Since its inception in the National Quality Improvement Act of 1987, and its implementation by the National Institute of Standards and Technology (NIST), the Malcolm Baldrige award has raised both corporate awareness of total quality issues and a great deal of controversy concerning its effectiveness as a business tool. This paper gives brief description and history of the Baldrige award, the award programís strengths and weaknesses and concludes with my views on the value of the award.
History and Description
The Malcolm Baldrige award was created as part of the National Quality Improvement Act of 1987 (Public Law 100-107). Support for the actual implementation of the award started with the creation of the Foundation for the Malcolm Baldrige National Quality Award in 1988. The founders of the Foundation are a whoís who of American corporate might. Some members include: Adolph Coors Company, Bechtel Group, Inc., Florida Power & Light Company, Lockheed Corporation, and Xerox Corporation. It is interesting that many members of the award foundation have not pursued the award itself.
The award originally focused on three business segments: manufacturing, service and small business. In 1999, the award was expanded to include education and healthcare.
The Malcolm Baldrige award is roughly fashioned after Japanís Deming Prize. The Deming prize was founded in 1951 to promote total quality management in Japan. According to Mary Walton:
The idea for the prize had originated with a congressional fact finding expedition to Japan in 1986, led by Representative Don Fuqua, a Florida Democrat. There the delegation met with Kaoru Ishikawa, Japanís foremost quality expertÖ Ishikawa encouraged the Americans to come up with a similar award as a way to boost quality. Indeed, in the absence of a domestic award, an American company, Florida Power and Light, had already decided to seek the Deming Prize."
Deming Management At Work, Mary Walton, pp 212-213
While there are many similarities between the Deming and Baldrige awards, the Baldrige award is more strongly oriented towards results than its Japanese counterpart. Again according to Mary Walton, "the Baldrige Prize had its critics Ė among them Dr. Deming, who worried that it was too results-oriented, fostering a short term attitude."
Organizations seeking the Baldrige award are scored in seven general areas: Leadership, Strategic planning, Customer and market focus, Information and analysis, Human resource focus, Process management and Business results. Leadership looks at how the organizations senior executives steer the organization and how it behaves as a good corporate citizen. Strategic planning looks at how the organization determines its strategic direction and forms its long range plans. Customer and market focus covers how the organization gathers its customerís requirements and determines their expectations. Information and analysis examines the applicantís management information systems to see how information is used and analyzed in support of decision making and planning. Human resource focus looks at how the organization develops the full potential of its workforce. It also examines the alignment between the workforce and the organizationís objectives. Process management looks at how well the organizations value delivery systems are designed and implemented. Business results looks at a number of areas including: customer satisfaction, financial and marketplace performance, human resources, supplier and partner performance and operational performance. In recent years, the business results scoring has taken a closer look at how the organization performs compared to its competition.
Pros and Cons of the Award
The approach of having a national level quality award like the Malcolm Baldrige award has many strengths but also has a few weaknesses. This section addresses both the pros and the cons of the award and also discusses the long-term financial impacts of the award effort.
On the plus side, the Baldrige award focuses national attention on quality issues and how quality relates to overall national competitiveness. Since most organizational reporting systems are financial in nature it is good to provide a balancing view. The Baldrige award, the publicity it generates and the "quality aware" environment it fosters provide strong support for individual organizations seeking to implement quality initiatives or even Total Quality Management. Finally the award criteria themselves can provide a framework for organizations seeking to improve their own quality position.
These benefits are somewhat balanced by two negative influences of the award. The first negative influence is that developing the formal systems needed for award consideration may frustrate employee involvement and retard the development of a well-institutionalized capability. James Broadhead, chairman and CEO of Florida Light and Power had this to say of his organizationís experiences in preparing for the Deming Award:
FPLís extensive preparation for the Deming Prize examination unduly prolonged the developmental stageís emphasis on process and structured reporting. Our employees and even the Japanese Deming examiners urged that employees be allowed to apply more freely the problem-solving methods without being criticized for not following specific procedures or formats.
The second negative influence is that some organizations decide to seek the Baldrige award as a specific competitive focus, rather than for sound business reasons. Pursuing the award as an award frequently causes the organization to lose focus on its customers and even core business motives.
There has been quite a bit of controversy over the financial effects of the Baldrige award effort. NIST has compiled "stock analysisís" of Baldrige winners since 1995. These analysisís show that award winners and applicants significantly outperformed the S&P 500 index. For example, in 1995 the whole company award winners out performed the S&P 500 6.5-to-1. In the same year, the companies who applied for the award out performed the S&P 500 in a range from 4.5-to-1 to 2-to-1. The analysisís since 1995 have reported similar results.
While these are impressive results, I do not find them to be completely convincing. NISTís methodology, while straightforward, does not specifically address any cause and effect issues with the award. Perhaps the market as a whole perceives these leaders to be better managed than average completely aside from any quality programs. Perhaps the organizations that have the free capital to pursue the Baldrige award attract investors due to the presents of that free capital. Finally, one would expect a before/after comparison, looking at the organizationís stock performance before and after undertaking the Baldrige award process. Thus, while the Baldrige award might be a good recognition to pursue once an organization reaches a certain level of TQM maturity, from the available data, I cannot conclude that it is a good financial investment in and of itself.
My Views of the Value of the Award
In closing, I conclude that the Malcolm Baldrige award is a valuable tool for publicizing and supporting the Total Quality movement. There is a preponderance of evidence that a correlation between pursuing the award and long term financial performance exists, but given the information I have found, there is no positive causal link.
Garvin, David A, 1991, How the Baldrige Award Really Works, Harvard Business Review Nov-Dec 1991
Kosko, Janice, 1995 Quality Management Proves to be a Sound Investment, Says NIST, Retrieved November 26, 2000, http://www.nist.gov/public_affairs/releases/n95-05.htm
Kosko, Jan, 1996, "Quality Stocks" Yield Big Payoff, Retrieved November 26, 2000, http://www.quality.nist.gov/qualstok.htm
Kosko, Jan, 1997, One More Time: Lastest NIST Stock Study Shows Quality Pays
Kosko, Jan, 2000, ĎBaldrige Index Outperforms S&P 500 by Almost 5 to 1 Retrieved November 26, 2000, http://www.nist.gov/public_affairs/releases/g00-26.htm
Niven, Daniel, 1993, When Times Get Tough, What Happens to TQM?, Harvard Business Review May-June 1993
Sterman, J, Project Summary, Retrieved November 26, 2000, http://www.mit.edu/jsterman/www/TQMProjectSummary.html
Walton, Mary, Deming Management at Work, 1990, Perigee Books, New York