Building Up the Customer Driven Organization

Introduction

The Deming Prize has been practiced now for almost 23 years, the Malcolm Baldrige Excellence Criteria has been utilized for seventeen years and the European Foundation for Quality Management Award has been in place for thirteen years. They are all similar business excellence models that provide a disciplined and systematic process and most importantly they produce significantly improved business performance.

Given the history that we have utilizing these approaches several important questions need to be examined. How effective are the excellence model criteria in driving real measurable business results and building up customer driven organizations? Are the excellence models effecting more organizations and becoming integrated into the management and leadership processes?

Empirical studies have shown organizations that have won an award by effectively applying one of the models’ criteria out perform other organizations by wide margins.

This significant performance improvement is captured in many important business metrics including: reduced defects, cycle times and cost of poor quality, increased productivity, sales, profit and return on assets as well as increased employee satisfaction and loyalty, market share and shareholder value. It is difficult to argue with these empirically measured results.

As individual companies are winning, their performance is greatly improving overall. As more companies are winning and their collective performance is improving significantly should not the entire country’s economic performance benefit and it become more competitive? This was the experience in Japan with the Deming Prize and this is what prompted the United States to develop the Malcolm Baldrige Excellence Criteria. We shall look at the evidence from the United States.

No matter if an organization is large or small, manufacturer, service, government or non-profit, in a single or multiple businesses or in one location or hundreds. The award criteria are proven to be effective in any kind of organization.

The Deming Prize has been in place now for over 20 years. It was the first set of excellence criteria utilized by organizations. The three sets of criteria all have a similar business excellence model that is disciplined and systematic and most importantly produce significantly improved business results.

Empirical studies have shown organizations that have won the award/prize by applying and executing the model and criteria out perform other organizations by wide margins. This was the experience in Japan when the Deming Prize with implemented and has also been the experience in the United States.

This significant performance improvement is captured in many important business metrics which we will look at, and in particular we will see how this performance builds up the organization to be customer driven.

Evidence of Building Up Customer Driven Performance

There are a number of quality management systems that are being used by organizations: Baldrige, EFQM and Deming. All National Awards are patterned after one of these three. The Asia Pacific Quality Award (IAPQA), which is Baldrige based, allows any organization in Asia and the Pacific Region to compete for the most world class organizations in Asia and the Pacific region. These competing organizations must first have won their own country’s award in order to compete against winning organizations from other countries. This award is administered by the Asia Pacific Quality Organization.

An example of a country that has participated in the IAPQO is Viet Nam. Their award is the Viet Nam Quality Award and it is similar to the Malcolm Baldrige Excellence Criteria. Numerous companies in Viet Nam have won this prestigious award. Their performance has improved significantly and as more companies win the Viet Nam economy will perform better and be more competitive.

All these models are almost identical in detail while the models themselves vary to some degree. They are approximately 90% the same. EFQM major categories include:

Leadership; People; Policy and Strategy; Partnership and Resources; Process; People Results; Customer Results; Society Results; and Key Performance Results.

Baldrige major categories include: Leadership; Strategic Planning; Customer and Market Focus; Information and Analysis; Human resource Focus; Process Management; and Business Results.

The similarity of Baldrige and EFQM is obvious. Baldrige and EFQM both focus on performance excellence of the entire organization, track results and show significantly improvement in customer focus.

Other levels of improvement that are less comprehensive are approaches like Six Sigma. It focuses on process capability of meeting customer quality requirements by removing variation and utilizes process improvement when requirements are not met. ISO 9000 is another limited approach that focuses on standardizing the processes and eliminating both process non-conformities as well as product and service defects.

If we focus on Baldrige, we see that from 1988 through 1998, only six organizations were allowed to win the award each year (recognized for a world class performance). In 1999 the award was expanded to include Health Care and Education organizations and allowed winners to increase to ten per year. This year Congress has approved expanding the award to include Non-Profit and Government Organizations.

The pattern and trend of Baldrige application appears to have gone down in recent years. But if we look at applications to State awards, they have gone up as over 45 states have established awards. Organizations use the State awards as a stepping-stone to improve, they win their State award and then apply to the Baldrige award.

Conclusion

Winners of the Baldrige (BNQP) significantly improve almost every measure of organizational performance: stock price, operating income, sales, total assets, customer satisfaction and revenue. In addition, softer measures such as employee retention, growth and development are also positively affected.

Further analysis shows that there is a strong correlation of customer satisfaction driving stock price. Performance excellence starts with an effective quality system like the Malcolm Baldrige Excellence Criteria, the EFQM Award, the Deming Prize or the Viet Nam Quality Award. As evidenced by winning the award the company’s processes must be world class which drives customer satisfaction, which drives sales, which drives market share, which drives profit, which drives stock price. All are the benefits of being a customer driven organization.