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CASO Quality at Gillette Argentina
CASO Quality at Gillette Argentina
Background
Every working day at a Gillette plant in South Boston, 200 men lather up their faces and scrape away the fifteen thousandths of an inch their 10,000 whiskers have grown over the previous 24 hours. Peering into side-by-side mirrors, these volunteers are evaluating razors of the future for sharpness of blade, smoothness of glide, and ease of handling. When theyre finished, the men punch their judgments of the prototype they used into a computer
Anne Donnellon and Susan Engelkemeyer, Associate Professors, Babson College, prepared this case as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The development of this case was made possible with the generous support of the Institute for Latin American Business at Babson College. Copyright by Babson College 2000 and licensed for publication to Harvard Business School Publishing. To order copies or request permission to reproduce materials, call (800) 545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of copyright holders.
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These rituals are carried out in a building emblazoned with a quaint sign proclaiming it to be WORLD SHAVING HEADQUARTERS; the whole exercise seems more than a little archaic, like some throwback to a pre-industrial age. Yet the humble facility is operated by one of Americas premier corporate innovators, a company that churns out so many cutting edge products that it has climbed into a select circle of Wall Street superstars1 Best known for its razors and blades (Trac II, Sensor, and its latest, the premium-priced MACH3), the Gillette Company was also the leader in batteries (Duracell), dental care (Oral-B), and toiletries (Gillette Series), and was a top seller of writing products (Paper Mate and Parker Pen) and electric shavers and other small appliances (Braun).2 The company was founded in 1901 and by 1905 had started operations abroad with a sales office in London and a manufacturing site in Paris. In 1999, Gillette sales amounted to $10 billion, with 60% of revenues from outside the United States. Manufacturing operations were conducted at 54 facilities in 20 countries, and products were distributed in over 200 territories around the world. The company employed 39,800 people, nearly three-quarters of them outside the United States.3 Every day, at least 1.2 billion people around the world used one of more Gillette products. In 1998, the company was the worldwide leader in 10 consumer product categories. In recent years, Gillette had introduced more than 20 new products annually. That year was the fifth consecutive year in which at least 40% of sales came from new products. Gillette opened operations in Argentina shortly after World War I. Until 1942, it had functioned as an importer and distribution company. According to a recent history of the company,4 the Argentine subsidiary built its first manufacturing plant in that year to take advantage of a void created when a German blade company closed its operations. Throughout the tumultuous decades that followed the war, the companys early presence in Argentina allowed it to remain and grow, while other competitors fled from the countrys political and economic instability. From 1945, when General Juan Pron nationalized companies in many sectors and introduced extremely high tariffs, Argentina was a closed economy. Once the worlds seventh largest economy, the country suffered from regular bouts of high inflation and scarcity. By the late 1980s, hyperinflation (with a spike from 388% in 1988 to 4,923% in 1989) had precipitated a whole new way of managing the business in consumer goods companies like Gillette. It involved a sophisticated and perilous hedging of dollars, buying and selling at appropriate times ... [and] meant communicating almost daily with key suppliers frequently it meant demanding payment in advance.5 Despite these extreme challenges, Gillette Argentina never failed to deliver a profit to headquarters, with the exception of 1989.
1 Grant, Linda. Gillette Knows Shaving And How to Turn Out Hot New Products. Fortune, October 14, 1996, page 207. 2 http://www.hoovers.com. The Gillette Company Hoovers Online. 3 http://www.gillette.com/company/ataglance.html. 4 McKibben, Gordon. Cutting Edge Gillettes Journey to Global Leadership. Boston: Harvard Business School Press, 1998, p. 327. 5 McKibben, p. 336.
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The economic crisis of 1989 brought Peronist presidential candidate Carlos Menem to office, and within a year, the business climate began to undergo profound change. State-owned companies were privatized, tariff laws all but disappeared, and regulatory changes of huge proportions were put into place. Astute managers began to recognize that competition would soon increase, in all likelihood from foreign companies. At Gillette, people began to see that soon the company would need to move beyond the financial approach that had, of necessity, dominated in the past.
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Argentine who had held various positions throughout the Americas, was assigned in 1991 to be general manager of the Argentine subsidiary, he found a company already working on an initiative that would start a spread effort in the region.
QAT members were also trained in seven basic quality tools (check sheets, control charts, fishbone diagrams, histograms, Pareto charts, run charts, and scatter diagrams) as well as brainstorming, force-field analysis (identification of the forces and factors that support or work against the solution to a problem), and cost-benefit analysis. The teams were assigned facilitators who were trained as team leaders. Team leaders received formal training in areas relating to group dynamics, leadership skills, effective meetings, and group conflict. The one-to-one contract system was so successfully introduced in Mexico that it produced over 10,000 contracts within the first few years of operation. Argentina began its implementation soon after Mexico. Colombia also introduced the ODI program, as did Chile. King observed that, Brazil was the slowest to adopt the approach. Over 4,000 people in Latin America went through ODIs training conducted by Gillette facilitators. In 1993, ODI sent consultants to Buenos Aires to train the Argentine directors, managers, and 20 others who would become the trainers of the rest of the organization. Jorge Micozzi became an immediate convert to TQM. He explained his conversion,
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As I preach to almost anyone who will listen: I came to the conclusion soon after we launched the TQM program in Argentina that the recommendations, solutions, results from principles of working in crossfunctional teams were better, richer, more creative than any others. When you put people from different disciplines together to improve a process or a ratio, you get far better results. We needed to improve our decisions and processes because I could see that as our Argentine market opened, more competition would come in from the U.S. and Europe. To compete and keep our market share, we needed to be better, faster, and easier to work with. Micozzi and his directors became the quality council. One of their earliest decisions was to introduce the use of contracts for achieving improved quality, the approach that was being successfully implemented in Mexico. Ana Maria Bazan, taxes and accounts payable supervisor in the Treasury Department, was one of the original quality trainers, called facilitators. She characterized the challenge of involving others: Before TQM, we were not accustomed to team work, we solved problems alone and didnt understand how our work cost other areas It was hard in the beginning. I used to care only about what my group wanted or needed. We were fighting for our interest, but worked against the interests of the company overall. Bazan and the other quality facilitators became frustrated with the contract approach. It created lots of paperwork. People liked the idea of quality action teams but rejected the contracts. They refused to sign them. The facilitators took their concerns to Rotundo under whose direction the quality program was. Rotundo delegated responsibility to investigate the concerns to the newly hired quality manager, Victor Walker.
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supported the team in any way needed, and helped the team achieve its objective with recognition of their empowerment, according to Walker. Because the culture of teamwork demands significant changes from traditional leadership style, Walker found that he often had to remind the sponsors, be careful, by [your] giving orders and suggestions, the team may avoid doing its own work. Another survey of clients by an external consultant provided the starting point for the new quality action teams. The steering committee, which was made up of managers from every functional area and facilitated by Walker, identified appropriate cross-functional teams and sponsors to work on the top client priorities. Teams were guided in their process by the ODI methodology and by sponsors. Walkers role was to monitor teams progress, offer workshops on problem-solving and statistical analysis, and to inspire everyone. According to many of his colleagues, Walker was an apostle, a prophet, singing the praises of TQM and with his energetic involvement, to change the culture and realize TQMs business potential.
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incompatible with our quality programs main purpose of customer satisfaction. To guarantee that teams would achieve that, you had to have sales people on your team. So I had a chat with the chap responsible for sales and told him this. His response was you cant take people out of the field to participate in teams. My response was you have to, if your goal is improved customer satisfaction. After nine months of such conversation, the results were amazing. Today 80% of Gillettes sales force is participating in QATs. As teams became more proficient in working together, they also became more efficient, which made them less demanding on peoples time. The emphasis on client needs also made them more compelling. Eventually, the norm became that people volunteered to participate on teams they heard were forming. Mario Pomar, sales manager of local sales service, maintained that people liked working on the quality action teams because they learned about the whole company and through the experience, gained a global perspective. He said that by 1998, people enjoy[ed] being part of TQM because they can see their ideas are respected and even implemented. To increase the likelihood of successful execution of team objectives, new steps in the process were created. First, it was agreed that the steering committee would create annual objectives for the TQM program. (Exhibit 1 is a partial listing of the various team projects undertaken at Gillette Argentina). Over time, teams were required to specify early in their process how their efforts would contribute to business outcomes. (Exhibit 2 shows the form used in the benefits quantification method developed by a QAT in 1997 and used by every team thereafter.) Finally, it was decided that the teams task would not be concluded until they made a presentation concerning their work and its benefits to the Operating Committee. Walker was well known for his constant oversight of teams. He would routinely contact team leaders to get progress reports and those leaders knew that Walker would be reporting this to the operating committee. Colleagues described his approach as tenacious but supportive, he gave no compulsory deadlines, just asked whens it going to be done? and then followed up at that time. One early doubter of TQM who became a true believer characterized Walkers personal contributions to TQM: Victor has a very special attitude; he supports and helps everyone in the company with all related subjects. He is very involved; when a team has problems, he participates and helps them. He has a very strong character, very good analysis, and transmits real commitment not just a cassette but real. To sustain the momentum that the TQM program developed at Gillette Argentina, Walker initiated two new aspects of the effort in 1994 and 1995. The first was the inclusion of TQM participation measures in the annual performance appraisal. Walker and others felt that the numerous calls at years end to determine, how many teams did I serve on this year? showed the depth of commitment that people felt to the program. The second was the creation of a special recognition program called quality stars. The steering committee created a Star of Quality award that would be given annually to four employees from different parts of the company who contributed the most that year to TQM in Argentina. One each was selected from headquarters and factory administration, factory workers,
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and field sales. Announcement of the awards was made at a banquet attended by every employee of Gillette Argentina. Each awardee received a set of elegant silver pens and a specially designed sculpture. These stars formed a group that met to suggest how to improve and deepen the TQM program. The prominent display of these awards in the stars workplace bespoke the value attached to them.
Outcomes of TQM
According to Carlos Rotundo, the TQM program generated benefits to the company that were both tangible and intangible. Our most important results, he argued were: first, comprehension among areas that these changes can only be done with the participation of people, and second, the creation of a team-work climate. We dont work with orders but with consensus, we listen to others problems, and we work together to solve problems. Mario Pomar, while recognizing the costs of TQM in terms of the time spent in meetings, argued that another important outcome of TQM was the change in culture that heightened everyones focus on customer satisfaction. He also felt that the culture had become one of real empowerment, in which people were truly trusted and therefore felt confidence in their own decisions. Not insignificantly, he believed that the culture had changed in another aspect, that people have developed the habit of working to remove the source of their problems. Ana Maria Bazan expressed similar sentiments and elaborated, people say they have found another way of working; those who left and come back say they like the way we work now; and we work with our clients in the same way we care about the others interests. Conflict doesnt disappear, but you can work to manage it. The tangible benefits to customers of Gillette Argentinas quality program were clear-cut in 1998. That year, the company conducted another audit of customers to verify that its TQM program was having the business benefits it sought. Conducted by Research International, a U.S.-based consultant, the survey solicited the opinions of the major wholesalers and retailers in Argentina comparing Gillette with major competitors in each product line, e.g., Colgate, Unilever, Bic, and Eveready. The survey found that Gillette went from 6.5 on a 10-point scale of satisfaction in 1991 to 8.0 by 1994 and to Best in Trade by 1998. On one specific measure of customer satisfaction of great importance to the large retailers who were Gillettes main customers, the index of complete order delivery went from 85% in 1994 to 97% in 1998. Gillette Argentina also realized significant financial benefits in the period that followed the implementation of the total quality program. Annual sales grew by 19% in the years between 1993 and 1998, and the average profit growth in this same period was 22%. Inventory turns went from 4.8 to 8.7, and POE (period operating expense) went down by 40%. Finally, ROA (return on assets) increased by 60% in the same period. Walker estimated that the profitability increase attributable directly to TQM were $17.8 million dollars between 1993 and April 2000, plus all non-monetarily quantified benefits, mainly related to external clients and internal process improvements.
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Conclusion
Although quality was thriving as a business process in Gillette Argentina, it was moribund as a driving force in other parts of the company. Bob King, who left his Latin American group vice-president position in 1995 to become vice president of international and most recently executive vice president for commercial operations for the Western Hemisphere, felt that TQM was not a particularly current concept at Gillette in 1999. He thought that as a business philosophy, TQM per se has faded. However, he felt that the benefits of such concepts and philosophies were that they challenge you to reinvigorate your processes and your business. In 1999, with all the restructuring that Gillette is going through, the techniques and principles are still evident. King elaborated: the lasting elements of TQM are the focus on customer satisfaction, both internal and external and the removal of barriers between departments. Success of the enterprise depends on total customer satisfaction, whether the customer is Wal-Mart or pen assembly. Mike Sharp, who in 1999 was the human resource director for Gillettes Africa/Middle East region, felt too that TQM had become an outmoded phrase. However, Sharp added, The basics of TQM like overall business process mapping, continuous improvement, openmindedness to change, and working as a team are still critical to success. Working as a team is more important than ever. Both knew that Micozzi was realizing considerable business benefits in Argentina and expected him to continue to spread the word again throughout Latin America. However, it would not be easy. According to them, the quality initiative in Mexico, where it had once thrived was dying in 1999 because the people who were the real zealots have left. There were also several Latin American subsidiaries where the quality initiative had never really taken hold. Nevertheless, the opportunity and need for ongoing business transformation were great. Kings words, in Latin America now, things are changing rapidly. Due to the introduction into the retail market of major US and European retailers like Carrefour, Promodes, Ahold, and Wal-Mart, the technology being used for point of sales is as sophisticated as any in the world. The top four customers are 80% of the business. So there is still great opportunity for companies that put the customer first. Jorge Micozzi knew it too, as he said, call it the way you want, but without teamwork and customer focus, you are bound to fail, now or back then in 1993, when TQM was first implemented in Argentina. To increase market share elsewhere on the continent and to preserve it in Argentina, he felt quality principles had to be the way the company worked. He was also persuaded that the Argentine quality program needed to be exported to the rest of Latin America. His only real question now was how.
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Exhibit 1 Quality at Gillette Argentina Quality Action Teams and Estimated Cost Savings
QAT 7 8 9 16 & 31 17 18 19 22 25 27 28 45 46 51 53 56 62 72 78 79 80 95 97 104 117 119 121 122 128 131 132 136 137 159 DESCRIPTION JIT in manufacturing operations. Diminish purchasing lead-times - non prod. matl's. Improve handling of palletized finished goods. Modify 'order-invoicing' process improving deliveries. Diminish unloading time in warehouse. Orders shipped complete. Self-budgetary control. Reduce assembly time of Trac II razors. Profitability improvement plan in P. Care line. Solve collection problems with SSS. New building: QAT's savings Cost reduction opportunities in male deodorant line Profitability improvement in WI. - Massive line. Suppliers proposal show. Contract filler service to Gillette. Increase efficiency in Coster machine. Integration of Parker/Sylvapen operations to Gillette Cost reduction in female deodorant products. New system for sales to personnel. New packaging system for Oral-B toothbrushes. Inventories and SKUs reduction in WI line. New coloring method in molding area. Rationalize daily invoicing information. Minimize issuance of manually made Credit Notes New packaging system for Sensor one-up. In-house aerosol caps molding DCVs reduction. P.V.C. thickness reduction for ER-49 blister. Integration with Duracell in Argentina. Health protection Cost reduction of blistering process-Oral-B & WI Optimize clients list Analysis of Duracell former accounts. '98 world cup among clients. Credit invoices -24760 law. ANNUAL SAVINGS 10,000 5000 2,000 100,000 1,000 65,000 100,000 10,000 1,693,403 480,000 270,000 50,000 187,000 34,500 60,000 107,000 1,100,000 50,000 17,400 60,000 100,000 12,000 95,000 19,200 757,000 104,000 27,600 1,976,000 500,000 203,000 587,000 151,130 450,000 310,000 CATEGORY Method improv Method improv. Method improv. Client focus Method improv. Method improv. Method improv. Cost savings Profitability Client focus Cost savings Profitability Profitability Cost savings Cost savings Tech. improv. Cost savings Profitability Method improv. Profitability Profitability Cost savings Method improv. Cost savings Profitability Profitability Profitability Cost savings Cost savings Profitability Cost savings Cost savings Sales increase Method improv.
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Exhibit 1 (Continued) Quality at Gillette Argentina Quality Action Teams and Estimated Cost Savings
QAT 160 162 192 194 196 204 206 223 224 226 243 256 N/A N/A N/A DESCRIPTION Use of laptop computers by Stationery salesforce. Banking system for personnel within Gillette. Building of new Toiletries manufacturing plant. Inventory reduction in WI line Integration of Gillette Uruguay to Argentina Cost reduction of packaging materials for WI. Toothbrushes packaging. Clear Gel plastic parts. Partnership with vendors. CMD operations for WI Prestige line in GMC Stationery Products line. G.O.C.I. implementation Self-service stores / Central warehouses '96 vs. '95 inventory turnover improvement. '97 vs. '96 inventory turnover improvement 98 vs. 97 inventory turnover improvement ANNUAL SAVINGS 20,000 98,000 5,000,000 60,000 537,000 218,300 154,000 195,000 20,000 99,000 217,000 210,000 284,000 100,000 175,000 CATEGORY Cost savings Pers. excellency Profitability Profitability Methods improv. Profitability Profitability Profitability Profitability Profitability Profitability Cost savings Method improv. Method improv. Method improv.
ADDITIONAL SAVINGS: Projects already finished with economical impact being evaluated Sub - Total: 200,000
POTENTIAL SAVINGS: Projects underway, nearly finished, with favorable monetary impact Sub-Total: 550,000
GRAND TOTAL:
$ 17,831,533
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QUANTIFICATION OF BENEFITS
QAT: # ________
I) Define which category corresponds the subject of your team:
Processes
Sales
Int. client
Ext. client
II)
$$$$$
Measurement scale - 1 to 10
Survey
b) If it is a "survey" or "scale", 1) estimate value of actual measurement / starting point, 2) verify with proper study when work is concluded
Starting value
Final value
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