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strategy and business
 / Spring 2013 / Issue 70(originally published by Booz & Company)


Hyundai’s Capabilities Play

Ferrara recalls a visit the chairman made during this period to a parts distribution center in Ontario, Calif. He walked through the building and noticed a large pile of remanufactured transmissions, which had all failed initially and needed to be rebuilt. “He immediately called for everyone associated with transmission design and quality to assemble in California as soon as possible,” Ferrara recalls. “We had about 20 high-level executives from all related divisions fly in from Korea within 24 hours.” To fix the problem, the company ultimately decided to bring all its transmission design and manufacturing in-house, an unusual move in an industry that was increasingly outsourcing complex assemblies to suppliers.

As part of their quality effort, Hyundai executives in both Korea and the U.S. studied their competitors, tearing apart their vehicles and adopting their best practices. This led them to rediscover statistical process control and other techniques of quality management, and to resuscitate some of the ideas about systems-oriented management and customer awareness that W. Edwards Deming had originally championed decades earlier, and that other car companies had long been following. For example, when Hyundai executives studied automotive quality indicators to determine how best to catch up to Toyota and Honda, they found that many companies downplayed the customer satisfaction reports of Consumer Reports and initial quality reports of J.D. Power. So Hyundai created a combined metric called “qualativity,” which includes quality, productivity, and customer satisfaction. Hyundai still uses this hybrid concept to measure everything that happens in one of its car plants. “It’s a uniquely Korean approach,” says Chris Susock, director of quality operations at Hyundai Motor’s manufacturing plant in Montgomery, Ala., where the compact Elantra and midsized Sonata sedans are made.

Hyundai also made a big technology bet to support its quality drive. It created the Global Command and Control Center in Korea, which is reminiscent of a U.S. Strategic Command war room, its walls covered with television screens and computer monitors. The company shares little about the center, and treats its secrets as a vital source of competitive advantage; Hyundai will not even reveal the year that it was founded. But some facts are public knowledge. For instance, the center monitors every operating line at 27 plants in the world, in real time, 24 hours a day, 365 days a year. The production data is generated on the assembly lines and displayed on boards where team members can see it, and headquarters can see the same data at the same time. If the quality monitors spot errors or problems, they call the factory immediately. “If there’s a hiccup at any of those boards, headquarters wants to know what needs to be done about it—right now,” says the Alabama plant’s production chief, Ashley Frye.

Though Chung Mong-Koo was the prime mover in setting up the quality goal, and personally involved in driving it, company veterans credit Hyundai’s organization with rapid bottom-up response. “The chairman decreed, ‘Within this period of time, we will have the same quality as Toyota,’” recalls AutoPacific’s Kim. “Whenever the chairman makes a decree, there is a very impressive mobilization to make it happen. It’s a Korean cultural thing. The company mobilized and made it happen with breakneck speed.”

Hyundai’s efforts to improve quality have intensified during the 2000s. For example, visitors to the Alabama plant are greeted by banners proclaiming: “Hyundai aims for GQ—” This cryptic message refers to the company’s goal, announced in 2009, of becoming one of the top three automakers in empirical global quality measures within three years, and one of the top five in perceived quality within five years. (Customers’ perceptions of quality generally lag behind actual quality, hence the different time frames.) If this sounds like a challenge to Toyota, that’s the intent—with an eye toward raising resale value, which makes customers more willing to spend more money on new cars.

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  1. William Barnett, James March, and Mooweon Rhee, “Hyundai Motor Company,” Stanford Graduate School of Business, 2003: A case study of the company’s struggles to establish itself in the United States.
  2. Brian Collie, Scott Corwin, and Arjun Kakkar, “Optimism Returns to the American Automotive Industry,” s+b [online only], June 4, 2012: The U.S. auto market is recovering, and other automakers will be competing fiercely with Hyundai.
  3. Detroit Free Press, “Hyundai Leapfrogs Toyota in Quality,” June 8, 2006: An early article describing how Hyundai was successful in improving its quality.
  4. William J. Holstein, “Convincing Consumers to Spend Again,” s+b [online only], Apr. 7, 2009: A look at how Hyundai achieved a marketing breakthrough in a moment of economic fear.
  5. John Pearley Huffman, “The 2012 Hyundai Accent GLS: So Perfectly Ordinary That It’s Extraordinary,” New York Times, Apr. 13, 2012: A sampling of how automotive critics describe Hyundai’s success.
  6. Alex Taylor III, “Hyundai Smokes the Competition,” Fortune, Jan. 5, 2010: A rare conversation with Chairman Chung Mong-Koo.
  7. For more thought leadership on this topic, see the s+b website at:
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