BA's brand of TQM has not only cut costs but changed its culture - experience which could be useful in the proposed USAir link-up.
Total quality management is spreading, steadily rather than slowly in Britain. It will advance much faster once managements realise what total quality is really about (process rather than product) and how much it can achieve. The sceptics and innocents won't find a more convincing case than the engineering division of British Airways.
"The numbers are magical," says Alastair Cumming, BA's director of engineering. In 1991, a very hard year, he achieved a reduction in engineering costs that went "beyond my wildest dreams." He doesn't know exactly how it happened, which worries him as an engineer. If you don't know the cause, and the effect stops, you don't know how to bring it back. However, as Cumming says, "so far, so good - but it's better than that."
Better means that, after budgeting for a 2 to 3% reduction (and absorbing an 11.5 to 13.5% pay rise for 1990, plus higher costs for aeronautical materials), the results came in 9% below 1990. The total underspend was £38 million, and the process is continuing. The engineering budget is on a 5% reduction path, with 10% gains in labour productivity combining with 2% on raw materials.
But total quality is much more than numbers. BA had a dual objective in taking on Kepner-Tregoe as consultants in Aircraft Maintenance (which dominates the division, supported by five other sections, each with its own brand of TQM, but all moving in the same direction). Management wanted not only to save costs but to turn the organisation - change its culture, in the jargon - from one which satisfied neither management nor men into a mutually successful business.
All managers know that all operations, however good, can be improved. In most cases, moreover, the gap between present performance and potential is enormous. Total quality refuses to accept that the gulf can't be bridged - and the results quoted show what the bridging can achieve. As Cumming says, drawing a precise cause-and-effect line is impossible. However, probably half the gains to date have come from higher productivity of labour.
The lessons learnt by the BA management in applying TQM to its engineering division should prove useful in the proposed link-up with USAir. By investing £390 million for a 44% stake in the sixth largest US carrier, BA has effectively become the first global airline (assuming the deal passes formidable American legislative hurdles). Much more, though, the deal will give the combined grouping the opportunity to achieve enormous cost savings and productivity improvements right across the board.
UBS Phillips and Drew, BA's broker, reckoned "the combined annual cost savings and extra revenue of $100-200 million a year was not an unreasonable target." Thus far, freeing staff from BA work has had a "double-whammy" effect. Costs come down in demanned departments, while income rises as men maintain planes for other airlines. This ability to absorb spare skilled people (real Japanese stuff") has greatly helped BA's advance along the quality road. Since higher productivity raised no threat to jobs, positive emotions were much easier to arouse.
As Cumming says, TQM depends heavily on emotion. When the emotion is positive, everything becomes possible. Allow negatives to get into the air, and everything becomes much tougher. The spectacular improvement in emotions and figures results in a major way from an absorbing partnership between Aircraft Maintenance and Kepner-Tregoe. The consultants were brought in by a management dissatisfied with the status quo, and dismayed by a history of strikes, constant friction, and fights over every pay deal. The end-1991 deal went through at 4% with a smoothness impossible in the bad old atmosphere.
That the workforce can now understand and accept management's position on pay and related matter marks a massive change in attitudes. That, quite as much as technical improvements, caused the turnaround in results. In something of a political vortex, the usual demands for a financial quid quo surfaced. But the project team successfully managed to put across the idea that the men weren't working for management alone - but for the hangar itself.
The conversion to total quality could never be taken for granted. The Gulf War crisis was a major challenge, not only to BA's overall finances, but to the job-preservation philosophy on which engineering's transformation partly hinged. With heavy job cuts demanded in BA as a whole, engineering couldn't be an exception. There were 800 people over 60, however, which helped the division to lose 500 staff without undue pain.
More important, "a very strong collective sense of urgency developed out of the black days in January and February 1991". Management responded in several ways to the "tremendous surge of effort to find improvements' among the workforce. One of the most imaginative initiatives is the "Enterprise Hangar", set up with "invisible staff", drawn from other areas as jobs were overtaken by rising productivity, and now earning highly visible money (£3 million a year) by taking on work for other airlines.
Another "very strong signal" arose from a potential major setback: BA's controversial sale of its engine over-haul business to General Electric. A thousand people were affected: those in South Wales had to swallow the unwelcome pill of leaving BA. But 350 engine overhaulers worked at Heathrow, and for them there was nothing. Their jobs would die - but the 15-month transition gave management enough time to provide everybody with job offers and retraining.
Some will be absorbed by growing sales inn the external market, while wastage will also help BA to fulfil its commitment on security of employment. That is essential in removing the most serious inhibitions that restrain productivity - which, without the benefit of TQM, had risen sharply at BA before and after Cumming arrived in 1983. Turning the merger of BOAC and BEA from theory into fact brought numbers down from 14,500 to 8,000.
But industrial peace was only maintained at the price of significant concessions to the union side. One example that cumming discovered was a pile of unserviceable undercarriages, occupying a third of the floorspace, and blamed on capacity bottlenecks. These could easily have been removed by sub-contracting, but shop stewards had an effective veto on putting work outside. With full backing from Sir Colin Marshall - then chief executive and now chairman - Cumming acted firmly to restore management rights in the matter.
Nothing illustrates the huge gulf between then and now than another sub-contracting story. On the face of it, overhauling its own seating seemed senseless for BA - exactly the kind of work that could be done more effectively by outside contractors. The work has stayed at heathrow - not because the unions, or anybody else, said it must; the men simply proved that their costs were well below those of all two dozen outside contenders.
Between 1983 and 1990, however, the result of management's determination to manage was turbulence - including a much-publicised strike. Management, together with the professional engineers, literally ran the airline for the best part of a fortnight. But Cumming was convinced, in the aftermath of the stoppage, that "very determined management" could only go so far. To sustain further progress, BA had to win the employees' positive involvement and support.
Airline managers have built-in advantages over others in finding new ideas and practices. International by definition, they can globe-trot with the utmost ease. Cumming had been to Japan himself, and some 20 managers have visited Japan and US activities with a Japanese connection. They saw what might be possible in a changed at atmosphere. Cumming didn't impose his own ideas. The three top managers (for component overhaul, engine overhaul, and aircraft maintenance) were free to lead at their own pace. They all shared, however, a determination never again to get into head-on conflict with staff. Achieving a totally different relationship, though, would demand a totally different approach from middle managers - and that was the biggest challenge.
These men, after all, had learnt how important it was for management to manage - and firmly. Now they were being asked to accept a sweeping change of culture. Cultures can be changed in two broad ways: by taking steps to create a new working atmosphere first, and then by providing the necessary tools to solve problems; or by first supplying the tools, encouraging their use, and then letting cultural change come through.
You can't lay down the law as to which should come first, the chicken or the egg. Each area was left to "put flesh on the bones" in its own way - and both approaches were found to work. How well is shown by the sophistication in some cases: in pneumatic equipment, a supervisor, shop steward and tradesman getting together for a presentation to show Marshall how lead-time on a given component had halved; elsewhere, a manager taking supervisors and their juniors on a business awareness course - with such success that all BA engineering is now to receive the same instruction.
The folly of treating people as robots - and difficult, recalcitrant, unreliable robots at that - has emerged clearly from the turnaround at Aircraft Maintenance, with its 4,000 employees. Its boss, John Perkins, instinctively disliked the "culture first" approach. But AM was struggling with a mass of technical problems, and the Kepner-Tregoe work at Chrysler, described to him at a chance meeting at Harvard Business School, was much to Perkins' liking.
The consultants were invited in, and began an analysis that ran through January and February 1990 as they sought answers to five key questions. Are there any quality issues? If so, how are they picked up and transferred? If they are picked up and transferred, how are they dealt with? If they are dealt with, what working mechanism is used? And is the environment supportive of change and the new behaviours required?
The analysis found many internal quality issues, but they were not picked up and transferred, and so were never dealt with. With so many issues outstanding, there was no point in monitoring the systems. In a sense, the process had to restart from scratch. That meant finding a project on which a fresh start could be made: capturing the issues, transferring them, and developing the skills for their resolution. Much more structure was needed to make this feasible. Feasibility was crucial. In maintaining aircraft, you can't "stop the line" - work must continue. Nor are soft, unspecific messages any good when dealing with engineers. Hard, clear proposals and practices are what is needed. William Hextall, the consultant who led the project, emphasises that "pragmatic, nuts and bolts TQM" was the necessary order of the day, using ostensibly "hard" processes to achieve "soft" objectives.
The programme was ostensibly not cultural at all. It consisted of defining areas where Kepner-Tregoe's well-established tools could be used, supplying the tools, coming to solutions - and carrying the solutions through. By concentrating on substance, the managers involved felt more comfortable. "Skills for quality improvement", known as SQI, were provided in five stages: Basic Situation Appraisal (sorting concerns); Problem analysis (finding the cause); Decision Analysis (making a choice); Potential Problem Analysis (ensuring success of action or plan); and Managing Involvement (ensuring commitment through involving the right people).
The consultants designed the project round what they heard and saw, using interviews, observations, and some number-crunching. The process began moving very fast, until the use of the Kepner-Tregoe tools became imperative, with active management support. Practicality was crucial. For example, at Heathrow's Terminal Four the growth in traffic demanded more people. The extra numbers couldn't all be accommodated in one place. How best to divide the workforce between two sites?
Management could have planned the split and issued orders, risking almost inevitable turmoil. Instead, the problem was turned over to a TQM group led by a foreman, with volunteer members. The excellent outcome, in Cumming's words, "was a dream beginning to come true". The dream isn't non-management; rather a different way of managing.
The philosophy may sound soft and idealistic: that essentially the concern is with "satisfying human beings"; that "people are most happy about things they invent for themselves"; that you're delegating "power to take decisions". But "you don't delegate quality". Nor, though you share responsibility, can you duck it. TQM provides the "best way of getting things done", but it's still the manager's job to get it done.
BA's view is that this more effective way of managing probably takes no more time - though it certainly demands more patience. That's the only downside of the switch from giving directives to "facilitation and getting to understand", to "encouraging and helping". Again, these processes, aren't abstract. A manager's allocation of budget, for instance, will vitally affect the outcome - and one reason for the business awareness courses is to enable staff to understand the thinking behind financial decisions.
At one moment, these benefits might have been lost to Aircraft maintenance. A Very detailed plan had been presented to everybody in the 747 and short-haul hangars. When the Gulf crisis hit, budgets were cut, and the consultants sent home. However, they persuaded BA to spend enough to test the approach's value in one small area, the 747 hangar, employing 150 people. This hangar had a long record of lack of success, frustration and inadequate management. If Kepner-Tregoe's methods could make headway there, ran the thought, they could do so anywhere - and, says cumming, "people could hardly believe" the take-off that followed.
The synergy between the Kepner-Tregoe methods and the actual work of maintaining aircraft must have helped. It was especially marked in the casualty hangar, where ailing planes are handled by a highly skilled group. These engineers soon saw that Kepner-Tregoe's Problem analysis" had direct relevance - for its purpose is to "find cause of a deviation": the basic steps, describing the problem, identifying possible causes and evaluating them, and confirming the true cause are a perfect fit.
The whole TQM effort is still under development, and always will be - that being the nature of total quality, which hinges entirely on progress towards unattainable perfection. The biggest identifiable gap (identified by the man themselves in a survey) is in the man-manager relationship. Staff feel they still get much of their information from rumour, that their contact with managers is far too little, that their efforts aren't sufficiently recognised, that they are not listened to.
Cumming's response has been to tell managers to take their coats off (literally) and spend every Friday afternoon in the work place. A strict and intelligent code of conduct governs these sorties: including, don't argue or get involved in argument; listen as much as you speak; don't mix business with pleasure (ie, don't just socialise and ask about the wife and kids); and always follow-up on what's discussed. As this code shows, the technicalities of TQM are inseparable from the basics of human relationships.
Union relations have remained important during the cultural change. Officials, especially in the engineering unions, have fully grasped that their members' security is best served by working in a successful organisation. Arguments still take place between managers and national officials, but as between equals: the atmosphere is "totally different".
That remark applies to the whole division as BA moves on to the next stage. John Perkins has five staff under a head of TQM: by end-1993, however, TQM as a separate activity is scheduled to cease - their brief is to do themselves out of a job. That is also the fate of a good consultancy project, to which, as Kepner-Tregoe's Hextall emphasises, the eventual transfer of ownership to the client must be vital.
The need now is to institutionalise what has been achieved, so that it's no longer an exciting novelty but just "the way in which we work". Cumming sees sharing the business implications of the tasks as a crucial step forward into a future which could bring sweeping changes, including mergers - and even the evolution of the world airline engineering business into a separate industry.
The changes have made BA much fitter for any possible new worlds. The process has been one of replacing negatives with positives, of doing the natural thing well, rather than the unnatural badly. Cumming cites Gatwick airport as an example. The men servicing 757s freely decided that they could introduce a fourth line to handle a growing workload, using existing staff. A fifth line is now planned under the same conditions - meaning a total improvement in productivity of 40-45%.
Listing such successes runs the danger of the Pangloss syndrome, in which all's for the best in the best of all possible worlds. That's never true in industry. The work at BA sprang from coping better with what goes wrong - by collective effort, resolving issues before they become problems. That British industry has strayed so far from this natural effectiveness is no credit to anybody in management, workforces, or the latter's representatives. BA engineering has shown that using natural processes to address technical issues properly has results that go far beyond the technical victories that are bound to follow.