The
TQM Debate
TQM
has been criticized for not bringing benefits to shareholders
through increased stock price performance. For example,
in recent years, several companies recognized for outstanding TQM
efforts fell on hard times even when the economy boomed. At
least one author has declared TQM "Dead as a pet rock."
The
participants in this debate have generally used little evidence,
anecdotal evidence or questionable evidence. However, an
empirical study is now available.
Professors
Kevin B. Hendricks and Vinod R. Singhal studied 3000 firms. Many use
TQM effectively. They compared the TQM firms to control groups of
similar companies without formal TQM. The
TQM firms fared significantly better in, profitability, Return on
Assets and stock performance.
On
the downside, these conclusions depend on
effective implementation (often problematic). In
addition, these benefits may take years to
develop, possibly 3-5 years.
Extrapolation
of Results
The
findings of this study apply directly to Six Sigma. Six
Sigma is not significantly different than TQM aside from the colored
belts and a few other fashion accessories. This is the opinion of
Joseph Juran as well as myself and the authors of this study.
Lean
Manufacturing should provide equal or better results than TQM and
achieve them sooner. Lean Manufacturing overlaps TQM
significantly and TQM is a major component of most lean initiatives.
In addition, the team development and problem-solving skills of TQM
enhance other Lean elements.
The
TQM process orientation eventually leads to the same results as lean
manufacturing. But, TQM starts with quality which may or may not be
the most critical area or the area that produces quickest results.
For
example, a recent client of ours started on the Lean Journey and
realized quickly that kanban could reduce
finished goods stocks by $3-5 million. It required only
minor changes and no investment. They immediately started
implementing. The benefits of a one-time cash flow started
immediately and continued for 8-12 months.
Conclusions
-
TQM
benefits flow to the bottom line and significantly affect
performance measures and stock price.
-
It
takes a long time- perhaps 3-5 years.
-
Six
Sigma produces similar results
-
Lean
Manufacturing should produce similar but quicker results
-
Smaller
firms benefit more
-
Highly
focused firms benefit more
-
Low
capital firms benefit more
-
Benefits
depend highly on effective implementation (problematic)
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Comparison
of the stock price performance of award winners and various
benchmark portfolios. Five-year post-implementation period.
Comparison
fo the stock price performance of award winners and the S&P 500
annually. Results depict annual changes in performance over the
post-implementation period.
Comparison
of average percent change in operating performance measures for
post-implementation.
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