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The quest for quality excellence: lessons from the Malcolm Baldrige Quality Award.

Quality Products and services are essential for firms that seek to compete in global markets. Many experts conclude that a deterioration in the quality of products has significantly eroded the competitiveness of American firms.[1] American businesses are beginning to understand that an improvement in quality is integrally linked with an improvement in productivity, profitability, and competitiveness.

One sign of the national importance accorded this issue is passage of the Malcolm Baldrige National Quality Improvement Act of 1987, which created an annual quality award for the United States. The award recognizes companies that have successfully implemented a system of total quality management (TQM), which makes quality the responsibility of all employees.

In spite of the interest precipitated by the Malcolm Baldrige Award, there have been few systematic studies regarding the impact of total quality management on business performance. To date, studies of this type have largely been limited to selected companies.

This paper systematically examines the impact of total quality management on the performance of several companies. The two primary sources of information for this study were data compiled by the General Accounting Office (GAO) on companies that have applied the principles associated with TQM, (i.e., firms that reached the final round during the first two years the Malcolm Baldrige Award was given). Also included were data from selected firms that received the award.

The Malcolm Baldrige Quality Award

The Award recognizes U.S. businesses that excel in quality achievement and quality management. The specific purposes of the Award are to: a) promote recognition of the importance of quality, b) recognize quality-related achievements of U.S. companies, and c) publicize strategies that improve quality. The Award, administered by the U.S. Department of Commerce, is given annually to a firm in each of the following three sectors; manufacturing, services, and small businesses. Companies submit applications that document their quality management systems. Winners are selected by a group comprised of leading quality experts from companies, government, and academia. The winners are selected during a three-stage review process: 1) evaluation of written examinations submitted by applicants; 2) site visits to companies with high scores on the written examination; and 3) a final overall evaluation.[2]

The framework used to define a total quality system (driver, system, measures of progress, and goal) under the provisions of the award consist of seven categories; 1) leadership, 2) information and analysis, 3) planning, 4) human resources, 5) quality assurance, 6) results, and 7) customer satisfaction. Many of the quality management techniques developed by quality experts, most notably W. Edwards Deming, Joseph M. Juran, Philip B. Crosby, and Armand V. Feigenbaum, are reflected in the criteria used in the Malcolm Baldrige Quality Award. These criteria form the most widely accepted definition of a total quality management system. GAO studied the impact of total quality management on the performance of 20 U.S. companies that were among those who had the highest scores on the written portion of the examination in the first two years (1988 and 1989) that the Malcolm Baldrige National Quality Award was given.[3] Industry experts also evaluated these companies and determined that their management practices qualified them for site examinations.

The GAO study was based on information that firms submitted with their applications, on-site visits, and other available financial data. GAO also relied on data from other company documents, studies and records, such as the results of employee and customer surveys. The study period included the time that companies adopted TQM practices and encompassed the latest available data. Not all companies provided complete data. Some companies would not release certain proprietary information. These gaps meant that there were not complete statistics for every company.

Quality and Business Performance

GAO analyzed empirical data in four broad categories of performance: 1) operating measures, 2) employee relations, 3) customer satisfaction, and 4) financial performance.[4] The first three categories are major sections in the application submitted for the Malcolm Baldrige Award. The last category was added to strengthen the measurement of total performance. Experts helped the GAO identify a number of indicators that could be used to measure performance in each category (Table 1).


Data show that TQM practices positively affected all four measures of performance. First, there were improvements in all of the seven measures of operating results. For example, for the 12 companies that provided relevant data, product reliability (freedom from error or breakdown) improved at an average annual rate of 11.3%. Six companies reduced their order processing time by an average of 12% annually. Seven of eight companies reported an average decrease in product errors or defects of 10.3% annually. Five companies decreased costs by an average of 9% annually. Finally, all of the nine firms for which information was available reported savings (not shown in Table 1) due to quality improvement that ranged from $1.3 million to $116 million per year. In short, TQM improved quality, customer responsiveness, and reduced costs.

Five indicators used to measure employee relations also improved. Employee satisfaction improved by an average of 1.4% annually in eight of the nine companies. Employee turnover (voluntary separation as a percentage of total employment) declined at an average annual rate of 6% in 7 of the 11 companies. Safety and health measures (lost work days due to occupational injury and illness per 100 full-time employees) improved in 11 of the 14 companies at an average annual rate of 1.8%. The total number of quality-related suggestions submitted by employees increased in five of the seven companies by 16.6% annually.

Third, overall customer satisfaction increased at an annual average of 2.5% in 12 of 14 companies. Customer complaints declined at an average annual rate of 11.6% in five of the six companies. Customer retention improved in 4 of 10 companies by an average of 1% annually. Customer retention did not change in four companies, but these companies were characterized by high rates (90-100%) of customer retention.

Finally, market share increased by an average of 13.7% annually in 9 of 11 companies. Officials with the two companies that reported a decline attributed the decline to increased foreign competition. In all 12 of the companies, sales per employee increased by an average of 8.6% annually. For seven of nine companies, average increase in return on assets was 1.3% annually. This improved financial performance showed that TQM improved profitability.

On the whole, TQM had a positive impact on all four measures of performance: product reliability improved, customer responsiveness increased, and costs were reduced. The focus on TQM was associated with increased job satisfaction, reduced turnover, and improved safety and health measures, all indicators of better human resource utilization. The improvements in internal measures of quality, customer responsiveness, reduced costs, and better utilization of human resources led to improved customer satisfaction, increased market share, and enhanced profitability.

Sources of Competitive Advantage

The results of this authoritative study provided compelling evidence that quality confers substantial competitive advantages. Companies that improve quality also acquire a competitive advantage through quality-induced product differentiation - the creation of a good or service that is perceived as unique. Although there are many ways to differentiate products, superior quality is one of the most effective, one which results in a defensible competitive position and insulates a firm against inroads of a rival firms.[5] Customers are willing to pay more for the product, and quality is a difficult barrier for competing firms to surmount.

Several noted experts on the importance of quality in business, e.g., W. Edwards Deming, Joseph Juran, Philip B. Crosby and Armand V. Feigenbaum, have explained how companies can reduce costs by improving quality.[6] Improving quality reduces scrap, rework, and labor; it reduces work in process inventory, material handling, and capital equipment, and it reduces liability claims. Experts estimate that manufacturing costs could be reduced by 20% to 30% by simply eliminating scrap and rework needed to correct defective products. The ability to lower costs also confers a powerful competitive advantage - a firm can earn higher profit margins, charge lower prices, and increase sales.

In short, quality and cost are the two of the most important sources of competitive advantage. emphasis on quality also improved employee job satisfaction, attitudes, and behavior, which in turn improved employee performance. The findings support the belief that employees are the key to organizational performance.[7] Certainly, there is considerable anecdotal evidence of the pivotal role employees play in improving quality and productivity.

This was also apparent in the results of a survey by the American Society for Quality Control, which asked 615 executives from Fortune 1000 companies and from smaller firms to rate the importance of eight quality improvement techniques. Those techniques that stressed human factors - employee motivation, employee values on product and service quality, and employee education and training - received higher ratings than those that emphasized processes or equipment.[8]

Executives of companies that did well in the competition realized that a firm's efforts to improve quality also involve attempts to improve employee satisfaction and motivation.[9] Employees prefer to be associated with a company known for quality products and services. The empowerment associated with a quality-improvement program may also provide an opportunity for employees to shape their work environment to improve quality and customer satisfaction. Milliken, which received the Malcolm Baldrige Award in 1989, gave more authority to self-managed teams, including the ability to pursue training, schedule work, and establish individual performance objectives. Moreover, a Milliken associate can halt production if a problem is detected.[10]

Finally, a TQM system emphasizes improvements throughout the company. A traditional approach to management tends to blame employees for quality problems. The new approach makes the whole organization, managers and employees, and all functions - research and development, product planning, production, purchasing, and sales and service - responsible for quality. This system-wide responsibility generates cooperation among managers and nonmanagers. Employees believe they can do a better job when the whole organization assumes responsibility for quality improvement.

Lessons for Managers

The results of this study provide valuable insights for companies seeking to improve quality. The criteria used to determine Award recipients can serve as a useful diagnostic tool for evaluating a company's quality management practices.[11]

* The leadership provided by top management plays a key role in efforts to improve quality. Quality improvement often requires major changes in company philosophy and operating systems. A lack of commitment by top management has been one of the major reasons why many companies fail to do well in the competition. A strong corporate leadership team must be dedicated to quality. Management must elucidate clear goals and foster a corporate culture that encourages employees to achieve these goals.[12]

* Highly motivated employees are also essential. In successful companies, concern for quality and for employees is inseparable. The concern for quality permeates the whole human resource system - job descriptions, employee recruitment and training programs, and empowering and rewarding employees. In addition to statistical techniques, training involves an awareness of each person's role in promoting quality and of the importance of quality to a company's competitiveness. Whatever methods are used to encourage employee involvement, companies that did well in the competition recognized and rewarded creative suggestions to improve quality. Fostering a company-wide commitment to a quality-improvement program may require major changes in the way employees are managed.

* Customer satisfaction should drive the effort to improve quality. Excellent internal and external systems are required to monitor customer satisfaction, and can include surveys, examination of complaints, and evaluation of products and services. The CEOs of Award finalists maintain contact with customers and insist that all senior managers are accessible to customers. For example, Globe Metallurgical takes hourly workers to plants to show them how customers use their products, a step that also reinforces the importance of quality to customers.[13]

* Finalists in the Award competition emphasize information and analysis, which are essential in setting performance targets and evaluating progress toward these goals. The successful companies invested heavily in data gathering and in the analysis of all company activities - goals, strategies, quality and service standards. Lack of adequate data was a major weakness in companies that did not do well in the competition.

* A successful TQM system integrates efforts to improve quality into the company's strategic and operational plans. An official with Xerox, the 1989 award winner, said that, "Quality is the basic business principle for Xerox ... Leadership through quality is a strategy and a plan for Xerox." IBM, Xerox, Motorola and other award winners established clear goals and integrated concern for quality and service into every activity. They emphasized "built-in" quality by bringing together designers, process scientists, production engineers, and sales personnel at the earliest stages of product development.

* Successful companies maintain frequent contact with suppliers. They carefully select suppliers and develop long-term relationships with those who meet high quality standards. These companies also tended to encourage their suppliers to be a partner in the TQM effort. They consulted suppliers during die early stages of new product design, provided training, gave long-term contracts, assisted in their efforts to improve quality, and offered programs to recognize quality. For example, Xerox reduced the number of vendors from 5,000 to 500 and provided long-term contracts in return for better-quality components. Motorola similarly reduced the suppliers from 10,000 to 3,000 and provided long-term contracts.[14] Some firms trained suppliers in statistical process control, just-in-time manufacturing techniques, and cooperative costing, and included them in product development. In short, suppliers were full partners in quality management efforts, which is a major change in the way suppliers are traditionally managed.

* Successful TQM systems stress continuous improvement. They develop management systems to monitor processes, products, and services and emphasize the importance of preventing defects in all business operations and activities, including research and development, production, marketing, and support functions. An officer with Xerox stated that, "The pursuit of quality is a never-ending process. Consequently, companies must look for annual significant improvement in quality. Put another way, quality improvement is an ongoing process, not a one-shot program."

* A TQM program incorporates all internal management practices and can involve the restructuring of many traditional management and business practices.[15] The Award criteria are useful in assessing progress toward these goals. Many firms seek to manage workers by "controlling" them. The TQM philosophy believes that employees who are properly trained, involved, recognized, and empowered can be a tremendous source of competitive advantage.

It may take some time for a firm to reap the benefits of a TQM program. Such a program requires a company-wide commitment and may involve major changes in a company's philosophy and operating systems, including major reorganization, improved integration, and retraining of all employees, including managers. In short, it may require a new corporate culture. In the 20 firms studied, one to five years were needed to realize the benefits of a TQM program.


The results of the study show that companies that have adopted total quality management practices experienced an overall improvement in business performance. A majority of companies increased their average market share, increased product reliability, reduced order processing time, and experienced a decrease in customer complaints. These are significant gains. Average annual costs savings attributable to the quality-improvement program ranged from $1.3 million to $116 million per year.

There was also an increase in employee satisfaction. Customer satisfaction fosters job satisfaction, a decline in employee turnover, and greater employee interest in methods to improve quality and productivity. The role of employee motivation was one of the most interesting findings of the study.

The study clearly indicated that quality improves a firm's competitiveness. Quality confers cost advantages and fosters customer loyalty. Low cost and high quality are essential for a firm that seeks to increase market share and profitability.

The features of a TQM program are applicable to many types of companies.

The Baldrige Award addresses a wide range of quality-related issues. The criteria used for the Award can serve as a guide to restructuring management and business practices. The Award could be a powerful catalyst to improve quality and strengthen competitiveness.


[1.] President's Commission on Industrial Competitiveness, Global Competitiveness: The New Reality, Washington, D.C.: U. S. Government Printing Office, 1985; Grayson C. Jackson, Jr., and Carla O'Dell, American Business: Two Minute Warning, New York: The Free Press, 1988, pp. 144-155. [2.] Malcolm Baldrige National Quality Award - 1991 Application Guidelines, Gaithersberg, MD: U. S. Department of Commerce, 1991; Brown, Graham. Malcolm Baldrige Award Winning Quality: How to Interpret the Malcolm Baldrige Award Criteria, White Plains, N.Y.: Quality Resources, 1991. [3.] United States General Accounting Office, Management Practices - U. S. Companies Improve Performance Through Quality Efforts, Washington, D.C.; U. S. Government Printing Press, 1991. [4.] The discussion on quality and business performance draws heavily on the GAO study, Management Practices - U.S. Companies Improve Performance Through Quality Efforts, pp. 18-28. [5.] Porter, M. E. Competitive Strategy, New York: The Free Press, 1980, pp. 37-38. [6.] Deming, W. E. Quality Productivity and Competitive Position, Cambridge, MA: MIT Press, 1982; Juran, J. M. Quality Control Handbook, New York, N.Y.: McGraw-Hill, 1974, Crosby, P., Quality Is Free, New York, N.Y.: McGraw-Hill, 1979; Feigenbaum, A. V. "Challenge to America's Industrial Leadership," in Shetty, Y. K. and Buehler, V. M. (eds.) The Quest for Competitiveness, New York, N.Y.: Quorum Books, 1991, PP. 147-166. [7.] Peters, T. Thriving on Chaos: Handbook for Management Revolution, New York: Alfred A. Knopf, 1987; Shetty, Y. K., and Paul Buller, "Regaining Competitiveness Requires HR Solutions," Personnel, July 1990, pp. 8-12; Schuler, S. S. and I. C. MacMillan, "Competitive Advantage Through Human Resource Management Practices," Human Resource Management, Fall 1984, pp. 241-255. [8.] American Society for Quality Control, Executive Perceptions Concerning the Quality of American Products and Services, Milwaukee, WI: American Society for Quality Control, 1987. [9.] United States Government Accounting Office, Management Practices - U.S. Companies Improve Performance Through Quality Efforts, p. 34. [10.] "Pushing to Improve Quality," Research Technology Management, May-June 1990, pp. 19-22. [11.] Reiman, Curt W. "Winning Strategies for the Malcolm Baldrige Award," Journal of Quality Management, July 1990, pp. 9-25. [12.] "The Quality Imperative," Business Week, January 15, 1992, p. 8. [13.] Reiman, Curt W. "Winning Strategies for the Malcolm Baldrige Award," p. 23. [14.] Emshmiller, John R., "Suppliers Struggle to Improve Quality As Big Firms Slash Their Vendor Roles," Wall Street Journal, August 16, 1991, p. B1. [15.] Garvin, David R., "How Baldrige Award Really Works," Harvard Business Review, November-December, 1991, pp. 80-85.

Dr. Shetty, Professor of Management, has published numerous articles and hass co-edited seven books on quality, productivity, and competitiveness.
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Author:Shetty, Y.K.
Publication:SAM Advanced Management Journal
Date:Mar 22, 1993
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