Gedas Sakus, President, Northern Telecom Canada
BUILDING A CULTURE OF QUALITY: A STRATEGY FOR THE '90S
Chairman: Harold Roberts President
Honoured guests, ladies and gentlemen:
With the advent of the Canadian--U.S. Free Trade Agreement, the handwriting was on the wall. Canadians must put more effort into the science and technology fields and be prepared to forfeit significant jobs in the manufacturing sector.
On February 7th of this year, Dr. Robert Pottie, Vice President of the National Research Council, spoke to our members of the absolute necessity for Canadian businesses and government to put a great deal more effort and financial resources into research and development if Canadians are to remain competitive in the international marketplace.
One of the companies that Dr. Pottie cited as an excellent example was Northern Telecom. And one person who could take pride in such an example is Mr. Gedas A. Sakus, who was President of Bell Northern Research until February 1 of 1990.
Since that time, Mr. Sakus has been President, Northern Telecom Canada Ltd. He is responsible for Northern Telecom's Canadian manufacturing and marketing operation. In addition, Mr. Sakus is responsible for Northern Telecom (C.A.L.A.) Corporation, the operating subsidiary serving the Caribbean region and Latin America.
Born in Lithuania in 1939, Mr. Sakus emigrated with his parents to Canada in 1948, He graduated from U. of T. in 1962 with a Bachelor of Applied Science in electrical engineering.
During his 28-year career with Northern Telecom he has served in numerous managerial positions in the company, including a brief stint in Istanbul, Turkey.
Mr. Sakus is accredited as a P. Eng. by the Association of Professional Engineers of Ontario, and holds a Business Administration Executive programme certificate from Columbia University, New York. In June 1989, he received an honorary doctorate from the University of Ottawa.
Mr. Sakus is a Member of the Board of Directors of Bell-Northern Research and the Conference Board of Canada. He serves on the Board of the Information Technology Association of Canada, the Advisory Board of the International M.B.A. program, York University and is Chairman of the Board of Prisms Systems Inc. He is also a Member of the Committee on Canada-United States Relations, the British-North American Committee and is on the Board of Governors of the Junior Achievement of Peel, Inc.
Today, Dr. Sakus will address us on "Building a Culture of Quality; a strategy for the 1990s."
Dr. Sakus, welcome to The Empire Club of Canada.
Good afternoon. I'd like to begin with a short story.
It's about some large animals who were playing football against the small animals and insects. Not surprisingly, the score at the end of the first half was 120 to 0. The small animals and insects hadn't made a single tackle.
When the second half started, a bear took the kickoff on the 45-yard line and was stopped with no gain. On the next play, a giraffe tried an end run, but was tackled for a one-yard loss. The giraffe looked down at the bottom of the pile and saw a centipede. He looked at the centipede and said: "Did you tackle me? This is the first time I've been tackled all day."
The hundred-legger replied, "Yep, I tackled you and the bear." The giraffe looked down at the centipede and said: "Where were you in the first half? Your team didn't make a single tackle." The centipede replied, "I was getting my ankles taped."
There are a lot of firms out there in the global marketplace getting their ankles taped. Some of them, like the centipede, may be very small and seemingly pose no threat. But all firms must adopt aggressive strategies if they want to be winners. We in Canada must intensify our efforts. How can we do this? I'd like to emphasize this afternoon that we can succeed in the tough competitive markets of the '90s only by adopting a culture of the highest quality.
Let's begin with the setting: our playing field is the fiercely competitive world of today's international markets. The barriers that once protected inefficient firms, and sheltered them within national boundaries are falling. This trend is accelerating. In more and more industries the marketplace and the competition have become global.
l Our Free Trade Agreement with the United States is part of this globalization of business. So is the economic unification of Europe in 1992. And so is the opening of Eastern Europe to western products and investment. It's true that the voices of protection have not been stilled. But the move toward one large, and very tough, world market is irreversible.
Computers and telecommunications networks have also shrunk the world. We're all near neighbours in what McLuhan called the global village. Financial transactions know no borders. It's estimated that electronic transfers move about four trillion dollars around the planet--every day.
The impact of this globalization on corporations is far reaching. A study conducted by the Wharton School of Business identifies 136 industries in which companies must either learn to compete globally, or get out. This study sees a shakeout in each of these industries during the 1990s, leaving only three to five players in each sector.
We expect that in 10 years the marketplace for telecommunications equipment will top $300 billion--more than three times the size of today's global market. But instead of 10 major firms competing for this market, we forecast there will be at most four remaining.
Northern Telecom intends to be one of the survivors. It won't be easy for any firm that wants to be a winner in the global race. As the Red Queen in Through the Looking Glass says: "It will take all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast." Today, staying in the same place is no longer an option.
What's the key to success in these tough markets of the 1990s? The answer can be summarized in a single word: Quality. The firms that prosper will stand out. They'll deliver their goods and services with a level of quality that clearly distinguishes them from the also-rans.
What does this emphasis on quality mean? I'd like to examine four pillars that support the building of a Quality environment.
First, quality means innovation.
At first glance, these two terms seem to suggest different concepts. An innovative product might be of poor quality. A high quality good might be of an older vintage.
But in fact, in the world of high value-added products and services, quality and innovation go hand in hand. Quality refers to the superior nature of a product. And there's no superiority in offering yesterday's products to today's customers. Quality is a moving target. And an unswerving commitment to innovation is the only way to move with it.
At Northern Telecom our past successes and future growth rest upon unrelenting innovation.
Together with Bell Canada we foresaw that digital technology would replace analog. In 1976 we therefore introduced our Digital World, becoming the first telecommunications manufacturer to offer a fully digital line of products. It was a decision that helped catapult us into the top ranks of telecommunications firms.
In 1982 we introduced OPEN World, which made possible interconnections between a range of devices that use telecommunications circuits.
And in 1989 we launched FiberWorld. In so doing, we were the first company in the industry to announce a complete family of products for the fiber optic telecommunications world of today and the future.
Such innovation must be conducted within a framework of quality. Any new product must survive rigorous scrutiny at all stages of development and production. At Northern Telecom it must pass through a series of what we call "gates."
The first gate is the product concept stage. For a product to even get to this stage, it has to be assessed by our marketing staff--who define the market need, the prospective customers, and the competition for this product. Other gate reviews occur as the new product is transferred to manufacturing, and when it is brought to market. At each gate review, representatives from marketing, R and D, manufacturing, quality, customer service, and senior management participate.
Our customers are extremely important in the innovation process. They tell us what they need, and our job then is to provide a solution to them quickly. And that requires constant listening. Twice a year, for instance, we meet with our Quality Council, which includes members from our Canadian telephone company customers. The Quality Council gives us firsthand information on customer expectations, how well these are being met and action plans for strengthening the quality of our products and services.
Innovation is the first of the four pillars of Quality. Clearly it's an important one. Along with the other components of quality, it helped us win the gold award for quality at the 1990 Canada Awards for Business Excellence.
Second, Quality means People.
There's simply nothing more important to our company than the skill and commitment of our employees. But ability and concern cannot be assumed. They cannot be bought. And they certainly can't be compelled.
If we want motivated employees, we must restructure the way we work. The old top down hierarchical structures, where managers gave orders and employees followed them, no longer function well enough.
The disaffection of production line workers--whose ideas are ignored, whose suggestions are shunned--is an all too familiar story. The result? I won't single them out, but we all know of companies where whole operations have been forced to shut down because the people involved in the process of assembly took too little pride in their work.
Small production teams, with genuine decision-making power, are the alternative. The Japanese first taught us the importance of work groups. By the 1960s the Japanese had organized their employees into teams, giving them "ownership" of production.
This new approach has come more slowly to North America. Self-directed teams still have only a toe-hold in the workforce. A recent survey of Fortune 1000 companies found only seven percent of workers in such groups. But the numbers are growing rapidly. And it's the direction in which we must move.
In making the change from hierarchy to work teams we've learned some lessons about the importance of our people. Robots on the assembly line and high tech equipment are necessary. But they're far from a complete solution. Indeed, without skilled, motivated employees high tech methods are a recipe for disaster.
The transition to teams has not always been easy. It involves a genuine shift of power within the plant. The team takes over much of the responsibility of production from the middle manager. The team arranges schedules, sets production targets, orders materials and equipment. Often it's responsible for peer review, and sometimes for hiring and firing.
At Northern Telecom we've begun reorganizing our manufacturing into team-based groups--with excellent results. At our Calgary digital switching division, instead of four functional departments there are now 14 teams. And we've now introduced teams into our large Bramalea facility and elsewhere.
The team-based approach has been successful for Northern Telecom--as it has been for many other firms. It has helped us win not only the gold award for quality, but also the 1990 silver award in labour/management cooperation given by the Canada Awards for Business Excellence.
Innovation and People are the first two pillars of Quality. The third? Quality means Details. To put it in another way, Quality means looking for ways to be one percent better in 1,000 things not just 1,000 percent better at one thing.
Let me illustrate from Northern Telecom's experience some of the ways we've sweated the details to improve our products. I know that in many instances these approaches are ones we share with other businesses.
We've moved to Just in Time inventory. We pull materials through the manufacturing process as they are needed. By not ordering inventory ahead of time, we keep costs down. Terminals in our plant connect with those in our major suppliers so in many instances parts can be received in a matter of hours.
But the real pay-off is in speed of service to the customer. With our Norstar communications system, for example, we deliver a complete system, custom-made to meet the customer's need, within 48 hours of receiving the order.
We've become more demanding of our suppliers, too. Just as our customers have come to expect more from us. And that has meant fewer, better suppliers.
Three years ago for example our digital switching division bought from over 1,000 firms. Now it deals with a third as many--and the number will shrink still further. The result of our increased expectations from suppliers is that a large percentage of the parts we receive now need no inspection. And we're working with our major suppliers to have their processes certified to international quality standards.
We're also working the details by streamlining production with Computer Integrated Manufacturing. We can now electronically send a design anywhere in the organization. This means that teams of people, often in different locations, can refine the design so that the product is immediately marketable.
The time it takes to introduce a product has often been reduced by two thirds. Computer Integrated Manufacturing meshes with the team-based approach because it puts more information into the hands of those involved in production. It allows us to respond to customer needs at every stage.
In addition, we've created fully functional replicas of our customers' switching centres. These FAST offices as we call them, permit customers and Northern Telecom staff to test our equipment under conditions it will experience in our customers' environment. They're a first in our industry. We also invite customers to visit all our plants--and when they're there we invite them to grade us.
Let me tell you a recent story. A customer, with our support, scrutinized every detail of our operations at the Bramalea digital switching plant. We were told in advance that we'd be evaluated on a scale of one to five--as the customer's other suppliers had been--and that no other supplier had ever received more than a 4.2 rating. All employees were driven by pride and excitement--they wanted to do better.
Finally, the big moment came when the customer would announce our score. Many of the division's employees were present--and when we were rated 4.93 their hearts fell. They were used to sweating the details, and they wanted nothing less than a five! The customer was delighted by our performance.
In addition to customers inspecting our shop, we send our people to customer facilities to see how our equipment functions in their businesses. We send not only our senior people, but also representatives of our hourly, secretarial, and clerical staffs. They do this as part of an innovative program: The President's Council on Competition. Their mandate is to learn, and bring back ideas to strengthen the company's competitive position, especially in the area of customer service.
This obsession with details--which reinforces our other approaches to quality--has paid off in the various ways that quality is measured. During the past five years, we've achieved several performance milestones:
• In-service down time of our digital switching systems has decreased sharply--in fact by 72 percent. We specify that our central office telephone switches will have a down time of only 2 hours over the course of 40 years in service. Put another way, that's an in-service performance of 99.999 percent.
• Delivery schedules were reduced by 50 percent during the same five years, while on-time delivery improved to 98 percent.
• Customer service requests are down by a factor of five--which means for every five service calls we had to make five years ago, we only make one now.
• We now meet and surpass the toughest of international standards. in 1989 we became the first company in the world to achieve the highest quality certification from both the Geneva-based International Organization for Standardization and the Canadian Standards Association.
But quality, as I've said, is a moving target. Despite these strides, customers expect more than ever. As we get better, they expect us to be better. And we're determined to deliver more.
And this brings me to the last of the four pillars. Quality is a total way of thinking. It's not a program that runs for a couple of months, or a single year. It's not an outlook of senior management, or of one division within a firm. It must be a total philosophy. It must be ongoing. And it must be shared by all individuals within a company.
At Northern Telecom Canada our total commitment to quality shapes our credo, "Quality Means Business." These words came from an employee suggestion in 1986. Now they're known to everyone in our organization.
P.T. Barnum, the circus baron, said: "If I shoot at the sun, I may hit a star." Well, we shoot for the sun. And we like to think we're going to hit it! Our vision is leadership in the telecommunications industry--the number one position in the world by the year 2000. One crucial component of this vision is our "Journey to Perfection." It demands that we achieve a thousand-fold improvement in quality indicators during the next decade.
The ultimate goal of the Journey to Perfection is no flaws in our products, no delays in getting a product to market, no imperfections in our process, and no inflexibility in product design. I don't know how that sounds to your ears. But to mine it sounds like a formidable challenge. It means striving for nothing less than Excellence.
Quality as a way of thinking requires the full involvement of all employees. The move from hierarchy to work teams, which I've discussed, is an important step in that direction. We've also undertaken other related initiatives.
Northern Telecom is in the business of quality. And to make sure we attain our targets, we've recently launched a corporate-wide program that commits us to excellence. To be the world's leading supplier of telecommunications equipment by the next decade, we've made a set of commitments to ourselves, our customers, our suppliers, and our employees. And they've made commitments to us.
Today, I'm pleased to have at this head table two people who are special to Northern Telecom--people who will help us achieve our vision of excellence.
Mr. Dennis Wood is President of CMAC Industries, a high quality supplier to Northern Telecom. CMAC is a young company. Yet it's a Canadian company that competes extremely well in the highly competitive global market for hybrid circuits. Many companies buy their hybrid circuits from suppliers in the Pacific Rim. It's a tribute to CMAC, that we buy most of ours at home, knowing that we're getting the very best in quality and service.
Also at the head table is Mr. Jack Pompeo, Manager of Quality at our digital switching division. Northern Telecom's winning of the gold award for Quality this past fall was certainly a team effort by the entire digital switching and customer service divisions. But if there's one individual who led that effort, it's Jack Pompeo. He has responsibility for quality standards in the winning division--and he, himself, is a winner we're very proud of.
Today I've described our four pillars of Quality. Quality means innovation. Quality means people. Quality means details. And Quality means a total way of thinking shared by all employees. Taken together they may not spell a new acronym, but we believe they do spell success. They reflect a commitment to our credo: Quality Means Business.
But it's a credo and an outlook that goes far beyond our company. I know other firms share this approach. And this emphasis on quality must be taken up by all Canadian businesses if our economy and our country are to survive and flourish in the years ahead.
The appreciation of the meeting was expressed by Douglas Derry, Partner, Price Waterhouse and a Past President, The Empire Club of Canada.