TQM implementation and policy deployment at ST

Microelectronics
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 TQM 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
fall’. 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.

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 $851m 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 early key goals were defined as being a rapid increase
in sales and market share together with a 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 implementation of TQM should be:

Organization Common framework Local initiatives Culture change Mechanisms 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 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 launching 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 Strategic guidelines Guiding principles TQM principles 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 corporate TQM support
group was established, budgets were allocated and the executive management, including the CEO,
allocated significant time to TQM 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 crossfertilization 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.

Policy deployment at STM

Policy deployment (PD) is the primary method used in STM to make TQM ‘the way we manage’ rather
than something added to operational management. In order to make it effective, STM have simplified
the approach, combining as many existing initiatives as possible, to leave only one set of key
improvement goals deriving from both internal and external identified needs. In this process the
management of STM also provided a mechanism for‘real time’ visual follow-up of breakthrough
priorities to support very rapid progress.

In STM policy deployment is regarded as:

The ‘backbone’ of TQM. The way to translate the corporate vision, objectives and strategies into
concrete specific goals, plans and actions at the operative level. A means to focus everyone’s
contributions in support of employee empowerment. The mechanism for jointly identifying objectives
and the actions required to obtain the expected results. A vehicle to ensure that the corporate quality,
service and cost goals are given superordinate importance in annual operational planning and
performance evaluation. The method to integrate the entire organization’s daily priority activities with
its longterm goals. A process to focus attention on managing STM’s future, rather than the past.

Policy deployment’s place in STM’s overall TQM scheme of continuous improvement is illustrated in
Table C4.1.

A policy deployment manual, addressed to all managers at any level of ST Microelectronics, was
developed as a methodological and operative user guide for those charged with planning and achieving
significant improvement goals. Examples, detailed explanations, and descriptions of tools/forms were
included in the manual.

Policy deployment operates at two levels: continuous focused improvement and strategic breakthrough
– referred to as Level 1 and Level 2.
The yearly plan is designed by assembling the budget and improvement plan, but also taking into
account the investment plan.

All these elements must be consistent and coherent. Current year business result goals are defined in
the budget and the underlying operations and capability improvement goals have to be approached
using policy deployment. Among all the improvement goals, a very few (one to three per year) are then
selected for a more intensive management. These are the breakthrough goals and must be managed
using special attention and techniques. Policy deployment goals have to be consistent with long-term
policies, and finally, everything must be consistent with and must be supported by the investment plan.

Continuously improving performance and capabilities, and especially achieving ‘breakthroughs’, i.e.
dramatic improvements in short times, was the main task that each manager was asked to face and
carry out in his/her activities. Once the importance of achieving dramatic goals was clear, the problem
arose of how to identify and prioritize them. To assist, STM fixed four long-term policies (broad and
generic objectives):

become number one in service; be among the top three suppliers in quality; have world class
manufacturing capabilities; become a leader in TQM in the Western business world.

These long-term policies reflected the need to improve strategic capabilities. They were implemented
progressively by achieving sequential sets of shorter-term goals focused on operational capabilities,
operational performance, and urgent requirements, as illustrated in Figure C4.1. STM recognized that a
successful enterprise ensures consistency between its short-term efforts and long-term goals.
Policy deployment flow in STM

Figure C4.2 is a high-level schematic of the yearly planning flow, relating budgeting and policy
deployment in STM. Figure C4.3 shows the sequential deployment at different levels of policy
deployment goals and action plans, linked to the STM TQM ‘Management Amplifier’. This illustrates four
key requirements for good policy deployment:
a negotiation at each level to agree means and goals or targets, illustrated by the ‘catch ball’ in the
diagram; the creation of action plans to achieve goals or targets; review of action plan progress, and
adjustment as necessary; standardization of improvement to ‘hold the gains’.

Figure C4.4 illustrates some of the policy deployment tools used to help with means analysis, ownership
assignments and progress assurance. These tools were explained in detail in the manual for managers.

Approaches to manage and achieve the STM goals

The yearly plan comprised all the goals and the performances the company had to reach during the
year. Goals related to sales volume, profit and loss, inventories, standard costs, expenses, etc. were
generally managed by management control through the budget. In order to be more and more
competitive, however, more challenging goals had to be identified each year and these goals – the ones
that constitute the improvement plan – need ‘special management’ through a specific approach. This
approach is policy deployment, in which a policy can be fully defined as the combination of goals/targets
and means (Figure C4.5). The characteristics of the different approaches to manage the different goals
(budget level and policy deployment level) are illustrated in Table C4.2.

Policy deployment applies both to ‘What’ goals, i.e. mainly results oriented, and ‘How’ goals that are
more related to operational, technological, organizational and behavioral aspects, mainly process
oriented (Figure C4.6).
‘How’ is mainly concerned with improving capabilities and ‘What’ is mainly concerned with improving
results, deriving from improved capabilities.

Drivers for ‘What’ goals are mainly corporate standards, prior results and vision statements.

Drivers for ‘How’ goals are mainly vision statement, climate survey, self-assessment, customer feedback
and strategic plans.
Each level of the company (corporate, group, division) must perform its own ‘Whats’ deployment and
‘Hows’ deployment.

‘Whats’ deployment means both targets and means deployment, where means deployment must be
supported and must be coherent with ‘Hows’ deployment, that is generally related to a longer-term
vision.

In ST Microelectronics they believe that to be a total quality company, strategy, philosophy, values and
goals must be transmitted down the organization, from level to level in a systematic way, to provide
focus, clarity direction and alignment. For them policy deployment is the process through which goals,
and the action plans to achieve them, in support of and consistent with the top-level corporate mission,
strategic guidelines and objectives, are cascaded to all levels of the organization. Effective policy
deployment ensures that STM’s goals and actions are aligned ‘from top floor to shop floor’.

The goal cascade involves a decomposition at each level to get to detailed goals that are readily
obtainable. The x-matrix is a tool to aid this decomposition and fix ownership for the detailed goals.

Acknowledgement

The author is grateful for the contribution made by Georges Auguste, Corporate VicePresident Total
Quality and Environment, in the preparation of this case study.