President Ralph Larsen of Wengart Aircraft has become increasingly concerned about profits. Though he is not fearful of a company takeover, he does feel an obligation to maximize shareholders’ return on their investment. He and about a dozen top executives receive sizable stock bonuses, so it is to their advantage to obtain a high share price.
Wengart manufactures private and military aircraft. It is number two in its industry, which consists of seven companies. Its profits, however, are ranked sixth. It is disturbing to Larsen and his top management team that they are not able to maximize profits.
The top management team has identified quality as one of the major problems at Wengart. Aircraft have to be reworked even after they are sent to the customer. The federal government, one of Wengart’s largest customers, shares the concern about quality. The Secretary of Defense has sent Larsen several letters warning that unless quality is improved by 20 percent within six months, the government will exercise its contract provision to withhold partial payment as a penalty. This will place even more pressure on profits. Nongovernmental customers have also expressed serious concerns about quality. There have been major stories in the Wall Street Journal and Business Week about Wengart’s quality problems and deteriorating financial condition.
The Department of Defense, in its latest letter to Larsen, said it would look favorably upon Wengart’s implementing a “TQM program similar to programs at other aircraft, automobile, and electronic firms. By Presidential Executive Order 12552 applying TQM to all federal executive agencies, the Department of Defense is encouraging all defense contractors to adopt TQM.”
Total Quality Management and the OD Practitioner
Larsen, in an effort to learn more about TQM, hired an OD practitioner to explain it. The practitioner made several points at a two-hour meeting with Larsen: