The bottom line on quality.

AuthorKeiningham, Timothy L.
PositionIncludes related article - Management Strategy

In the mad rush to jump on the quality bandwagon, many companies haven't stoppe to think about whether quality translates into profits.

Here are some ways to tell if your program measures up.

The late 1980s saw a quality revolution sweeping Corporate America, and the battle cry from consultants and quality experts was always the same: Quality programs pay for themselves. Today, more than 90 percent of large U.S. corporations have initiated some form of quality-improvement program. The bad news is, according to some studies, as many as two-thirds of these programs hav failed to achieve significant results. In fact, many companies have begun to question the relationship between quality and profits.

That doesn't mean you should throw your quality program out the window. But it does mean you should look at whether the program's been profitable for your company. And because financial executives are responsible for overseeing their companies' investment decisions, you should be involved in any quality-improvement initiative to ensure your company takes a bottom-line approach to the program.

This is true for any type of company, because the failure of quality programs extends to both small and large organizations. As many executives know, in 1990 the Wallace Co. became the first small business to win the Malcolm Baldrige National Quality Award. The company, a Houston pipe-and-valve distributor, had instituted a sweeping program, including purchasing new computers and redesigning truck-loading systems, to address a host of quality problems.

But although customer satisfaction and quality improved significantly, the firm's overhead also increased by $2 million per year. Wallace was forced to raise prices, and customers weren't always willing to pay. When the firm accepted the Baldrige award, it was losing $300,000 a month. By January 1992, Wallace was forced to declare Chapter 11 bankruptcy, and by August of that year it was out of business.

Like Wallace, IBM embarked on a company-wide quality program it called "market-driven quality" in 1990, with the goal of achieving 100-percent custome satisfaction. IBM theorized that if it excelled at satisfying its customers' needs and wants, everything else would follow, including market share, revenue and profits. The company gained significant recognition for its quality-improvement efforts, winning the Baldrige Award in December 1990 and th George M. Low Trophy, the National Aeronautics and Space Administration's quality award, in 1992.

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