Making the Case for Quality

Negative Press Motivates

Impossible Mission

• Telefónica’sImpossibleMissionteamsetouttoimprovethecompany’sabilitytopayadvertisingplacementinvoicesaccordingtoagreeduponterms.

• ApplyingaSixSigmaapproachandqualitytoolssuchasprocessmapping,5Whys,multivoting,Paretocharts,andGanttandPERTcharts,theteamincreasedon-timepaymentsfrom2percentto97.5percent.

• Amongotherresults,recoveryoftaxcreditsthatwouldhavebeenmissedduetothepoorpaymentsystemnetted$1.7million,employeesatisfactionincreasedfrom36percentto85.4percent,andsuppliersatisfactionimprovedfrom28percentto86percent.

• Bypayingadvertising-relatedinvoicesinatimelymanner,TelefónicaGroupalsoavoidedpenaltiesandincreaseditsabilitytonegotiaterates.

AtaGlance...No organization can afford to make an enemy of the media. When Telefónica Group in Argentina wasn’t paying media suppliers on time, its leadership well understood the ramifications.

Telefónica outsources its advertising to a media agency that buys billboard, maga-zine, and newspaper space and air time on radio and television. Telefónica’s placement budget of $34 million per year goes to about 800 media outlets. The media agency pays the invoices for air time and space after receiving authorization from Telefónica Group.

Until two years ago, only 2 percent of payments to media suppliers were made on time. Although advertising represented the lowest volume of purchases by Telefónica Group at 3.5 percent, it had the greatest number of suppliers (58 percent) that were dissatisfied with payment timeliness.

Problems involving late placement payments were so severe they resulted in negative references to Telefónica in news stories.

Processing supplier payments in a timely manner according to terms is a challenge many organizations face. Various factors might cause payment intervals to lengthen. To correct its overdue invoices prob-lem and get the media back on its side, Telefónica turned to quality tools and processes.

About Telefónica

Telefónica Group is a telecommunications company that operates in 25 nations and has 250,000 employees. It is owned by Telefónica, S.A., a Spanish broadband and telecommunications conglomer-ate headquartered in Madrid, Spain.

In 1990, Telefónica de Argentina became part of Telefónica Group. Now the largest fixed-line operator in Argentina, it provides broadband and telephone services in the southern part of the country as well as the Buenos Aires metroplex.

Telefónica has a quality policy that stresses commitment to customers, employees, shareholders, suppliers, regulatory entities, and society. The policy has helped the company earn certifications to standards ranging from ISO 9001 to ISO 27000.

by Ted Schaar

November2010

ASQ www.asq.org Page1of5

MembersoftheImpossibleMissionteam.Upperrow,fromlefttoright:SebastianMinoyetti,RamónPonceGil,

JuanWaehner,JoseLuisAiello,andLucianaBarrera.Lowerrow,fromlefttoright:MaríaGabrielaRamírez,AndreaBuzadas,

GiselaPadrón,GonzaloCareaga,andRafaelScarinci.

Molteni & Associates, Argentina, provided training for the team, with instruction divided into modules related to the define, mea-sure, analyze, improve, and control phases of Six Sigma.

Improvement and innovation chief Matías Gadda Thompson said, “In addition, we incorporated the ITEA evaluation model that we learned about through ASQ in our training and mentoring program. It helped make sure key validations were achieved and that implementation of the solution was solid.”

Stakeholders

To identify potential stakeholders, the team interacted with staff from different areas and used process mapping.

Internal stakeholders were quality, marketing, management control, accounts payable, communication and corporate image, purchasing, media administration, accounting and taxation, and executive. External stakeholders included the media agency and 800 media outlets. Figure 2 shows the team’s force field analysis outlining positive and negative forces related to stakeholders.

Excellence models Telefónica uses, such as the ASQ International Team Excellence Award (ITEA) process, have been factors in the many awards the company has earned, includ-ing the Argentina National Team Competition and recognition by the Great Place to Work® Institute Argentina. Telefónica has also participated in the ASQ (ITEA) process.

Why Quality?

After receiving many complaints, Telefónica managers in Argentina discovered that bill payment deadlines for advertising placement were being missed 98 percent of the time, and there were more than 1,000 overdue invoices, some dating back six months. The outstanding debt totaled $10 million.

This hurt Telefónica Group’s reputation and made negotiating advertising space and time rates more difficult.

Solving the payment problem would address Telefónica’s overall organizational objectives and have a direct impact on three stra-tegic plan objectives:

• Shareholders—Improving efficiency to help generate growth and increase profits

• Employees—Maintaining Telefónica’s “best place to work” status• Society—Improving public positioning, which has an

influence on the technical, economic, and social development of the company

An earlier attempt to solve the payment problem involved increasing the number of people who handled the process. It didn’t succeed because the weaknesses—even chaos—in the payment process couldn’t be overcome by personnel alone.

Defining the Impossible Mission

Ramón Ponce Gil, media director and a member of the man-agement committee, and Luciana Barrera, quality director and Master Black Belt, chartered a project aimed at eliminating the poor payment situation.

María Gabriela Ramírez, a Telefónica Group Black Belt, would lead the effort. Her objective was to increase on-time payments to 95 percent. Dubbed “Impossible Mission” because of the magnitude of the challenge, the project began in March 2008 and ran until August 2008.

Ramírez assembled a 12-member team using a selection method that is part of Telefónica’s improvement system. Potential team members were identified from a pool of candidates created by human resources. The quality department then composed the team based on individual profiles.

“Tasks were delegated according to abilities, which enabled us to optimize strengths and generate greater commitment,” said Gil. Figure 1 lists team members and their roles and contributions.

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Figure 1— Impossible Mission team

How:• Followeda

procedureincludedinTelefónica’sImprovementSystem.

Steps:1. Identify:Internal

searchtofindpotentialapplicants.

2.Select:Testofpotential;individualandgroupinterviews.

3.Validate:Fieldtesting.Who:• Qualityandhuman

resources,withassistanceofthesponsorandthechampion.

Team members:• Peoplewithbusiness

expertiseandkeypeopleinvolvedintheprocess.

• Highanalyticallevel.• Abilitytomake

decisionsandperforminterdisciplinarytasks.

Process owner:• Champion.

Role Contribution

SponsorS.Minoyetti

Contributeastrategicvisiontotheprojectandremoveobstaclesthatcouldarisethroughoutitsdevelopment.

ChampionR.PonceGil

Superviseandguideteamefforts,introduceprogressinthemonthlymeetings,andmakedecisionstogetherwiththeBlackBelt.

Master Black BeltL.Barrera

GuaranteethecorrectmethodologicalSixSigmaapproachinbusinessproblemresolution.

Black BeltG.Ramírez

GuaranteetheuseofSixSigmatools,developandmonitorworkingteams,setactionplanswithprogressindicators,andproposesolutionsinordertoagreewiththechampion.

Green BeltR.ScarinciG.PadrónA.Buzadas

Participateactivelyintheproject,collectingdataandpreparingmatrices.ApplySixSigmatoolsandcarryoutanalysisusingMinitabprogram.

Team MembersG.CareagaL.PorchettoF.LuzzattoA.Gallese

Participateactivelyintheprojectandcontributeknowledgetotheprocess.Contactedsystematically,accordingtotheteamneedsasregardsvalidationofsolutionsorfordatacollection.Actedasachannelofinternalandexternalcommunication,bothforcollectinginformationandforreducingtheimpactofchangeandguaranteeingimprovements.

HeirG.Padrón

Guaranteesustainabilityofimprovementsfor12monthsafterprojectclosure.Correctdeviationsthatmayarise.

Stakeholders Opportunities Forces againstMarketing Improveprocessquality

Standardizationisassociatedwithbureaucracy.Communicationsand

corporateimage Lowcost

Managementcontrol Lowcost Fearoflosingcontrolofexpenses.

Mediaadministration Improvequality Concernthatthedepartmentmaydisappearandfunctionsbedivided.

Suppliers(mediaagencyandthemedia)

Improvequality+service

Lackofconfidenceinimprovementsandfearofincreasedcosts.

Othersstakeholders Cost+service+quality Noforcesagainst.

Figure 2— Force field analysis

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“Marketing and communications and corporate image are exam-ples of departments with positive and negative forces,” Gil said.

“They associated standardization with bureaucracy and were concerned changes would slow the process rather than speed it up. Nevertheless, they supported the project because they needed advertising campaigns to happen as planned and at the most economical cost.”

The team also took into account the interests of other stake-holders, including the CEO and non-media suppliers, holding meetings with each. According to Barrera, “The team commu-nicated opportunities to stakeholders throughout the project. We also uncovered fears and possible objections and implemented actions to eliminate or mitigate them.”

Measure and Analyze: Uncovering Root Causes and Potential Solutions

Figure 3 shows the tools used in the Six Sigma measure phase to gather and interpret data to identify potential root causes.

“After analyzing data, we could see that our performance was regularly 93 percent below objective,” Ramírez reported. “The variability was as high as 4 percent, and the process did not com-ply with agreed upon terms in 98 percent of cases.”

Process mapping showed the team that advertising campaign orders were often placed before expenses were authorized. “We soon recognized that the activities where the longest delays occurred were expense authorization and barter control,” Ramírez said. Barter control refers to the practice of paying for some placements by providing telecommunications services to vendors at no charge—such amounts weren’t being applied prop-erly and led to the generation of cash invoices that had already been paid through bartered services.

The biggest challenge the team faced was identifying problems in the stakeholders’ processes that led to delays. “It wasn’t easy because there were 800 external stakeholders,” stressed Gil.

The team convened a meeting of stakeholders and drew up a function deployment matrix, which allowed prioritization of the root causes that had impacts on the slow payment situation. Potential root causes were ranked using multivoting and con-nected with project and organizational objectives.

Reasons payments were delayed included:

• Poor planning for needs• Lack of procedures to offset bartered advertising invoices• Bartered payments not accounted for • Unnecessary circulation of invoices• Lack of a pre-approved budget• Certifications received after deadline• No person in charge• No deadlines to place orders in a timely manner• Duplicate invoices • Unnecessary invoices and payment authorizations• Paying suppliers according to agreements not viewed as a

critical to quality characteristic (CTQ) for marketing

To identify the greatest sources of delays, the team created a cause and effect diagram and applied the 5 Whys. Multivoting and an affin-ity diagram helped reduce the list. Finally, Pareto analysis revealed that 80 percent of the delays resulted from four potential root causes:

• Duplicate invoices. • Lack of a pre-approved budget. “Lack of pre-approved

budgets was a major problem,” Gil said. “Publicity campaigns were given to the media agency for placement without the proper payment authorization. Securing authorizations after the invoices were submitted caused many delays.”

Tools according to sequence of use Who? What for?

1. Control charts Team To identify special causesand process stability.

2. Process capability TeamTo see how far fromaccomplishing customerspecifications the process is.

3. Process mapping Team +stakeholders

To identify activities wherethe longest delays occur.

4. BrainstormingCause-effectdiagram (5 Whys)

Team +stakeholders

To identify waste andpotential root causes.

5. Affinity diagramMulti-voting

Team +stakeholders

To prioritize potential rootcauses qualitatively.

6. Pareto Team +stakeholders

To prioritize potential rootcauses quantitatively.

7. Benchmarking TeamTo make a comparison of theprocess under analysis withinTelefónica Group companies.

Improve

Define

Analyze

Control

MethodSix

SigmaDMAIC

MeasurePhase

Measurethe criticalindicators.

Identifypotentialcauses.

Data• Qualitative analysis.• Information sampling.

Validated by specialists from the affected departments

Potential Root Causes

Figure 3— Tools used during measure phase

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• Unnecessary number of invoices. The media agency sent about 200 invoices per month, and Telefónica needed to handle, process, and pay all of them.

• Unnecessary number of payment authorizations. The media supplier was required to confirm that the broadcast campaign actually ran before payment could be authorized.

To develop possible solutions, the team analyzed the root causes and applied quality concepts such as value-added time, optimal lot, standardization, and layout.

One solution the team explored was asking the media supplier to send just one invoice each month. Ultimately, this was rejected because the cost (mainly due to information technology invest-ments) to make it work was bigger than the benefit.

Another proposed change was to plan advertising campaigns a year in advance. This would increase bargaining power, allow rates to be locked in, and allow approvals to be secured well ahead of time. However, this was rejected because marketing felt it would have a negative impact on flexibility and the ability to react to changing circumstances.

A solution decision matrix (see Figure 4) was used to assess potential solutions against three criteria: benefits, cost of execu-tion, and speed of implementation and use. “This matrix enabled us to prioritize workable courses of action,” Ramírez said, “and validate them with stakeholders.”

New process

The team invited stakeholders to meetings to help design possible solutions and also solicited stakeholder input through surveys. Marketing, media administration, and the media agency also took part in brainstorming and the evaluation of potential solutions.

After rejecting various ideas and modifying others, the team cre-ated the following process to solve the late payment problem:

1. Advertising campaigns, including the authorization to pay expenses, are planned on a quarterly basis. Responsibility

is assigned to managers, who are put in charge of meeting payment terms.

2. Orders and expense authorizations are delivered to the media agency at the same time to ensure availability of funds for payment.

3. The media agency receives invoices and certifications from space and time providers immediately after ads appear to prevent delays in processing invoices.

4. Items to be billed are grouped together by the media agency according to type of media, reducing the number of invoices Telefónica receives from 200 per month to five.

5. Invoices and certifications are digitized and sent electronically to simplify and speed up the process.

6. The media agency sends invoices and certifications directly to Telefónica accounts payable to prevent delays.

7. A new procedure factors in and tracks bartered advertising invoices.

8. Telefónica verifies payments have been made according to terms.

Improve Phase

Pilot test

The new process was evaluated during a two-month pilot test, which allowed for weaknesses to be detected and corrected. “Our goal was to produce a poka-yoke solution,” Gadda Thompson said. Poke-yoke is a Japanese phrase that means “fail-safe” or

“mistake proof.”

“During the pilot test, we found a major impediment to this,” Gadda Thompson continued, “so we changed the process to make it poka-yoke.”

The problem involved expense authorizations. “Even with our new process,” he said, “we discovered that if an expense authori-zation did not accompany the campaign order, the media agency still approved the expenditure. This could have caused many delays. We eliminated the problem by changing the process so campaign orders cannot be delivered to the media agency with-out an expense authorization.”

Figure 4— Solution decision matrix

Potential Solutions

Criteria

Benefits of project objectives

Low costs of execution

Speed of implementation

and useTOTAL

Weight 50 25 25Appointmentofpeopleinchargeanddeadlinesforplacingorders 6 10 10 800Planningofadvertisingcampaignsonaquarterlybasis 6 10 9 775Approvalofadvertisingcampaigns’expensesonaquarterlybasis 8 10 8 850Deliveryoforderandexpenseauthorizationtothemediaagency 10 7 8 875Mediaagencyreceivesinvoicesanditscertificationsfromthemedia 8 8 9 825Eliminationofduplicatecontrol 10 9 10 975Itemstobebilledgroupedtogetheraccordingtotypeofmedia(5invoices/month) 10 7 7 850Deliveryofinvoicesfrommediaagencytoaccountspayable 6 10 9 775Digitalinvoicesandcertifications 6 5 8 625Draftingofproceduretooffsetbarteradvertisinginvoices 8 9 7 800Telefónicaverifiesthepaymenttomediaasrequired 5 9 9 700

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With expense authorization mandatory, a major source of pay-ment delays was eliminated. The change was also integrated with SAP (systems applications and products in data processing) to produce a 100-percent accurate process.

Setting the stage for implementation

To gain support for the solution, the team showed the CEO and the sponsor how the changed process would advance progress toward objectives in Telefónica’s strategic plan. Anticipated improvements included optimizing the process, increasing payment punctuality, and generating other benefits, such as better employee and supplier satisfaction, more than $3.3 million dollars per year in savings, and the elimination of negative mentions in the media.

Stakeholders were asked to participate in making and document-ing needed procedural changes. “Not everyone was in favor of the improvements and we heard a variety of objections,” said Gadda Thompson.

Typical objections included:

• “I’ll have more tasks which do not belong to me; they are going to waste a lot of my time.”

• “I am going to lose control.”• “This is not going to work.”• “I may lose my job!”• “Yes, I will adapt to the new system, but who can tell me that

payment won’t still be delayed?”

“To overcome objections,” Gadda Thompson continued, “we held meetings with the department directors who showed the greatest resistance. In the meetings, the sponsor and champion explained the benefits of the improvements, demonstrated how the improvements were validated by the pilot test, and explained how they would overcome the problems.”

Further assistance was provided by asking involved stakeholders to talk about the benefits of the new approach with other stakeholders. The sponsor and the champion also held meetings with the media agency to explain the new process, settle overdue payments, and address lingering doubts about Telefónica’s ability to change. The media agency held similar meetings with media suppliers.

Implementation

The main operational changes involved instituting new proce-dures for planning and approving expenses; a new management and control panel, with indicators linked to the system of evalua-tion; and new internal and external audit procedures.

Now, payment is made at the end of the month after approval and broadcast or display of the advertising. In addition, invoices have been reduced from 200 per month to five.

All solutions contributed to the development of the new standardized media process, which was documented, verified, approved, commu-nicated, and implemented. “The team and stakeholders shared Gantt and PERT charts in which implementation progress was noted and the most important milestones identified,” Gadda Thompson said.

Various indicators were used to measure the success of the proj-ect, and the results were impressive:

• The percentage of media invoices paid on time each month has gone from 2 percent to 97.5 percent.

• Recovery of the total omitted tax credit of $1.7 million was accomplished by paying $7.9 million of debt.

• Since August 2008, six months after the start of the project, the control graphs have shown a significant improvement in the process and sustained achievement of the objectives with greatly reduced variability.

• A March 2008 survey indicated that employee satisfaction increased from 36 percent to 85.4 percent, and media supplier satisfaction increased from 28 percent to 86 percent.

• Negative press about advertising accounts payable is a thing of the past.

“We designated a Green Belt member of the team [to be] project heir with the task of maintaining the indicator values for a period of one year,” Gadda Thompson said.

A critical measure of the continued effectiveness of the new sys-tem is the percentage of media supplier invoices paid on time. Data obtained from the SAP system are used to assess this on a monthly basis. The goal is 95 percent on-time payments with an acceptable deviation of 5 percent.

Mission Possible After All

“All project objectives were achieved or exceeded despite the size of the challenge,” Gadda Thompson said. “The key to suc-cess was picking the right team members and leadership and making sure the group worked well together.”

Added Gil, “We adopted and followed a rigorous improvement methodology, used appropriate tools correctly, and everyone worked hard. It was also critical to believe we could solve this difficult problem. The happy ending is we learned that our mis-sion wasn’t impossible!”

The overdue invoices improvement project was a finalist in the 2010 ASQ International Team Excellence Award process. Two other Telefónica improvement projects also were finalists. One received a gold award.

For more information

• Contact María Gabriela Ramírez at maria.ramirez@telefonica.com and Matías Gadda Thompson at matias.gadda@telefonica.com.

• Telefónica’s website is http://telefonica.com.ar.• Learn about the ASQ International Team Excellence Award

process at http://wcqi.asq.org/team-competition. • The team credited Molteni & Associates as a helpful resource

on the Impossible Mission project.

About the Author

Ted Schaar is a freelance writer who has written on quality topics ranging from statistical process control to 5S. A graduate of the University of Wisconsin-Madison, he resides in Brookfield, WI.