Benefits of Quality Improvement

Is it worth all the effort required to initiate and sustain process quality improvement in your organization? It is indeed a lot of work and takes time which most of feel we already feel is in short supply. So, does quality indeed get results? The answer is a resounding yes! Many studies are available to answer that question. A search of my files revealed data gathered over the years testifying to the positive impact of quality on performance of organizations’ market, operational, and financial performance. Some highlights of Minnesota companies are:

Company A - Tripled earnings since in five years, increased revenues 62%, reduced manufacturing time 64%.

Company B - Reduced product defects 50%, reduced product returns 75%.

Company C - Increased sales 15%, increased customer retention 92%.

Company D – Doubled business volume, increased productivity 20%

Company E – Increased revenue per employee from $63K to $100K

Company F – Increased Earnings 40%, increased revenues 12%

NOTE: Their names are not shown because they are former clients.

From an article in the Minneapolis Star Tribune, Arpil 6, 1975, Harvey Mackay’s column, “Motorola … spends millions on quality training but it costs them nothing because of the savings they enjoy on returns, retooling, rebates, lawsuits, and customer satisfaction.”

From the United States General Accounting Office report May of 1991, “MANAGEMENT PRACTICES, U.S. Companies Improve Performance Through Quality Efforts”-GAO review of the 20 companies that scored highest of 1988 and 1989 applicants for the Malcolm Baldrige National Quality Award indicated that nearly all achieved:

·      Better employee relations

·      Higher productivity

·      Greater customer satisfaction

·      Increased market share

·      Improved profitability

Details of the study are interesting. Financial performance was detailed in that 15 companies reported a total of 40 observations as measured by several ratios widely used in financial analysis. The ultimate impact of quality management practices is improved profitability.

·      34 improved

·      6 declined

American Quality Foundation and Ernst & Young, joint study, 1992.

·      Higher performing organizations have 25% of their workforce performing in teams compared to 5% for poorer performing organizations.

·      Higher performing organizations had nearly 100% of their workforce formally trained in problem solving compared to less than 20% in poorer performing organizations.

Business Week, October 18, 1993 study –

·      The three publicly traded, whole company, Baldrige winners outperformed the Standard & Poors’ 500 from the time of their winning through September 30, 1993 by 8.6 to 1.

·      The ten Award winners that analyze productivity enhancement as annual increase in revenue/employee, a median average annual compounded growth rate of 9.4% and a mean of 9.25% have been achieved.

Perhaps the greatest testimony to the business results was the investment management company policy of Robinson Capital Management. The president, Jack Robinson, was the oldest active fund manager.  After 44 years of managing another fund, Mr. Robinson followed a path of investing in quality. He decided to only invest in companies who believed in Total Quality Management, the kind that is based on the teachings of the noted quality consultant, Dr. W. Edwards Deming.  He had taken notice of the performance of stocks of TQM companies. He said, “Quality is a companies greatest asset, and it doesn’t show on the balance sheet.” In one years, General Securities Fund was up 9.2% vs. 0.7% for the average fund.

Indeed, quality does pay!