Thursday, June 28, 2012

Continuous Quality Improvement Strategy

Analysis of, “Continuous Quality Improvement as a Survival Strategy:
The Southern Pacific Experience”

When the Southern Pacific Railroad (SP) was purchased for $1 billion by businessman Philip Anschutz in 1988, the company was in a period of decline and struggling to survive.  For every dollar collected from shippers, it was costing SP $1.03 to haul their freight.  Southern Pacific had been without leadership for almost two decades and had been held in trust the preceding five years following a failed 1983 merger.  Anschutz found himself with a 150-year-old railroad with low morale, hostile customers, thin management, and not enough investment in plant and equipment and training.  In addition, the new company was not a single entity, but rather a collection of divisions and subsidiary railroads, each fiercely independent.  He knew he had to fix the company quickly, but also sensibly:  his solution, a total re-focus on customers and a Deming strategy of continuous quality improvement (CQI).

In 1989, Anschutz made top management changes by bringing in an expensive, but highly experienced team of all-stars who had held senior positions in companies with successful CQI programs.   Kent Sterett, a long-time proponent of Juran’s strategic-planning processes and a former judge for the Baldrige Award competition, brought a fresh perspective on quality.  He had set up Union Pacific’s pace-setting Quality Management System, and he did the same for SP in 1990 (Welty, 1992).  The new executive team made a series of benchmarking trips to such quality leaders as Xerox and Milliken where it was impressed by the first-line employees’ involvement in quality.  After a pilot program tested in SP’s Eastern region showed that quality could make a difference, Anschutz began implementing a three-phase quality improvement turnaround strategy in 1990.

Because of the company’s rapidly deteriorating situation, Anschutz was operating on a tighter time schedule than was traditionally thought to be wise for implementing CQI.  Using  Juran’s planning-based approach to improvements, a strategy was developed based on Malcolm Baldrige Award criteria to help top management lead the quality-improvement  process.  The CIO, COO, and the Vice Presidents became the Quality Council.   The design phase began with one-on-one leadership training for upper management.  Based on information gained from the previous benchmarking trips, management group sessions were used to identify techniques that would be most beneficial to SP and its unique needs and to determine key-performance indicators.  A mission statement was developed, objectives for 1991 were set, and a five-year strategy was designed. 

With an action plan and a framework in place, management began to introduce its quality improvement strategy to employees in November, 1990.  In a geographically dispersed company with multiple cultures operating in a turf-protecting mode, changing the behavior of the entire workforce was a monumental task.  Not only was the company operating with a workforce that was older in age than is typical in U.S. industry (some were third generation SP workers),  but it was one that was more than 90 percent unionized by 14 different craft unions.  If all employees had been confronted instantly with QI, anarchy would have probably resulted  from trying to tackle too much at once.

Instead, role modeling by top management and a series of 125 “town hall” meetings led by corporate officers, not first-line supervisors, were held to tell more than 13,000 workers about the quality-driven approach to doing business.  Executive work days were initiated during which corporate officers were out on the track and yards working side-by-side with employees.  Their presence demonstrated the importance of “team play” and helped dissolve distrust that existed between labor and management.  Fifty union leaders were brought to San Francisco and shown the dismal operating performance data, after which they were asked to participate in critiquing the new CSI strategy.  All but 2 of the 14 unions participated.  In addition, forums were set up with union representatives and employees to open communication lines and to identify the common grounds of quality for both groups.  Involving union leaders in management meetings was a first for the industry, but it worked! 

SP’s formal quality program began in May, 1991.  Almost immediately, a blind survey was sent to 600 customers to monitor customer satisfaction (Delsanter, 1992).  Because current customers were never certain if their shipments would arrive on time, initial findings showed customers wanted consistent, quick, on-time service, every day.   These survey results were used as a baseline from which subsequent surveys were analyzed for progress, and improving service reliability became the cornerstone of  SP’s quality efforts.  As SP’s chairman Philip Anschutz stated, the old way of doing business—“you need us more than we need you”—was out (Lustig, 1992).  He wanted to show customers that the new way—with buzzwords such as “quality” and “customer driven”—was in.  To communicate its commitment to customers, management created “the New SP” train that began a 45-day, 20-city, 11-state tour in March, 1992.  At the train’s last stop, SP President Mike Mohan re-emphasized the train’s message to customers:  “SP’s goal is to meet or exceed your needs!”

To this end, SP invested significantly in quality education, with a strong focus on the team approach.  All courses were rolled out in 1991.  Railway-specific training courses included team leadership training, facilitators training, and team members training.  Also included were courses for statistical process control and management quality improvement training.  By November, 1991, more than 600 team leaders had completed training, and 400 quality improvement teams had been formed, with approximately 12 percent of employees working on problem solving  (Delsanter, 2009).  By mid-1992, 900 teams were operating, with 20 percent of SP’s workforce participating in one or more teams, 25 percent of which were cross-functional.  Newly formed Regional steering committees included a “quality facilitator” to support team activities when a line supervisor was unsupportive.  These teams were dedicated to building customer satisfaction through a continuous quality improvement process. 

Launching a quality improvement process in record time takes total top management commitment and a clear understanding of the quality process.  SP has done this, with some of the most experienced “quality” people in the industry managing the CQI program.  Hallmarks of the program include strong leadership, role modeling and other involvement by top management; benchmarking; developing action plans; involving unions; involving managers in process improvement;  and providing quality education and team training for all employees.  Normally, these activities would have been done one at a time.  In SP’s case, they were done in parallel or almost simultaneously, but they were done correctly by knowledgeable leaders employing a combination of Juran, Deming, and Japanese quality concepts that best fit SP’s unique circumstances.

As of this writing (Spring, 1993), SP owner Anshutz appears to have been correct in his conviction that CQI was the correct survival strategy to bring about a successful turnaround.  While not yet getting SP to the break-even point, there was a $43 million improvement in the bottom line during 1991-1992, the first year of the CQI program.  It will not take nearly that much improvement in 1993 to make the company profitable.  By closely listening to what its customers want and by applying the quality process, SP is transforming itself into a customer-driven, cost-effective transportation provider.  If it continues at its present pace, it will be successful.

In 1996, Southern Pacific was the sixth-largest railroad in the U.S. with over $3 billion in revenues and over 15,000 miles of track.  At the end of 1995, an agreement was made with Union Pacific Corp. to purchase Southern Pacific Rail Corp. for $3.9 billion (Ortega, 1995). 

Copyright 2012 James L. Alyea. All Rights Reserved.

For more information, please contact Jimmy Alyea:

Carman, J.   (1993, Spring).  Continuous quality improvement as a survival strategy:  the
Southern Pacific experience.  California Management Review 35.3.  Retrieved from

Delsanter, J.  (1992, February).  On the right track.  TQM Magazine 4.1.  Retrieved from

Lustig, D.  (1992, October).  The “new” Southern Pacific.  Trains 51.10.  Retrieved from
ABI/INFORM complete,

Ortega, F.  (1995, August 4).  SP’s chairman turns attention to oil and gas and new areas.  Wall
Street Journal.  Retrieved from

Welty, G.  (1992, November).  SP’s quality comeback.  Railway Age 193.11.  Retrieved from


Tuesday, June 19, 2012

Total Quality Management - The Deming Award

Total Quality Management Case Study on the Deming Prize:  
Analysis of, “Deming’s Luster Dims at Florida Power & Light”

The key to managing a successful supply chain is balancing efficiency and responsiveness.  A supply chain manager must manage the little details without losing sight of the big picture in order to achieve total quality.  In this case study, Florida Power & Light lost sight of this while trying to win the Deming Prize.

In 1989, Florida Power & Light (FPL) became the first American company to win Japan’s prestigious Deming Prize for outstanding performance in quality control management.  FPL had established a $4 million quality-improvement program in 1985 several years after its company’s chairman visited a Japanese utility company that won the Deming Prize in 1982.  Although the award’s sponsor, the Japanese Union of Scientists and Engineers (JUSE), opened competition to overseas companies in 1986, no foreign firms applied for the award until 1989 when FPL decided to “go for the gold.”  According to FPL’s president at the time, Bob Tallon, applying for the Deming Prize provided FPL’s 14,000 employees with added incentive to accomplish needed quality goals (Kolody, 1989).

FPL entered the race wholeheartedly.  Instead of continuing  to implement the company’s 1985 quality-improvement initiative gradually, employees were given less than six months to meet Deming award requirements.  Rigorous weekly training courses were developed for first-line, nonsupervisory employees, and over 1700 teams were formed to come up with problem-solving solutions to reduce costs or improve efficiency.  Managers were required to master new managerial theories and complex statistical calculations.  Supervisors spent their time tracking and calculating dozens of cross-referenced indicators such as the percentage of street lights installed in 21 days.  A functional review team was required to document and analyze 800 different procedures for everything from conducting energy surveys to answering customer complaint letters.  An area manager of customer service for the utility’s commercial/industrial group summed up the rigid process and the avalanche of paperwork by stating that preparing for the exam was “grueling.” 

When FPL received the Deming Prize in November, 1989, company president Bob Tallon cited numerous instances of quality-improvement benefits received from applying Deming principles.  For example, the company had reduced the average length of customer power service outages from 100 minutes annually in 1982 to 48 minutes in 1989.  In the safety category, FPL had reduced lost-time injuries from more than one per 100 employees in 1985 to 0.42 in 1989.  Additionally, customer complaints to the Florida Public Service Commission were at their lowest level in 10 years.  FPL also had reduced its fossil power plant’s forced outage rate from 14 percent in 1986 to less than 4 percent in 1989, saving ratepayers $300 million that would have otherwise been spent on new generating units (“FPL First International Winner,” 1989).

At the same time, CEO James Broadhead acknowledged that there were “some glitches” in the system.  These problems were deemed by many, however, to have overshadowed the quality benefits.  Employees felt that the system was too bureaucratic and inflexible.  Many had put in long, extra hours to prepare the Deming application and the volumes of documentation.  First-line supervisors complained they could not get their jobs done because workers were attending problem-solving meetings every week.  Problem-solving teams were frustrated when they realized proposed solutions were being evaluated for procedures rather than for results and substance.  The Deming method was so rigidly applied to every team problem that something so simple as moving an office water cooler required that seven mandatory steps be followed.  Not only commonsense, but also customers took second place to following Deming guidelines.  Customer-service representatives were so pressured to answer calls quickly that they began issuing work orders for problems that could have been resolved faster over the phone.  In retrospect, one FLP official stated, “We had an internal revolt. . . .  Winning the prize became less important than the challenge of trying to meet the judges’ strict demands” (Bacon, 1990).

In response, FPL officials made sweeping changes during the months following receipt of the award.  The more stringent requirements of Deming’s quality program, though not abandoned, were pushed into the background.  The Quality Department was reduced from 85 full-time individuals monitoring the quality teams to 6, and the quality-related departments set up during the award application process to do statistical “quality reviews” were disbanded.  The number of tracked “quality indicators” were cut from 41 to 3.  First-line supervisors were included in training programs which began to focus on areas other than quality, such as supervisory skills and customer sensitivity.  Most significantly, the mandatory, often-dreaded “seven-step process” no longer had to be used for all problem solving.

The experience provided valuable lessons, including the need to bring all levels of employees into the program and to show them how all will benefit from it.  Mike Brunetti, FLP’s executive vice-president, now advises companies just beginning to implement quality management programs to start with the top and work down to middle management, then first-line management, and finally to first-line employees (Bacon, 1990).  Brunetti said FPL’s experience also showed that in addition to team activity, it is equally important to have policies that stress external and internal customer satisfaction, that improve coordination within the company, and that concentrate company efforts on a few priorities at a time.
Without question, FPL’s commitment to quality was 100 percent.  Although service quality was obviously enhanced and a new corporate direction resulted, FPL’s profitability did not reflect improvement comparable to their winning the award.  The path FPL followed in pursuing the Deming Prize marked the company as one of the most-cited companies that failed to implement total quality management (TQM) properly (along with the bankrupt Wallace Co.).  FPL’s experience with TQM is an example of what can happen when companies adopt new management techniques too wholeheartedly.  As one outsider remarked, “people seemed more interested in the appearance of quality and jumping through the internal TQM hoops than on quality itself” (Harari, 1997).  Today, the Deming methods share the spotlight at FPL with other management tools such as benchmarking and reengineering, and employees have the freedom to innovate and solve problems without having to follow one particular methodology.

Copyright 2012 James L. Alyea. All Rights Reserved.

For more information, please contact Jimmy Alyea:

Works Cited:

Bacon, D.  (1990, January).  A pursuit of excellence – Florida Power and Light offers strategies
for successful quality management.  Nation’s Business.  Retrieved from

FPL first international winner of Deming Prize.  (1989, October 18).  Business Wire.  Retrieved

Harari, O.  (1997, January).  Ten reasons TQM doesn’t work.  Management Review, 86.1. Retrieved from

Kolody, T.   (1989, October 19).  FPL captures Deming Prize:  utility lst U.S. firm to win award.  Retrieved from

Wiesendanger, B.  (1992, September/October).  Deming’s luster dims at Florida Power & Light. 
Journal of Business Strategy, 14.5.  Retrieved from