DEVELOPMENT MODEL OF TQM IN SUCCESSFUL ORGANIZATIONS

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1 Chapter 3 Dr. sc. Miroslav Drljača 1 DEVELOPMENT MODEL OF TQM IN SUCCESSFUL ORGANIZATIONS Abstract: Total Quality Management (TQM) is a complex structure. At the same time it is a concept, process, system, philosophical approach, business strategy, technique, etc. Also, TQM is a development stage on the road to Business Excellence (BE). All serious organizations tend to success. It is not easy to achieve this goal in circumstances of market competitiveness. In this effort every ambitious organization seeks to develop its own optimal development model of TQM on the road to BE. In this paper author presents the results of research of development model of TQM at Zagreb Airport, Ltd (ZA). Structure of this model is very complex and consists of: institutional framework, integrated management system, competence of management system, transparency, business success and leadership. Model is characterized by two constants: continuity and controlling. Model has been successfully applied in practice. Key words: quality, management system, development model, TQM, successful organizations. Introduction Total Quality Management - (TQM) is an unavoidable term in research of management systems. It is a concept developed after the World War II with the aim to improve the quality of products and services. It was developed by the American scientists Edward William Deming. Despite this fact, it was not initially thoroughly developed in the USA, but in Japan that used it in the 1950s for post war recovery of its industry and entire economy. Later, it was applied 1 Dr. sc. Scientific field Economy; Scientific branch Management and organization, Quality Management. CEO of Zagreb Airport, Ltd, Croatia. President of the Croatian Quality Managers' Society, Zagreb, Croatia. mdrljaca@zagreb-airport.hr. 42

2 more and more also in the USA as a replacement for the traditional production model characteristic for the 19 th century. TQM is a very complex concept and it may be studied as: 1) a philosophical term, 2) culture of an organization, and 3) a model of integrated management of an organization's quality system. Bill Creech claims that he was the first to establish and use the term TQM in early 1980s. He presents his standpoint that the product is the focal point for organization purpose and achievement. Quality in the product is not possible without quality in the process. Quality in the process is not possible without a capable organization. A capable organization is meaningless without good leadership. Strong commitment from the bottom to the top of an organization is the core pillar for everything else. Each of the five pillars depends on the other four and if one is weak, all are weak. Methods The following general scientific knowledge methods are used in this paper: 1) systems theory method, in the part relating to presentation of structural elements of the development model of TQM and their interaction, 2) modelling method in the presentation of the model of TQM and 3) case study method in the part of presenting the TQM model potential within the scope of the quality management system implementation project under the ISO 9001 standard requirements in successful organizations. The following specific scientific knowledge methods are dominantly applied: 1) analytic synthetic; 2) generalization and specialization and 3) inductive-deductive method, in the part of the research relating to decomposition of TQM model and definition of interactions among its structural elements. Results The presented development model of TQM of ZA on the road towards BE appears very complex. This model, as shown in Figure 1, 43

3 has its structural elements. They are essential for functioning of the organization's management system. Institutional framework as a structural element of the TQM model includes international standards for management systems, industrial standards for air transport, EU regulations governing the area of air transport, documents of ICAO 2, IATA 3 and ACI. 4 It comprises relevant laws and by-laws of the Republic of Croatia governing business operations in general, but also particularly the area of air transport. Further, it includes all internal documentation, such as: manuals, studies, plans, methodologies, procedures, work instructions, check lists, forms, rules, codes, action plans, management board decisions, contracts and all documentation regulating business operations and functioning of the management system. Integrated management system is the management system as a whole, consisting of various management systems, both certified and not certified, which are implemented and integrated in the organization's overall management system, to a greater or a smaller extent. Certified management systems making the integration are: ISO 9001 quality management system, ISO environmental management system, safety management system, food safety management system in catering under ISO Management systems not certified: information security management system to ISO 27000, social responsibility management system to ISO 26000, risk management system to ISO and others. This structural element of the TQM development model is based on the sustainable development philosophy and concept. This complex structure creates a presumption for corporate social responsibility concept. Any integration (political, social, economic, etc.) entails acceptance of responsibility, laws, standards, rules and procedures. 2 ICAO - International Civil Aviation Organization. 3 IATA - International Air Transport Association. 4 ACI - Airports Council International. 44

4 Business Excellence Continuity Controlling Leadership Business successful Transparency Management system competence Integrated management system Institutional framework TQM Fig. 1. Development model of TQM of Zagreb Airport, Ltd on the road to Business Excellence Source: own study 45

5 Management system competence as a structural element of the TQM development model directly affects the capability of the integrated management system to function. Innovation and learning at all levels stand in the origin of the system competence. ZA, as an organization performing a public function, accepts business excellence as a philosophical approach and to this effect the business excellence concept is incorporated in the integrated management system documentation. As a pragmatic approach, despite every day efforts and proven improvements, business excellence is still a rather distant goal, due to insufficient level of development of individual structural elements of the management system, which tends to entropy. An original development model of TQM is sought that will enable ZA to continuously come nearer to the BE stage. Competence of the entire management system is especially important on this path. Integrated management system in the competence model means the management system with all integrative systems (quality, environmental, safety, security, social responsibility and risk management system), and all structural elements. Mission competence is a term not found in the literature, and means the capability of an organization, i.e. its management system, to perform its mission, social role or purpose. An organization has a reason to exist while it fulfils its mission. When it is no longer capable to do it, there is no purpose of its existence and its life cycle is coming to its end. In order to realize its mission, an organization should have mission competence. In the case of ZA it means its capacity to be a good quality infrastructure and a system that enables air traffic in accordance with up-to-date industry standards. Process competence could also be interpreted as capability of business processes to operatively support fulfilment of the organization's mission. Business processes should be modelled, documented, implemented and managed to the level guaranteeing their reliability. Business competence means organizational, financial and market competence. This means that an organization should be lead in the way that ensures its stable position in the market, which makes realization of continual business success possible in the long run. 46

6 Personnel competence is the most used phrase and it means formal and specialist education of employees for carrying out activities in processes, i.e. the management system, as well as psychosocial characteristics of employees needed for performing activities in processes, the result of which gets its confirmation in the market in the form of a product or a service, meaning that its characteristics, or rather its quality, are subject to judgement and evaluation of the customer/user. Management system competence relies on the management system and it is essential to continually improve it from one cycle to the next, on the principle of the Shewhart (Deming) cycle (P-lan, D-o, C-heck, A-ct). The integrated management system and the management system competence are prerequisites, but still not sufficient factors of the development model of TQM on the road to BE of ZA. There are several other determinants inevitable in the development model of TQM. They may be subject to changes depending on global market movements, extraordinary situations, institutional framework and the like. Just as individual structural elements of the model may change, so may also the structure of the model itself. Although the model is a pattern, a way in which something is done and to which things adjust, a characteristic of the model is also that it adjusts to newly created conditions. This means that it has to be flexible. Transparency means transparency of business operations on ethic principles, in a way that protects public interest and interests of all interested parties. It means the information system at three levels: information and communication within business processes, information and communication between business processes, external communication of the organization with the public. Transparency is ensured by a series of concrete measures and activities within the management system, which aim at making it capable to provide transparency. In this way organizational culture is established which builds trust of the public, but also of all interested parties. Business success is the result of the management system functioning. The synergistic effect of the integrated system should generate business success that will ensure all resources necessary for a new cycle of the process structure, which should run at a higher level 47

7 of quality of business process results. It should offer a possibility for investments and creation of prerequisites for extended reproduction in a long time period. It need to be pointed out that new ways have been developed for overcoming numerous uncertainties and controlling risks or reducing them to reasonable framework and enabling the investors and trader s to adjust to various types of risks. The vanguard of any financial decision is financial diagnostics as a prerequisite for good decisions relating to financial management. Making good business decisions require financial reports that are a product of financial monitoring and analysis of a series of financial indicators. It should be, however, emphasized that financial indicators in itself will never give a final answer to financial problems. The final solution to these problems may only be given by financial managers, i.e. by the company management, on the basis of adequate and subtle analysis of financial data and indicators. Leadership means showing the way and setting the direction. This applies also to an organization. It must be managed so that it is aware of its mission, lead by its vision, by planned and defined clear strategy elaborated through policies, realized by fulfilling objectives and particular managerial targets. The real leader (management) should ensure consistency of: mission, vision, strategy, policy and objectives of the organization. One of the ways to develop the TQM model on the road to BE is leading guided by the quality management principles. Proper leadership ensures continual improvement of all structural elements of TQM, on the road to achieving the BE stage. Approaching the BE stage is a long process and entails the need for improvement in all structural elements of the TQM development model, continually. This means numerous improvements such as: improvement of all elements of the integrated management system, improvement of competencies, strengthening transparency, improvement of business results that require a subtle analysis of financial and commercial performance indicators of the management system, improvement of leadership skills. These improvements should run in continuity, from one period to the next. Continuity is the first of the two significant constants of the development model of TQM on the road to BE. 48

8 The second constant is controlling. Since the development model of TQM entails controlling in continuity, this means that it is strategic controlling focused on long term (for an unlimited time period) existential goals of the company, i.e. on assessment of future developments and trends, and therefore also future results, potentials and business risks, being based on strategic, mainly outside information (from external environment). The function of operative and strategic controlling is constantly gaining significance. Continuity and controlling are identified as important constants of the development model of TQM at the strategic level, relevant to the national economy of the Republic of Croatia. The management system of ZA is the micro level, and in this context the two significant constants of the development model of TQM on the road to reaching the BE stage should guarantee getting closer to this goal. The goal is an ideal and it is not realistic to expect its absolute realization, because it is only possible at theoretical level as a result of a moment that is never certain. Therefore, in the context of the TQM development model, both on strategic level of national economy and on micro level of ZA, the goal should be redefined and adjusted to reality. In this context, the journey is the destination. Discussion Work on development of the TQM model of ZA has not been completed and in the future it will never be completed to the level where no further improvements are possible. We talk about a trend, a process, a road to BE. However, the very fact that in 1999 ZA made the decision to begin implementation of the quality management system with clearly set objectives, and in this way actually started developing the TQM model or a kind of the management system restructuring, was sufficiently motivating for the entire system so that exceptional business results were achieved in the next ten year period, from 1999 to 2009, shown both in actual passenger figures and in financial indicators. In the period from 1999 to 2008 and the beginning of the global recession, ZA had a positive annual growth rate of passenger 49

9 traffic in the range between 1.4% in 2002 and 15.3% in 2007, i.e. an average annual rate of 8.2%. Particularly high growth was recorded in the period from 2005 to 2008 in the range from 10.0% in 2008 to 15.3% in In the mentioned nine year period passenger traffic was doubled, from realized traffic of 1,080,676 passengers in 1999 to 2,192,453 passengers in Table 1. Passenger traffic level at ZA in period Year Passenger traffic level Growth rate (%) , , , , , , , , , ,0 Source: own study The realized physical traffic resulted in exceptionally good financial performance in the whole period, shown in Table 2. All financial indicators, as indicators of the ZA business success in the research period, had a positive effect on the development of company competitiveness and investment potential. In this period, and particularly in the period from 2004 on, ZA created a financial accumulation that would be the initial capital for investment in New Passenger Terminal (NPT), the construction of which started in December 2013 and should be completed in December

10 Table 2. Main financial indicators of ZA in period No. Indicator Year Average Total liquidity 5,79 8,17 4,50 2. Current (accelerated) liquidity 5,57 7,98 4,31 3. Days of debt collection 134,34 47,35 68,86 4. Days of payment obligations 285,83 40,23 82,68 5. The degree of coverage I 0,88 0,76 0,88 6. The degree of coverage II 1,06 0,76 0,93 7. Debt ratio 0,18 0,05 0,08 8. Degree of self-financing 0,82 0,95 0,92 9. Gearing ratio 0,23 0,05 0, Total debt 5,29 0,93 1, Total efficiency 1,00 1,16 1, Activity ratio of 1,29 1,29 2,14 current assets 13. Activity ratio of total assets 0,18 0,33 0, Activity ratio of capital 0,22 0,35 0, Interest coverage ratio 1,14 45,03 13, Profitability of assets 0,10 4,74 1, Profitability of capital 0,16 4,10 1, Profit margin 0,70 13,65 7, Total revenue (mill. HRK) Total expenditure (million HRK) 21. Profit (million HRK) Source: own study NPT is constructed on the concession model as a form of publicprivate partnership, built by the Concessioner that won the international tender. The accumulated financial means present an amount of approximately 10% of the whole investment, being sufficient to cover the obligations of the Republic of Croatia as the 51

11 Concession Grantor undertaken by the Concession Agreement - CA. If this financial accumulation had not been available, the Grantor would have a big problem since there are no funds for this purpose in the Budget, and it would mean a new expensive borrowing in the financial market and an increase of the central government public debt, either directly or through giving a guarantee to ZA for taking out a loan in the international financial market. ISO 9001 GMF Business success NPA Fig. 2. Phenomenology of business success Source: own study Business success in the time dynamics continuity is determined by at least three significant phenomena (Figure 2): qualitative change of structural elements of the management system (ISO 9001), global and regional macroeconomic framework (GMF), and a new system of 52

12 values as materialization of a new philosophical approach to management (NPA). The new philosophical approach is characterized by the fact that it is based on: materialization of quality principles in the management system, business ethics, socially responsible business operations and controlling as a mechanism that ensures unity of this philosophical approach. Conclusion Since TQM philosophy is based on the principle of continual improvement, further development is necessary, meaning a higher level of materialization of quality management (QM) principles, in order to continually develop and improve TQM, on the road to BE. The accomplished degree of development of TQM in ZA at the moment when it was taken over by the Concessioner was at the stage that enabled the Grantor to request, and the Concessioner to accept the existing integrated management system at the reached TQM level, with the obligation to further develop and improve it, and this is prescribed in the CA. In order for the organization to ensure long term competitive capacity and use possibilities offered by the market in individual development periods through characteristics of macroeconomic and microeconomic framework, the emphasis of activities should be directed towards: 1) development of the TQM model including implementation of risk management process into the management system, 2) subtle analysis of a number of significant financial, but also other indicators affecting business success, and 3) controlling as a constant of development of TQM on the road to BE as a TQM development stage without entropy. At that, the development of the TQM model should comprise general principles with simultaneous actual application, respecting particularities of the entity. This is a case of originality in applying global solutions. 53

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