly, anexcessive reliance on individual performance isforcing everyone to work towards short-termindividual objectives at the cost of long-termcorporate goals. It discourages risk-taking, pitspeople against one another in pursuit of individualincentives, and prompts them to work in their ownself-interest rather than in the interest of thecompany."

Kohli was not convinced. "No doubt,working as a team enriches job content, but it alsodilutes rank. And when we delink appraisal fromindividual reward as an integral part of fosteringteam spirit, promotion prospects areautomatically cut. This will impact employeemorale and retention. Why don't we opt for aninformal system for team rewards. "

Rao was horrified. "An informal system willlead to all kinds of complications. The HRDepartment won't have any hard data to workwith. The subjective element will increase, as willemployee complaints."

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P.T.O.

Kohli offered a different tack. "I feel thatwhat ABC, our competitor in switchgears, hasdone makes more sense. They have somethingcalled the Development Appraisal. It has twocomponents : the first is a uniform increment forall managers in each of its seven grades based ona flat percentage of the basic pay plus the grade-specific dearness allowance. The percentage,which could vary from 1 to 10, is determined bythe financial performance of the company as awhole. Three other variants are also added tothe first component. The first rewards theindividual's performance on pre-determinedparameters; the second factors in the annual rateof inflation, and the third bridges the gap betweenthe company's pay-scale and the compensationtrends in the rest of the industry."

"What about the second component ?"asked Rao.

"That is a function of the performance ofthe business division of which an individual ispart. This is basically a team reward and eachmember gets it as a lumpsum payment everyyear."

"Obviously, ABC's appraisal system hasbeen built to its unique requirements," notedKumar. "I feel our reward system should also bebuilt to our specific requirements. The question ishow ?"

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Questions :

What is the strategic issue that the companyis faced with and why has the issue arisen ?

Keeping the background of the company inview, discuss the relative merits anddemerits of Individual Appraisal vs. TeamAppraisal.

Describe the approaches to Team Rewardthat have been talked about in the case.

What is ABC (Activity Based Costing) andhow can it be useful in TQM ?

(e) What should the company do with referenceto the strategic issue it faces and whatprecautions should it take to guard againstpossible pitfalls.

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