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by Scott M. Paton

 

Quality Achievements

CFSC’s contribution to Caterpillar Inc.’s total earnings increased from 5.6 percent to more than 25 percent in the first nine months of 2003.

Customer satisfaction levels exceed industry and American Customer Satisfaction Index benchmarks.

CFSC’s Six Sigma improvement efforts led to significant after-tax savings since the company embraced the methodology in 2001.

In 2002, 80 percent of employees said they would recommend CFSC as a good place to work. The national norm is 55 percent.

 

On March 9, President George W. Bush and Commerce Secretary Don Evans presented seven organizations with 2003 Malcol

m Baldrige National Quality Awards in recognition of their performance excellence and quality achievements. One of the winners was Caterpillar Financial Services Corp. U.S. (CFSC), based in Nashville, Tennessee.

With total U.S. assets exceeding $14 billion and managing more than 100,000 contracts monthly, CFSC is the second-largest captive-equipment lender in the United States. With a U.S. workforce of nearly 750 employees, CFSC has more than $1 billion in revenues as the financial services business unit within Caterpillar Inc., a manufacturer of construction and mining equipment, gas and diesel engines, and industrial turbines.

What follows is an interview with James S. Beard, president of CFSC. He remarks on how Six Sigma was integral to CFSC’s Baldrige journey.

 

QD: When did you first decide to pursue the Baldrige process?

Beard: Cat Financial moved from Peoria, Illinois, to Nashville in 1991. We heard about the Tennessee Quality Award shortly after we arrived, so we began using the Baldrige criteria through the Tennessee Quality Award process in 1993. We went through the application process, site visit and feedback report cycles five times, earning Tennessee’s top recognition in 1999. We then applied for the national award in 2002 and received a site visit.

I can’t overstate the positive impact the process has had on Cat Financial. The discipline of creating a written application and preparing for the site visits caused us to look critically at our own processes. As is true in any learning, knowledge becomes more deeply ingrained if you discover it for yourself rather than have someone else tell it to you. The application process forced us to internalize both the holistic scope of the criteria and Cat Financial’s own opportunities for improvement. Of course, the external examiners added value by taking an overall systems perspective and documenting both our strengths and opportunities. It was difficult when the examiners told us “our baby was ugly” in places, but we are a better company because of their candor. Committing to the process year after year also sent a message to our employees that Cat Financial was committed to being the best. We never set a goal to win a Baldrige Award by a certain date. Our goal was to use the process to evaluate our journey to business excellence. As a result, we became world-class.

 

QD: How do you maintain employee enthusiasm for your processes?

Beard: In 1996 we developed (partially in response to Tennessee Quality Award feedback) a comprehensive business excellence model. It fully integrates our mission, vision, critical success factors, strategy, Six Sigma and shared values. There was no single communications “campaign” about quality. Rather, continuous improvement became an integral component of our business excellence model and how we run the business every day. Baldrige is how we measure our success on this journey.

 

QD: What quality processes were used during your Baldrige journey?

Beard: Over the years we adopted many popular quality tools such as PDCA, employee and customer surveys, and planning retreats. All were valuable in their own right, but it wasn’t until we began using the Baldrige criteria that we started pulling these into an aligned model. Then in 2001, as part of Caterpillar Inc.’s strategic initiative, we introduced Six Sigma, which has made a huge improvement in process management. Today Six Sigma represents the systematic method we use to manage projects, improve existing processes, engage our employees and design new processes.

We’ve proven that Baldrige and Six Sigma complement each other well. The analogy we use is that of an orchestra: Six Sigma takes the trumpet player and makes her a world-class trumpet player, but in isolation that doesn’t necessarily make the orchestra sound better. Baldrige looks at how all the elements are working together to make beautiful music. Put another way, Baldrige helps identify where we need to go, and Six Sigma makes the improvements happen.

 

QD: Do the Baldrige criteria aid you in your other quality/compliance efforts (e.g., ISO 9001, ISO 14001, or health and safety)?

Beard: As mentioned, we are highly integrated and use Six Sigma. Cat Financial does not participate in ISO 9001 or other quality registrations. We have many systematically managed processes to ensure legal and regulatory compliance, many of which have been improved through Baldrige and Six Sigma.

 

QD: Does being a financial services company present any special challenges to implementing the Baldrige criteria?

Beard: We believe the principles apply equally to manufacturing and service providers. It may be more difficult to measure transactional processes at times, and in our industry acquiring relevant comparative data is a never-ending challenge, but we have been able to develop innovative methods of obtaining the data to keep us moving in the right direction.

 

QD: What was the most difficult part of your effort?

Beard: Keeping the focus on long-term improvement while managing a rapidly growing business. The big change is in the hearts and minds of the managers, especially middle managers who are squeezed by short-term customer requirements on one hand and long-term company strategies on the other. As leaders, we have to reward them for investing time in these longer term yet important initiatives.

 

QD: How important are the feedback reports to your Baldrige process?

Beard: The feedback reports were helpful. It is always helpful to have third-party validation of what we do well, as well as where we can improve. The Baldrige examiners identified more opportunities for improvement the year we received the Baldrige than they did the year before. We have a systematic process where we review the feedback report, develop remedial action plans and report our progress on these back through the company.

There are always places where we can improve, and it isn’t always about things we are not doing. In one example, the examiners identified our use of three succession planning processes. The processes had just grown over the years and individually seemed to be working well, yet the examiners showed us opportunities to integrate them. It was a relatively easy process to fix, but one we probably never would have spotted on our own because we were just too close to it.

 

QD: Does Caterpillar require any of its suppliers to use the Baldrige criteria?

Beard: No. However, many of our independent dealers and manufacturing suppliers are embracing Six Sigma as a common language across the enterprise as we seek to improve the entire Caterpillar value chain.

 

QD: What will you do to maintain organizational quality now that you’ve won the Baldrige?

Beard: Our message to employees is this: Receiving the Baldrige Award is merely a wonderful milestone on our never-ending journey to business excellence. We have 45 opportunities for improvement to resolve, and are looking to expand our use of the Baldrige criteria to other financial products division organizations that weren’t part of our Baldrige application--Caterpillar Insurance Co., for example. Our goal is to be world-class worldwide, and even though we are not eligible for the Baldrige Award again until 2009, we will continue the same criteria-based assessment and improvement cycles that got us there.

 

QD: Is there any advice you can offer to other companies thinking about the Baldrige process?

Beard: We often repeat a quote John F. Kennedy made in relation to our space program: “We choose to do these things, not because they are easy, but because they are hard.” Our advice to other companies is to get in the game now. Don’t wait until you get better. The application process is hard, but it makes you better--it measures your progress, establishes a goal, disciplines assessments and provides invaluable third-party feedback. In the end, the use of the Baldrige criteria helped Cat Financial improve its financial results, better satisfy customer needs and become a better place to work for our employees.

 

About the author

Scott M. Paton is Quality Digest’s publisher and editor in chief.