baldrige Assessments

The "Quality 600 Winners "

Award-Winning Companies Improve Bottom Line

A recent study by two U.S. researchers provides compelling evidence that the effective implementation of quality management principles and methods has a positive impact on business performance. This five-year study, involving more than 600 winners of quality awards shows that these companies have experienced significant gains across a range of performance measures: operating income, sales, return on sales, employment growth, asset growth, and stock performance.

The methodology used by Dr. Vinod Singhal of the Georgia Institute of Technology and Dr. Kevin Hendricks of the College of William and Mary compares the performance of award winners against controls – similar-sized companies operating in the same industries over the same timeframe. The award winners included the recipients of national and state quality awards, as well as the recipients of the quality awards presented by some major companies to selected suppliers.

Each winner's performance was examined over a five-year 'implementation' period (when the company was developing its quality management practices) and also over a 'post-implementation' period of up to five years. The implementation phase is assumed to be completed the year before the company received its first award. The control company corresponding to each winner is measured over the same timeframe, and the entire study focuses on differences between winners and controls. This approach filters out effects such as booms or busts in the economy or in specific industries.

Figure 1 above illustrates the pattern of performance differences noted.

During the second five-year period there was a significant difference in peformance between the winners and the control group. We'll look at this in more detail in a moment.

One of the most interesting findings is that the study found no statistically significant difference between the performance of award winners and the control group over the first five-year period. Therefore, the award winners did not start out as great companies: they were statistically indistinguishable from their peers in terms of performance. Something evidently happened to cause a significant change in their results, and the receipt of a quality award is a marker for this.

Figure 2 above shows the overall pattern of performance differences for the five-year post-implementation period. The differences are striking. For example:

Sales for the control group companies increase 32% – but sales for the award winners increase 69%, more than twice as much.
The award winners do take on additional employees – but only 23% more to support the 69% growth.
Note that the award winners are not 'buying' market share by selling at reduced margins: their return on sales increases, by 8% compared with 0% for the control group.

These differences drive a range of improved outcomes:

Driven by the increased volume of sales, and the increased return on sales, the operating income of award winners increases by 91%, compared with 43% for the control group.
Not surprisingly, given this performance, the award winners' assets increase by 79% compared with 37%, and
The award winners' stock price increases by 119% compared with 75%.

Other more detailed analyses reveal the following additional findings:

the winners of independent awards, such as national and state awards, improved their performance significantly more across all measures than the winners of awards from their customers.
This result is consistent with the other findings: the independent awards are generally more stringent and call for a more mature quality management system. If implementing an effective quality management system improves performance, the winners of these independent awards should benefit the most
the smaller firms (defined as those with assets of less than 500 million dollars) increased their performance more than larger firms
labor-intensive companies achieved greater gains than capital-intensive ones
focused firms achieved greater gains than diversified ones.

Anyone who has taken part in a successful quality improvement initiative knows from their own experience that there is a 'better way', which leads to improved performance. For those who have not had this type of enlightening experience, research studies like this provide hard data that support the same conclusion.

David Hutton
November 1998