WHAT DRIVES QUALITY? (Malcolm Baldrige National Quality Award) [This article reports the r“le of auditing in the building of quality organizations at compnaies that have won the Baldrige Award--SysOp, TQM BBS] "Quality management is not just a strategy It must be a new style of working, even a new style of thinking. A dedication to quality and excellence is more than good business. It is way of life, giving something back to society, offering your best to others." THE MALCOLM BALDRIGE National Quality Award Act of 1987 (Public Law 100-107) created an annual award for U.S. corporations. Malcolm Baldrige Awards are made in three categories: manufacturing, services, and small business. Up to two awards may be given in each category each year. The purposes of the award are to promote quality awareness, recognize quality achievements, and publicize successful quality strategies. The Baldrige has come to signify a standard of excellence in total quality management, and the practices and achievements of each year's award winners have been examined with considerable interest. In recent interviews, internal audit leaders at Baldrige-winning corporations shared perspectives of the quality initiatives of their organizations. [Cadillac reports:] IN 1985 - ABOUT THREE YEARS before we ever heard of the Baldrige Award -- Cadillac made a conscious decision to change the way we do business. To improve our quality and market responsiveness, we modified product design and development processes; adopted a renewed focus on customer satisfaction; and established a disciplined approach to planning. When we did learn about the Award, we took a look at it and felt there might be a match. Working together through the Baldrige assessment process really brought our organization together. We became a unit, totally focused, totally committed. We have a much better organization as a result. One of the important things that happened was that each of our functions, and every employee, was compelled to examine themselves and their processes. These assessments are like self-audits. And, comparable to what happens in other audits, we found some things that needed to be taken care of. We've used these findings to correct product and implement continuous improvement in our operations. Self-assessment is a healthy process, and I recommend it highly. As a result of our overall assessment, we reaffirmed that our emphasis on customers and their needs is one of our strengths. It's a concept that we like to think is ingrained at Cadillac. Everybody in the organization has a customer, and everybody needs to talk to that customer and provide the services they need. That's as true for internal audit as it is for everyone else. The idea of teamwork has also been reinforced by the Baldrige process. In our organization, nobody is operating alone. When we look for ways we can support and strengthen other members of the team, we're fulfilling our role. Internal audit oversees and monitors internal control, of course. Each operating department completes its own control review, and status reports are generated three times per year. Internal audit works like a clearing house, and we are there to help work out any problems our customers encounter. Like everyone else in our organization, the internal audit function operates on a concept of continuous improvement. We want to eliminate things that are unnecessary or not value-adding. There is never a sense of "Well, now we've accomplished our objective, so we can stop working so hard." It's an ongoing process. We've also established training as a basic part of our business plan. Regardless of the current economic climate, we continue to spend money on training. This commitment is absolutely critical to our efforts; backing off on training just isn't an option. Such initiatives do pay off. When our external auditors, Deloite Touche, recently concluded their audit, we learned that for the first time in recent history, the auditors had no negative comments, not even a minor matter. There were only positive statements. Obviously, we were quite pleased with these results. Although we have good feelings about what we've been able to accomplish thus far, we know that, especially today, efforts to improve have to be unrelenting. At Cadillac we're 100% committed to that philosophy. [Xerox reports:] WHEN XEROX INITIATED its "Leadership Through Quality" program several years ago, our directors of quality and audit agreed that the audit staff would be a role model for quality throughout the organization. They would demonstrate the use of quality tools, "speak quality language," and staff members would be participants on quality improvement teams. As a result of this involvement, the corporate audit staff has been an integral part of the Xerox "quality journey," almost from its beginning. We have not only been participants in the corporate-wide conversion to a quality philosophy, but we reshaped internal audit accordingly. Our audit processes had previously been rooted in public accounting. What quality inspired us to do was to shift to a concept of self-inspection and continuous improvement. Our vision is of a world of self-inspectors who -- in a perfect scenario -- will put auditors out of business. We no longer consider those we audit to be "victims" or even clients, but customers. Like our counterparts in other areas, we have learned to measure ourselves in terms of customer satisfaction and in added value to Xerox Corporation. We believe that understanding our customers and our customer needs and requirements is the essence of good business, not just for others in our corporation, but also for us. Since we are convinced that the mandate of an audit department is to add value to the organization, we've designed and implemented inspection mechanisms to question ourselves and our customers on how well we're doing. The most powerful impact of the whole Baldrige process wasn't really that it culminated in our winning the award (although that was obviously an important achievement). We believed that measuring ourselves against the Baldrige criteria would provide valuable feedback. Our self-inspection process is what is compelling us to reexamine continually what we do, and why and how we do it. The realizations and changes that we're making as a result are what allow us to keep moving our company ahead in a race without a finish line. [Motorola reports:] AT MOTOROLA we look at every administrative activity -- including internal auditing -- like a factory. We produce a product, we rely on a process, and we measure both quantitatively. We like to say that we are not auditors auditing TQM; we are auditors doing TQM. Initially, I'll admit we weren't convinced that this concept could be applied to nonmanufacturing activities. When Motorola bought into total quality management, we were more or less dragged along, kicking and screaming. But we are now total converts. It works. Absolutely. In the past we could recognize a good audit report when we saw it, but it wasn't always easy to say why. We obviously raised questions such as, "Were workpapers properly approved" and "Did workpapers support the final conclusions of the report," but many of our judgments were subjective; and we were comfortable with them that way. What we have learned is that by examining and measuring the processes that are involved -- and their potential impact on our mission, we have a much better chance to improve our end product and provide added value and service to our organization. We now know that there are ways to measure what we do, just as they do in factories with quality-control measurements. We are able to identify audit errors and set goals on reducing errors. Our auditors, who know exactly what's expected of them, assess themselves and each other. They are totally focused on doing the job right the first time, every time. Since they designed the system themselves, they are much more involved in the process. In the past four years, our corporate audit group has realized a twelvefold percent improvement in cycle time of audit reports. The audit report that used to require 50 days now takes five days. There has been a 300 percent improvement in the cycle time of staff performance evaluations, 200 percent improvement in the time required to complete the domestic external audit, and a reduction in the defect rate on audits from 10,000 parts per million to 400 parts per million. These improvements have resulted in a saving of $2.6 million. Results like these have helped to make TQM believers of us all. HISTORICALLY, MANY internal auditors have concentrated on looking for problems or errors and on identifying who caused them -- but that's destructive. We've moved away from the concept of finding somebody doing something wrong. Instead of looking at individuals, we're looking at processes, because we're convinced that most problems are process-related. We see the internal auditor as a business partner, someone who functions as an internal advisor on business processes. The internal audit staff can help an operation become more successful by identifying problems with processes and removing the roadblocks. The process audit is one of four basic tools that we employ. The others are QPI (quality and productivity improvement); benchmarking; and self audits. QPI is a kind of management SWAT team, although there are cross-sections of line and management people on the teams. There might be seven or eight people or a group of 20. The objective is to mobilize the organization toward solving a serious problem. Whereas we might previously have issued 50 or 100 action items in a problem situation, it wasn't good for morale or team spirit -- or even for productivity. Through QPI, everybody's working on a problem together. Progress reports are made at weekly management meetings. It's something like going to confession. Process problems are brought openly to the meeting. The team then focuses its resources on helping the team member to resolve the problem. Benchmarking with other companies has also been of tremendous value to us. Key finance and operation indicators are compared in several areas, and the top performers detail how they achieved their results. This sharing of ideas helps other participants to see how they may be able to bring their company to the level of the lead benchmark company. Actually, our customers' internal manufacturing operations are often our competitors, and we actively benchmark with them. The concept of self-audits has to do with "owning" a process. If a manager believes that internal audit somehow owns the maintenance of control, then the audit department, by default, "owns" situations where there is a control breakdown. Audit's traditional response to this situation has been to over-audit; but we've found this repetition of effort to be a nowin, non-value added activity. We want the unit to own their own processes. We teach them how to do self-audits, because it has been our experience that self-assessment is a powerful means of improvement. Our audit staff now looks at things in a different way. We've had a change in mind-set, and our experience has shown us that we're on the right track. Right now, I'd say we're 75% of where we want to be. Because all of us in the business world are facing formidable challenges, we need to be sure internal audit is adding solid value and support, never just sitting there and getting in the way. Our internal audit works in a team fashion with our entire organization. We still carry our internal control responsibilities, but we want our image to be as valued business partners in a quality organization. [Federal Express reports:] WHEN WE DECIDED TO apply for the Baldrige, it wasn't as though we scurried around trying to match up with what we thought the judges might want. At Federal Express, now 19 years old, we've always had an orientation toward service. That was a point that kept popping up in our evaluations -- we really do put people first. At the same time, it certainly could not be said that we didn't learn many things from our Baldrige effort. Any organization that has been through the process will probably pass along the same message -- that the self-assessments that are a part of the application are one of the most valuable elements of the whole experience. We saw our strengths and weaknesses with new clarity, and we're continuing to implement and expand on some of the lessons we've learned. One of the most important concepts for internal audit has been our acknowledge that we have customers. We aren't adversaries to those we audit; we're on the same side. Not only do we recognize and affirm that idea, but we want to be sure that others in our organization share it. One group of customers are those we audit and who use our reports. But we also have many other customers, including senior management, our CEO, our audit committee and board of directors, and our external auditors. In every instance, we want to be sure we're meeting or exceeding the needs of these groups. Right now, we're undergoing a major quality initiative. We've recently formed three quality task teams, one of which is addressing the issue of customer alignment. Each team includes four staff and one manager, representing a mix of international and domestic auditors, as well as EDP audit specialists. The customer alignment team will be looking at how we can serve our internal customers better and at how we can provide more value-added services. We want to explore ways we can help those we serve to bring more value to their own jobs and processes, as well, so that, ultimately, our Federal Express customers will be better served. Another quality task team will be examining our principal method of communicating -- reports. Are our reports timely, for example, and are they effective in terms of providing critical information? And how can we measure their effectiveness? The whole idea of service quality indicators, of measurements, is another area we're tackling. It's difficult to manage if you can't measure. Identifying effective instruments and improving the precision of our measurements are a definite priority. Our third quality task team is developing an action plan related to internal audit travel. The team is developing an action plan on how we can effectively travel with cost efficiency. We've developed a quality deployment plan -- a kind of road map -- that we update regularly, at least yearly. To add value to our organization, we want to reexamine our objectives continually, making sure that quality and service to our customers are built in to everything we do. [Westinghouse reports:] SINCE THE MID-'80s, our executive leadership at Westinghouse has encouraged and emphasized a "quality mind-set." Quality isn't just a new buzzword. Our corporate internal quality program is well established and organized; and it really does seem to represent a policy that has started at the top and reaches down to all employees. We have a separate organization, our Total Quality Center, which provides internal consulting and other kinds of support. All our Westinghouse divisions are encouraged to establish quality processes and to use the Center to strengthen, enhance, and improve them. For example, the Center can provide our organizations with a "Total Quality Fitness Review" (TQFR) -- an independent evaluation which may then become a jumping-off point for other initiatives. The TQFR doesn't really parallel the Baldrige assessments, but it has many corresponding elements. Westinghouse divisions are encouraged to participate in the George Westinghouse quality competition. Applications are evaluated by a group of external and internal judges. The idea is that the overall Westinghouse winner will then become our Baldrige candidate for the next year. Of course, the objective isn't necessarily to produce a Baldrige candidate, but to reinforce our quality commitment. Within internal audit, we've adopted a TQ Fitness Plan, which we are now updating. Since I've been in my current position only a few months, I'm still trying to learn as much as I can about our previous efforts and to make certain that the plan continues to move forward. We've formed TQ improvement teams, one of which is looking at methods for identifying quality goals and the measurements we will use to assess and communicate our progress. For service organizations, measuring quality is obviously more difficult and complex than it is in some other arenas, and we want to continue to strengthen our measurement techniques. Again, our Total Quality Center is providing special expertise and assistance. In late 1992 we expect to perform an internal evaluation of our quality progress, to be followed by a TQFR by our Quality Center in 1993. We should then have a much clearer picture and much more concrete evidence of our progress. About half of the 120 people (auditors and others) in our department are currently members of a quality improvement team. We believe 100% participation is a realistic goal, although working on these teams is a voluntary effort, not something dictated by management. The feedback has been very positive. We've found that people want to contribute. In fact, I believe that one of the most important results of our quality commitment has been that a greater proportion of employees (not just management) participate in the process of operating the audit department. Of course, empowering people is one of TQM's basic concepts. Auditors are capable, creative, talented people. Opening up ways for people to apply those abilities can only add to our efforts. [Originally published in _Internal_Auditor_, April 1992.] [Uploaded to the TQM BBS by Mike Cueto.]