Case Study 4 omm TQM implementation and policy deployment at ST Microelectronics 1 Company background and TQM ST Microelectronics (formerly SGS-Thomson Microelectronics) is a global, independent semiconductor company which designs, develops, manufactures and markets a broad range of integrated circuits and discrete devices for a wide variety of microelectronic applications including, telecommunications and computer systems, consumer equipment, automotive products, industrial automation and control systems. In 1997 the company won the European Quality Award. This marked the progress made in developing as a world class organization and also coincided with the tenth anniversary of the formation of the company created by the merger of Thomson Semiconducteur and SGS Microellecttronica. In order to fully appreciate the achievement of the company since 1987, it is first necessary to describe some of the dynamics of the semiconductor industry since these dynamics shaped STM’s TOM program. Microelectronics is one of the most competitive industries in the world with more that 200 merchant suppliers, over 100 of them being global players, servicing a market of $155bn that has long-term CAGR of about 16percent. Three European companies are left in the top 10 worldwide ranking. The economic law of microelectronics is ‘when the demand goes up ~ prices fall; when the demand goes down ~ prices fal’ Technological advance is very rapid, capital intensity is high. Spending on R&D runs at about 14 to 16 percent of sales, two to four times higher than most other industries. Every dollar of incremental sales requires a dollar of incremental investment, with the investment usually one year ahead of the sales. In this environment companies tend to polarize into two groups: the broad line, global companies with market shares in the range of 4 to 7 percent; narrow niche companies with market shares of less than 1 percent, A notable exception to this group structure is, of course, Intel, which has a narrow product base but a high market share. @ nitro’™ professional380. Total Quality Management In 1987 the two founder companies of ST saw themselves in a difficult position since neither ‘were large enough to become truly global world class players and yet both had a reasonably broad product and technology base. Therefore, the decision was taken to merge the two bodies into one creating a company which, in 1987, had! Sales $851 m Headcount 17300 people Profit/loss after tax ($203m) While this achieved a critical mass the financial results were not encouraging and much work ‘was clearly needed to transform the company into the organization which was the vision of the senior management team. The first years of the program were devoted to rationalization and consolidation. At the same time, however, advantage was taken of the complementarity of the product and technology portfolios, customers, market strengths and production capacities. ‘Attention was focused on eliminating the weakness and exploiting the strengths. Two of the carly key goals were defined as being a rapid increase in sales and market share together with slimming down of production sites and the number of employees. Unfortunately as the program developed the market suddenly hit one of the down cycles which the industry experiences and, in 1990, the improvements in financial results halted and, in fact, worsened. Immediately the ‘traditional’ management action program was brought into play. There was a rapid ‘downsizing’ program which hit people, product portfolio and, ultimately, market share. By examining this process in action, both within ST and other companies, the relationship rapidly dawned of the danger of it developing into a ‘vicious spiral’. This brought about a review of the focus of the company and the determination to find a new way of proceeding which would give rise to the term a virtuous spiral’ In 1991 ST launched a TQM initiative based on the European Foundation for Quality Management (EFQM) model. In launching this program there was total commitment from the CEO and all his executive staff. In fact in December 1991 Pasquale Pistorio, CEO, stated that: TQM is a mandatory way of life in the corporation. SGS-Thomson will become a champion of this culture in the Western world.’ These words needed to be backed by action and resource ~ both financial and people. Very quickly there was a framework put in place, based on an analysis, which determined that the key components of successful implementa- tion of TOM should be: = Organization = Common framework = Local initiatives = Culture change = Mechanisms 1 Policy deployment ‘Also the program needed to be driven from the top down, not by dictate, but by example. ‘There was already in existence a corporate mission statement but it was not closely linked in the minds of the staff with their day-to-day activities. Furthermore it had been written tro? P rofessionalTOM implementation and policy deployment at ST Microelectronics 381 Ill shortly after the merger and did not totally reflect the needs of the company, the shareholders, the employees or the customers. It was, therefore, revised and became the key Iaunching point for all the decisions which affect the future of the corporation. ‘The mission statement is both short and clear reading: To offer strategic independence to our partners worldwide, as a profitable and viable broad range semiconductor supplier. This statement had implications regarding the size and dynamics of the corporation, resulting directly from the structure and investment needs of the semiconductor industry. Following the revitalization of the mission statement there quickly followed publication of, the corporations: = Objectives 2 Strategic guidelines = Guiding principles = TOM principles a Statement of the future All of these were published in a leaflet titled ‘Shared Values’ which was circulated to all employees worldwide. ‘These initial efforts by the corporate management team would have been in vain if the necessary resources had not been provided to support the implementation of TQM. A conporate TQM support group was established, budgets were allocated and the executive ‘management, including the CEO, allocated significant time to TOM implementation. In the initial phase most of the time and effort went into training and communications with regular bulletins, emails, and brochures. ‘The policy deployment process allowed the corporate goals to be cascaded into local goals which were both realistic and challenging. The training programs, targeted at 50 hours per employee per year, ensured that people had the skills to accept the goals and translate them into local action plans. The management were encouraged to recognize achievements at local, national and international level. Finally strong efforts were made to break down the ‘walls between the various parts of the organization and create an atmosphere in which cross- fertilization was not only accepted but actively encouraged, until it became a way of life. ‘These changes were not easily or readily accepted in all parts of the corporation. While the benefits could be seen on an intellectual plane at a cultural level some groups found it easier to move faster than others. The corporate TQM Vice President described the process as ‘pulling down the walls and using the bricks to build bridges’. The difficulty of achieving, success cannot be underestimated. STM started with the advantage that many of its European staff had a fundamentally Latin culture and many of the managers had been exposed to American culture, either as a result of working in American companies or interfacing with American customers. Also the semiconductor industry had its own culture which was and still is very strong. Nonetheless cultural barriers still existed and STM had to find ways of working with many different cultures while trying to overlay a common STM culture, ways of working and vision of the future, itro”* professional