Those who are looking for that direct and immediate payoff through starting a Business Excellence journey will be bitterly disappointed.  This is all about the long game.  It requires patience from the leadership to keep pushing the standards and expectations with the team. More often than not there will be a mid- long time period to see the true benefits from taking a quality approach, particularly the financial outcomes because of its evolutionary and delayed nature of this work. Impact on performance can be difficult to measure and intangible. 

But let’s take a close look at what we know through improved business performance, productivity and profitability. The cost of non-quality. Beginning with the accepted productivity factor of 3.  When there is an error made (factor 1), it requires rework (factor 2) and the company could have been producing the next widget or service (factor 3).  So if it costs $100 to produce something, poor quality actually costs the business at least $300.

With continued problems and issues, this will decrease customer loyalty by 15% to 30%.  This can creep up on a company, not seeing what can be a slow decline.  This is why it is super critical to have at least one metric on customer experience. Based on a variety of companies, industries and situations, the cost of quality (or to be more precise the cost of not getting it right the first time) ranges from 5% to 25% of an organisation’s annual turnover or annual operating costs in service-type situations.  When an average turnover for a medium sized SME in New Zealand is around $850,000 - this can be at least $212,500 impact to the bottom line.  This is very similar to figures highlighted in previous blogs.

So what happens when a company front foots quality and excellence? Kano et al. (1983) carried out an examination of 26 companies which won the Deming Application Prize (this is a prize awarded to companies for their effective implementation of company-wide quality control). They found that between 1961 and 1980 the financial performance of these companies far exceeded the average of other organisations in similar sectors. In a similar finding, those organisations which set themselves the goal and won the Baldrige Award, the median growth in jobs for these companies was nearly 20 times greater than matched industries.

Additional research has shown other benefits for businesses. Letza et al. (1997), found in what is called The Bradford study, revealed the following benefits for those organisations investing in creating a culture of excellence and quality: 

• 81% of companies are above the industry median for turnover per employee. 

• 81% of the companies provide a higher salary to turnover ratio than their peers. 

• 74% of the organisations pay their employees above the median for the industry. 

• 65% of the organisations produce above-median profit per employee for their industry. 

• 62% of the organisations have a higher net asset turnover than their peer group.
  

The consistent factor amongst those businesses employing Business / Operational Excellence they measure a combination of the following critical success factors: 

• Employee engagement, 

• Reduced staff turnover

• Revenue growth 

• Operating profit 

• Return on assets

Overall, quality means improved business performance. Improved business performance means better profitability and a more sustained growth path for businesses.