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Hendricks
& Singhal studied 3000 firms. Some used TQM effectively; the
others were used as control groups. The TQM
firms fared significantly better in, profitability, Return on Assets
and stock performance.
The
first problem the researchers encountered was identifying companies
that had effectively implemented TQM and distinguishing them from
firms that merely purported to implement. They decided to use
quality awards as demonstration of effective implementation. They
benchmarked these against similar firms that had not won awards. |
| TQM
requires considerable time to implement and migrate through an
organization. The researchers assumed that this would require about
five years. The award evaluations require about one year. They
defined "implementation" and "post
implementation" periods as shown in the first figure. |
Determining
the implementation and post implementation periods. |
| TQM
firms had an average stock price increase of 114% compared with an
80% increase for the benchmark firms. The difference of
34% is significant.
Since TQM must permeate the entire
organization to be effective, implementation requires several
years. It takes several more years for benefits to show up in stock
price.
TQM companies
increased their stock price at more than twice the rate of the
benchmarks, but this was not evident until several years into the
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. |
Who
Benefits Most?
In
the long run, stock price depends on operating performance. Growth
is indicated by sales, employee count, operating income and total
assets. Healthy growth is indicated by steady or increasing Return
on Assets and Return on Sales. These measures were used to compare
different classes of firms within the award-winning group. |
| All
award winners performed better than non-winners. However,
firms that won public awards such as the Baldrige outperformed those
that had won supplier awards from their customers. This
is probably because public awards are more rigorous and independent. |
The
following tables compare average percent change in .Numbers are the
average of the differences between the performance of winners and
their respective benchmarks. The results cover the post
implementation period.
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Total
Quality Management, Six Sigma and Lean Manufacturing derive much of
their effects from the human dimension. High capital firms generally
have fewer people and less interaction than low capital firms.
Moreover, operations are more dependent on technology.
This
chart shows that low capital firms got the
most benefit from TQM. However, high capital firms
performed better than their non-TQM benchmarks. |
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It
is commonly believed that TQM works best in large firms. The study
shows just the opposite.
This
is probably because small organizations have less resistance to
change. |
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Focused
firms benefit more from Total Quality Management than diversified
firms.
This
is probably because the focused firms have more commonalities in
culture, processes and operational procedures. Lessons from one unit
migrate to other units more quickly. |
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