Solution Eurasia International: Total Quality Management in the Shipping Industry

This Case gives an account of how a ship management company was able to set itself apart from competitors and from its clients’ own in-house technical and crew-management capabilities by embracing a culture of continuous improvement and by implementing Total Quality Management systems. The shipping industry was not alone in having regulation imposed upon it, but its distinctly international nature made ship managers, as cost-cutting practitioners, particularly open to criticism.

A ship management company’s very existence hinged upon its ability to convince ship-owners that it would preserve their valuable assets and maximize revenue-earning potential – demonstrating that its collective skills were superior and more cost-effective. As a result, an effective quality assurance system that continuously improved the organization’s human and business systems could enhance efficiency and also have a significant marketing impact.

Analysis

With the changes taking place in the shipping industry, what were the ship-owners’ motivations for outsourcing vessel and crew management to third-party ship managers?

With the rise in outsourcing arrangements, management structures have become more explicit. In the highly competitive international shipping industry, ship-owners were continually seeking ways to keep their costs down and their business performance ahead of the competition. As a result, ship-owners were taking a serious look at the option of outsourcing crew and technical management functions as a way of lowering costs and keeping pace with industry best practices.

By concentrating on the sales and marketing function, ship-owners could hive off operations activities to more suitable providers who were knowledgeable about the regulatory climate and on the cutting edge of ship management (in terms of infrastructure, expertise and organizational capabilities). How was Eurasia able to differentiate itself from the competition? Eurasia can be said to have taken a boutique approach within its industry, and to have upheld a relentless commitment to serving its customers’ interests.

Since it was inclined to remain a boutique, Eurasia was cautious about pursuing growth but was still willing to take risks in its company philosophy and business model. As a member of the Schulte Group of companies, it was able to offer the advantages of economies of scale, yet was also able to customize its service delivery to suit different customers’ needs. By contrast, many of its larger competitors had gone through mergers and acquisitions to remain economically viable, and thus risked losing their personal touch with the customer.

To offer even closer proximity to its clients, Eurasia embarked on a five-year plan to expand its operations, and established a network of regional offices that could operate in the same region and time zone as the customer.  What is Total Quality Management (TQM), and why was it an appropriate organizational change mechanism for Eurasia? The term TQM was widely used to describe a focus on the pursuit of quality within an organization. Early discussions of TQM hinged around the Deming Management Method and statistical process control techniques, particularly in connection with manufacturing environments.

The works of later TQM experts such as Philip Crosby have been less statistically and technically oriented and more people-oriented. Regardless, TQM is built on core mandates to continually improve systems and processes, and to focus the people and resources of the organization to delivering customer value – as ultimately, value exists only in the eyes of the customer. Broadly speaking, the TQM philosophy is founded on several conceptual principles:  A definition of “quality” in terms of meeting the customer’s requirements.

Anyone producing work output may be considered a supplier, while any party receiving work inputs constitutes a customer. The customer relationship is held in esteem and a supplier’s responsibility is to understand and meet the customer’s requirements. Quality is achieved by undertaking the right action the first and every time. * The organization requires a proactive approach to ensure that quality is achieved, thus a system of prevention must be coupled with a reactive system of inspection. Quality must be continually measured; a measurement framework can determine whether organizational resources are being deployed optimally.

Eurasia’s President, Rajaish Bajpaee, recognized that a changing regulatory climate, the global dispersal of his industry and intensifying competition among ship managers meant a robust quality assurance system was needed to keep his organization focused on customer value. With complicating factors on so many fronts – the global distribution of labor, variety in the types of vessels under management, maritime regulations, procurement and logistics, risk and liability – encouraging cross-functional collaboration would increase the flow of information, improve problem-solving capabilities and enhance customer focus.

The very process of developing such a framework could offer invaluable insights into the organization’s strengths, weaknesses and position within the industry. Moreover, an efficient quality assurance system could be the ship manager’s best defence against criticism, forced compliance and over-regulation. Most new regulation came about as a reaction to perceived deficiencies; by taking a proactive stance, ship managers could endorse appropriate regulations rather than waiting for legislation to be mandated.

How was management’s commitment crucial to the success of Eurasia’s TQM effort? This is a tremendous human resource challenge to ensure that people have a certain set of values, because it is the values which mould perceptions and perceptions mould attitudes. Attitudes mould behaviour; behaviour moulds actions and actions mould results. So if we want consistency…a predictable result, then we have to start from the bottom of the chain – that is the values, and if we can get the values right in each one of our floating factory’s staff, then we can expect a predictable result. Rajaish Bajpaee, President & Group Managing Director, Eurasia International) A lack of management involvement is often cited as one of the leading reasons why TQM efforts fail. Management must do more than simply instruct the rest of the organisation to implement quality control mechanisms. The amount of time a senior manager dedicates to quality issues is readily observed by employees and reflects the organisation’s actual priorities.

As Eurasia’s President, Rajaish Bajpaee was tasked with the responsibility of adding value to key constituencies, and he held the firm belief that customers ultimately determined the organisation’s fate. In leading Eurasia’s TQM effort, Bajpaee was intimately involved in defining the need for change and developing new visions and the frameworks needed to mobilise commitment. Leadership entails the ability to articulate those visions and oversee the process of evolution through which the organisation learns new ways and methods.