Business leaders have long sought proof that embracing the Baldrige model, implementing Total Quality Management, or applying for Baldrige Award or state quality awards pays. Does it make our company more profitable? Does it return value to our shareholders? Is it worth the effort and changes involved?

The answer to all three questions is, “Yes.”

Dr. Vinod Singhal of the Georgia Institute of Technology and Dr. Kevin Hendricks of the College of William and Mary did a five-year study of more than 600 quality award winners. They compared the financial performance of these winners with a control sample of companies similar in size and operating in the same industries. Singhal and Hendricks tracked both groups for ten years: six years before the award winners won their award and four years after.

Their study revealed that, over a five-year period starting one year before the winners won their first award, the award winners averaged significantly larger increases in several key measures of financial performance:

• 44% higher stock price return
• 48% higher growth in operating income
• 37% higher growth in sales

When Singhal and Hendricks separated the independent award winners (Baldrige and state quality award winners) from those companies winning supplier awards, the results were even more dramatic:

• 61% increase in stock returns over the control group
• 73% increase in operating income
• 33% increase in sales
• 21% increase in return on sales
• 25% increase in employment
• 49% increase in assets

Other insights from the study included:

• For the first five years of the study (up to one year before the award winners won their first award), the award winners and control groups showed little change in operating-income measures. According to Singhal and Hendricks, “this suggests that implementing an effective TQM program may not necessarily result in poor performance during the implementation stage.” In other words, the cost of implementing TQM programs may be balanced by early savings from improvements.

• Smaller companies actually performed better than larger firms, contradicting the belief that performance excellence criteria are not relevant for small companies.

• Lower capital-intensive award winners performed significantly better than higher capital-intensive award winners, reinforcing the importance of employees as the driving force for improvements.

• It can take two years after winning a quality award before a company begins to see the benefits of TQM programs in its stock price.

To read more about the impact of integrating Baldrige, click on these articles:

• Baldrige and Quality Results
• Baldrige and Workforce Results
• Baldrige and Customer Results
• Baldrige and Financial Performance

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