Western Telephone Manufacturing

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Western Telephone Manufacturing

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It was a tough year for Western Telephone Manufacturing (WTM) of Canton, Michigan. Until this year, WTM had been the darling of Wall Street. This company had become one of the first to wholly embrace the concepts of Six Sigma and Total Quality Management. Management had invested significantly in Six Sigma. Every employee had been trained in the tools and application of Six Sigma; an internal consulting group (Operational Services, or the OS Group, as it was referred to internally) was established to support these efforts. Furthermore, management had decided to complement its Six Sigma efforts with the implementation of lean principles and practices.

As a result, WTM had transformed itself completely over a 15-year period. Prior to the “journey” (how people at WTM referred to the process of implementing Six Sigma and Lean), quality was poor (field reports indicated that between 10 to 12 percent of all telephones produced failed in the field on initial usage by the customer, as compared to 2 to 4 percent failure rates for the competition); lead times were long (about 20 percent longer than the competition); and costs were high (a WTM telephone cost about 12 percent more than the competition). Eventually, WTM became the leader in cost control, quality (with failure rates running less than 1 percent per million), and lead times. At the heart of this quality storm was the Messiah of Six Sigma, Ted Hendrix, who also happened to be WTM’s CEO.

To understand WTM’s, success, all that was needed was a simple visit to any one of its manufacturing operations. Everywhere you would see posters encouraging employees to do a better job:

· Without standardization, there is no opportunity for improvement.

· First time, every time, right—that is the goal.

· You are at the heart of Quality.

· Our customers want products that work; not products that fail.

· Attack slack.

· Attack waste in every form that it appears.

· Perfect Quality—not simply a goal but what the customer expects.

Consistent with this emphasis, Ted had instituted a program that measured and monitored cost savings closely and regularly. To be promoted at WTM, it was widely recognized that you had to participate in the various programs, and you had to show that you could identify and implement projects that reflected the Six Sigma goals and that generated verifiable and significant cost savings ($25,000 over a one-year period for a Green Belt and $100,000 over a one-year period for a Black Belt). All management candidates for promotion had to generate at least 10 quarters of above average performance (i.e., actual costs were less than standard costs by a minimum of 10 percent).

Ted Hendrix was known for the quirky things he did to ensure that everyone at WTM knew the importance of Six Sigma and Lean. It was not unusual for Ted to show up in a plant where he would recognize an employee for efforts “above and beyond the call of duty.” Such employees were designated as “Six Sigma Samurai.” They also received a free one-week vacation for themselves and their families to anywhere in the United States, a check for $1,000 (for spending money), and a Japanese samurai sword (a Katana). Their pictures would be taken and posted in the Six Sigma Hall of Fame at corporate headquarters. Finally, and most importantly, they could expect to be on the fast track for promotion.

Until two years ago, this approach appeared to be working: WTM stock prices were above the industry average; many business magazines had printed feature articles about WTM; cases on WTM and its journey with Six Sigma had been written and published by prestigious business schools. Then, technological innovation hit WTM. Wireless systems, Skype, cellular systems, and cloud computing were causing companies like WTM to rethink the role played by their systems—a role that was continuously changing as new technology emerged.

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After hiring a major consulting company to carry out a project focusing on the future of the telephone receiver and then receiving its report, Ted Hendrix had decided that for WTM to survive into the next 20 years, the emphasis on quality had to be replaced by an emphasis on product and technological innovation and responsiveness. Innovation, Ted had decided, was the new mantra for WTM.

Consequently, Ted went around to the various plants to discuss the need for innovation. He spent time with plant management and with the employees discussing why cost and quality were no longer enough and why innovation was so important. With the support of the board of directors and his top management team, Ted made a number of highly visible changes at WTM:

· Extensive training in product innovation was carried out.

· Employees were exposed to presentations from such well-known innovation companies as GE Transport, Procter & Gamble, 3M, Apple, and Netflix.

· A new program of grants aimed at encouraging investment in innovation (and known as the WTM Innovation Grant, or WIG) was introduced.

· A new Research and Development Center was introduced at Michigan State University. This center was to work with certain faculty in North America with the goal of introducing truly new and radical innovations in telephone technology.

· Changes were made in the performance measurement scheme. Specifically, a new metric, percentage of revenue generated from products less than three years old, was introduced.

Finally, Ted tried to ensure that everyone understood the new mantra at WTM. It was no longer “Lean and Mean” but rather “Fast and New.” After calling numerous consultants to review the changes made, Ted felt that WTM was now poised to become the innovator in this business.

Reality, however, has not fulfilled management expectations. Specifically, the personnel, who have always felt comfortable with Six Sigma and Lean, were distressed by the new emphasis on innovation. New, innovative products were experiencing in-field failure rates around 5 percent—well in excess of the current failure rates of less than 0.0001 percent. When WTM delayed the launch of these products so that it could drive out the root causes of the failure, it was often beaten to the market by competitors. Consequently, WTM had to be satisfied with accepting lower prices (even though its development costs were just as high as those of the competition). Employees felt comfortable with the predictability of Lean and Six Sigma; they were frustrated by the lack of predictability of innovation. Telephones that everyone at WTM thought were going to be winners often turned up being losers. Finished goods inventory went up; costs were also beginning to creep up. When a winner did occur, WTM often found itself unable to respond fast enough to the increase in demand.

In frustration, the workers at one plant went on strike. Their grievance was that management was now preventing them from doing their jobs with this new emphasis on innovation. Corporatewide grumbling with this new shift in strategy was also heard; many argued that there were still numerous opportunities for Six Sigma and Lean to do their magic; the emphasis on innovation, consequently, was seen as being premature.

As Ted Hendrix surveyed the state of WTM, he was not assured by what he saw. He saw a company experiencing real difficulties in bringing new technology to the market. What really frustrated Ted was that he knew that WTM was making great strides in developing just the technology demanded by the marketplace—only to have the advantage offered by this new technology lost once the product was released for production.

The challenge facing WTM and Ted Hendrix was to make WTM as successful with innovation as it once was with quality and cost control. Given recent changes in the firm’s stock price, it appeared that Wall Street was betting against WTM.

Questions

1.

Describe the culture developed at WTM as a result of the movement to Six Sigma and Lean.

2.

What type of culture is most appropriate for the successful introduction of a strategy based on innovation?

3.

To what extent is the current culture consistent with the requirements of an innovation strategy? Why?

4.

Given expected failure rates of 5 percent in really new products, how should a firm like WTM respond? Why is this response so different from what was observed?

5.

What recommendations would you make to Ted Hendrix?

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