Special Report: The Quest For Quality

By Janice Castro

Less than a decade ago, Xerox was in serious trouble. The company whose name is synonymous with copying machines was steadily losing customers. As Japan's Ricoh, Canon and other new competitors muscled onto Xerox's turf, the company slumped from an 86% share of the world market for basic copiers in 1974 to just 16.6% by 1984. When a shaken Xerox finally studied its competitors more closely, the company discovered their secret weapon: the Japanese firms hewed to rigorous quality standards. Taking a hard-eyed look at its operations, Xerox discovered that it was slowly destroying itself with sloppiness and inefficiency at almost every level.

Xerox Chairman David Kearns took a lesson from his adversaries and in 1983 launched an all-out campaign for quality. Appealing to the firm's 100,000 workers, the company formed employee teams to encourage shop-floor innovation and cooperative problem solving. Xerox set tough new standards for every phase of its operations, from design and production to inventory management and sales. The results: manufacturing costs and product defects were cut in half, customer satisfaction increased 38%, and Xerox recaptured the lead in moderately priced copiers. Says Kearns: "At Xerox we define quality as meeting customer requirements. It's an axiom as old as business itself. Yet much of American business lost sight of that. Xerox was one of these companies. But by focusing on quality, we have turned that around."

Last week Xerox won recognition for its comeback when President Bush singled out the company's business products and systems division, which makes its copiers, as one of two winners of the 1989 Malcolm Baldrige National Quality Award. The awards, named for the Commerce Secretary who died in 1987, were , established by Congress to motivate U.S. companies. Given for the first time last year, they have already become a sought-after prize in corporate America. Collecting the other 1989 award: Milliken & Co., a leading textiles manufacturer based in Spartanburg, S.C. Bush, who has seized the quality banner to promote American competitiveness, presented the awards at the Commerce Department before 500 business and Government leaders.

Declaring that high quality in U.S. goods and services is a top national priority, the President maintained that companies like Xerox and Milliken are leading a comeback from the days when many American products were being shunned because of a well-deserved reputation for shoddiness. Said he: "No competitor gave them a tougher time than they gave themselves. Both of these manufacturing firms were well-established leaders in their markets, and yet both were being steadily squeezed out by the intensive foreign and domestic competition. And in the midst of this crisis, the men and women of these companies found within themselves the will to make a painstaking reassessment and the drive to win back their market share."

Milliken, a family-owned manufacturer of products ranging from computer tape to carpets and tennis-ball covers (estimated sales: $1.5 billion), launched a quality campaign that required a top-to-bottom restructuring of the company's operations. Milliken set strict new production standards and formed teams of employees, customers and suppliers to tailor its manufacturing process more closely to buyers' needs. As a result, the company reports, it has cut manufacturing errors by two-thirds since 1981. Says Roger Milliken, the company's chairman: "It was startling to find that we could do so much better."

Thousands of American companies have learned that if their products are second rate, customers will quickly turn to those that are first rate. Brand loyalty still has its allure, which is why RJR Nabisco fetched $26.4 billion and Philip Morris paid $12.9 billion for Kraft. But it no longer counts for everything in an increasingly crowded global marketplace in which armies of manufacturers are jostling for the customer's eye and American products are being pushed off store shelves by rival goods from every part of the world.

In this harshly competitive new environment, manufacturing excellence is not an obscure technical issue but a matter of corporate survival. For many American companies that made goods ranging from TV sets to motorcycles, the ! lesson was learned too late. While price still plays an important role in buying decisions, more and more consumers demand high quality at any price level. Says Armand Feigenbaum, chairman of General Systems, a leading quality- consulting firm in Pittsfield, Mass.: "More than 80% of the consumers we surveyed last year said that quality was more important than price. In 1978 only 30% said so."

Despite the growing role of service industries in the U.S. economy, manufacturing is still vital to American prosperity and national security. Manufacturers contributed 31% of the U.S. gross national product last year, and nearly all of them face strong competition from abroad. While exports of U.S. goods increased handsomely last year, from $254 billion to $322 billion, imports kept on rising, from $406 billion to $422 billion. Says U.S. Commerce Secretary Robert Mosbacher: "It has been an Achilles' heel for us -- getting production done at a high quality and competitive cost."

Until recently, U.S. companies often seemed merely to be sloganeering about quality while Japanese companies were quietly providing it. At first American business leaders cried foul when they lost market share, and pleaded for protectionist shelter. Says T.J. Rodgers, founder and chairman of Cypress Semiconductors, a Silicon Valley producer of specialized memory chips: "For a decade the whiners have been running to Washington asking for restrictions on imports, when the real problem was bad management on our side, poor quality control."

But now American business is doing more than just talk. An estimated 87% of the largest U.S. industrial corporations have expanded their quality- enhancement programs during the past two years, and plan to boost their spending on such initiatives next year, according to executive-opinion surveys conducted by Organizational Dynamics, a Massachusetts consulting firm. Another measure of the corporate interest in quality: 40 colleges and universities now offer degrees in quality technology, up from nine in 1986.

Just as important, consumers are noticing a difference. In a TIME/CNN poll of 1,000 adults conducted last week by Yankelovich Clancy Shulman, 52% of the consumers surveyed said they believe the quality of U.S. products has improved in the past five years; 30% said American goods stayed the same, and only 15% said they had grown worse. A majority of respondents said U.S. companies are making better clothing, appliances and telephones than their foreign rivals. But only 44% feel the same way about U.S.-brand autos.

While the survey reflected confidence in American products, it underscored the sentiment that "Made in Japan" has become as sterling a recommendation as the Good Housekeeping seal. Asked to rate a country's general quality of goods, 94% rated U.S. products good or very good, compared with 85% for Japan and 64% for West Germany. But Japan had the most devoted core of U.S. consumers, with 42% placing the country's products in the very good category, compared with 38% for the U.S. and 28% for West Germany.

The welcome mat for foreign goods was laid down by American companies amid the heady postwar growth of the U.S. economy. During the 1950s and 1960s, demand for U.S. consumer products was growing so rapidly that many American companies cut corners on quality. All too soon, car door handles started falling off, clothing came apart at the seams, and television sets burned out. The backlash began as early as 1960, when TIME reported, "Buyers loudly complain that familiar products are just not so good as they used to be -- and the figures tend to bear them out." Recalls Robert Stempel, president of General Motors: "We used to talk about 'commercial quality,' which meant that you expected to have a certain amount of defects."

Today that philosophy is dead. Says Stempel: "We have seen what better- quality competition can do to you. We are building cars now that we wouldn't even have thought about building ten years ago." American consumers dictated the changes. Faced with an expanding array of choices, buyers began demanding not only greater reliability but also excellence in technical innovation and design. American consumers learned to appreciate the fine points: the solid sound of a BMW door closing, the brilliant clarity of a Sony Trinitron, the tiny bubbles of San Pellegrino water.

At the same time, changing American life-styles helped boost demand for quality. Now that both husband and wife in most families work outside the home, no one has time to hang around repair shops. Says Feigenbaum: "Busy people are intensely frustrated when something doesn't work right. They will not buy your products -- any of your products -- again." In the TIME/CNN survey, consumers were almost unanimous in saying that the most essential quality of a product is its ability to function as promised, closely followed by durability and ease of repair. Attractive design and technical innovation were important to most consumers too but were secondary considerations to the basic demand that a product be just plain reliable.

To a great degree, American business has turned to its principal competitor, Japan, to learn how to restore quality. Ironically, what U.S. executives think of as "the Japanese method" was pioneered largely by an American statistician, W. Edwards Deming, 89, who began preaching the quality gospel to receptive Japanese industrialists in 1950. During the 1980s, thousands of U.S. companies borrowed the so-called quality-circle concept, in which teams of employees are encouraged to participate actively in monitoring and improving their part of the production process.

But giving the worker a greater sense of importance was not enough. A change in corporate philosophy was needed, the sort of disruptive and often expensive change that works only if the commitment starts at the top. In companies where impressive quality gains have been made -- Ford, Hewlett-Packard, 3M, Corning Glass, Apple, Motorola and Rubbermaid -- the chief executive lays down the rules and makes sure they are followed. Says Rubbermaid Chairman Stanley Gault: "Everyone has to know that shoddy work will not be tolerated. Our customers are not there to field-test our products." At Apple, says Chairman John Sculley, "quality is a religion. Anybody on the plant floor has the authority to shut down the entire line. And it happens."

Among the methods companies use to ensure quality:

-- 3M sends hourly workers on morale-building field trips to see how customers use the company's goods. One such team visited a local TV studio that uses 3M magnetic videotape.

-- When Motorola developed Micro TAC, the first pocket-size cellular phone, engineers made the device sturdy enough to be dropped from a height of 4 ft. onto a concrete surface without breaking.

-- At Apple, even the products help monitor quality. On the Macintosh assembly line, the computers run diagnostic checks on themselves.

Hewlett-Packard got the message when its Japanese partner, Yokogawa Hewlett- Packard, complained about the quality of the memory devices manufactured by the American firm. The centerpiece of Hewlett-Packard's quality program, started in 1979, is a closer relationship with its suppliers. Treating them as partners rather than free-lance sources, the company involves partsmakers in the initial design phase of its new products and gives the suppliers six-month forecasts of its needs so that the smaller companies can plan their own production. As a result, Hewlett-Packard reached its goal of increasing quality tenfold in just ten years. Says Chairman John Young: "If I'd asked for 30%, nothing would have happened."

The most dramatic improvements have been made by U.S. automakers, who developed an infamous reputation for poor craftsmanship in the 1970s and early 1980s. Yet for every gain the Big Three have made, their Japanese competitors have continued to earn top ratings for quality and to expand market share. In a survey by J.D. Power Associates, a leading automotive analyst, buyers of this year's Japanese imports reported only 119 problems per 100 cars during the first 90 days, while owners of new American cars reported 163 glitches. Even so, the quality competition has drastically boosted value for the car buyer: before 1960 the typical U.S. auto warranty was just three months or 4,000 miles. Today Chevrolet offers basic coverage of three years or 50,000 miles and Chrysler covers selected models for five years or 50,000 miles.

Shaking off bad manufacturing habits may be expensive, but it pays. Companies say that eliminating the waste and bureaucratic backtracking caused by defective products can save as much as 30% on production costs. Says Milliken: "Quality is not cheap. But the potential savings far outweigh the cost of going after it."

The new American commitment to quality comes at a time when competitive challenges from abroad are growing rapidly and more and more foreign-owned plants are being based in the U.S. In the 1990s such competitors as Japan and West Germany will be joined by strong new rivals from much of Asia, from a more muscular European Community and from such Latin American countries as Mexico and Brazil.

The rules of the game will keep changing, and the standards will keep getting higher. Says Xerox Chairman Kearns: "We realize that we are in a race without a finish line. As we improve, so does our competition. Five years ago, we would have found that disheartening. Today we find it invigorating." That kind of ambition is essential, because U.S. manufacturers still have considerable catching up to do. If they are successful, the MADE IN THE U.S.A. label will once again stand for excellence, not just sentimental patriotism.

CHART: NOT AVAILABLE

With reporting by Gisela Bolte/Washington, William McWhirter/Chicago and Edwin M. Reingold/Los Angeles