THE FINANCIAL IMPACT OF MBNQA DENIS LEONARD
Introduction The success of The Malcolm Baldrige National Quality Award (MBNQA) Criteria for Performance Excellence has certainly created debate since it was established in 1987. 1 It was created to stimulate quality and improvement, recognize achievement, establish criteria to be used to evaluate improvement and make available information on award winning companies for others that wish to learn about quality. 2 After 17 years, 1063 applicants, 59 award recipients, training over 2300 examiners, mailing more than 50,000 copies of the criteria and providing over 700,000 downloaded copies per year, and being the inspiration for the creation of 44 state awards and nearly 50 quality award programs internationally (including the European Quality Award) the MBNQA could be considered successful in attaining it goals to date. 3, 4 Despite this experience the significant detailed insights through case studies from Baldrige winners, questions still exist about MBNQA specifically in regard to its the financial impact. Most of the issues that question MBNQA are based on perceptions and are rarely based on objective data and statistically valid analyses. 5 Studies on the Performance Impact of MBNQA Perhaps the best-known study on the financial results of the MBNQA has been the ‘Baldrige Index’. This study began in 1995 and compared placing $1000 in a fictitious stock fund made up of publicly traded MBNQA winners and comparing them to investing $1000 in the Standard and Poor’s 500. Between 1992 and 2002 the Baldrige Index out performed the S&P 500 by 6.5 to 1. This has been used as significant evidence of the positive financial impact of MBNQA. However, in the last 2 years the Baldrige Index has underperformed the S&P 500 by in some cases –0.71 to 1. 6 This has been seen by many as eliminating the proof of MBNQA’s impact on financial performance. However, the dip in performance is not significant and part of the reason for the dip in the comparative performance relates to the fact that a significant component of the Baldrige Index are technology companies and technology stocks have not performed well recently. Also it should be pointed out that the Baldrige Index did not adjust the returns for risk or market movements. It is interesting that with the dip in performance of the Baldrige Index no consideration was given to the fact that as MBNQA approaches its 20 year mark, more and more companies are being influenced by the winners and are implementing similar practices while many others have actually applied for the MBNQA or won or applied for one of the many MBNQA aligned state awards. As this continues the best practices and therefore, the difference in impact will narrow to some degree. This is reflected in Table 1. But this recent dip for many simply continues to add to the argument that MBNQA does not relate to a positive financial impact. But there are other studies that have also found MBNQA providing financial impact. In a study of 17 Baldrige winners from 1988 to 1996 Tai and Przasnyski 7 compared to the winners to S&P 500 stocks and made adjustments for systematic and unsystematic risk and market movement. This included the variability of stocks total return directly associated with overall movements in general economic activity such as inflation and interest rates and 1
variability unique to individual stocks such as labor strikes and lawsuits. Treynor's index and Jensen's measure were used to consider the impact of such variability. The study showed that the MBNQA winners outperformed the S&P 500 stocks with similar risk. In 1998 the Q100 8 began, this consisted of 100 of the 500 S&P companies weighted and diversified to align it with the weighting and sectors in the S&P 500. From September 1998 to December 2001 the Q100 returned 26.97% compared with the S&P 500's return of 17.59%. A $10,000 investment in both indices in 1998 would have grown to $12,697 for the Q100 compared with...
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