I suspect many of you, like me, are always looking for the fact-based argument for quality. When pressed, I typically fall back on the cost-of-quality (poor quality) argument, and cite the statistics I’ve heard over the years.
Twenty cents of every dollar of revenue in manufacturing is lost to poor quality. Thirty cents of every revenue dollar in service is lost to poor quality. Seventy cents in healthcare, and I’ve never heard a number cited for government but everyone agrees it’s north of 70%. Often these numbers will capture the interest of the discussion enough that I can delve into a more elaborate explanation for what contributes to the cost of quality other than scrape and rework. I often end my epistle with something like, “And this 20% (30%, 70% or more) is available to every company without raising prices, or finding new customers. Twenty percent to the bottom line!”
I’m then troubled when lines don’t form at the door for more of this quality stuff. I just don’t get it.
I often wonder, then, what the unrealized benefit of quality is to society. Of course, I admit that I don’t have tools that are sophisticated enough to undertake the answer to the question and then move on to wondering who might have those tools. Do economists have tools that would make a compelling argument for the cost of poor quality at a societal level?
Well, short of an answer to my exact question, economists Albert N. Link, and John T. Scott (University of North Carolina, and Dartmouth College, respectively) used their economic tools to measure the net social value of the Baldrige Performance Excellence Program. It’s an interesting study and I recommend it to you.
And for two reasons. First, in the explanation of methodology they describe the “counterfactual evaluation method,” they used (pages 6 to 8), which goes along with the figures 1 and 2 (pages 23 and 24). Together the explanation and the figures offer a very interesting account of the market impact of improved quality performance. I’ve not seen this account before.
Secondly, the study describes the net social value of the Baldrige program. In 2001, when this study was first performed, the net social value had been found to be 207:1. Ten years later, with the expansion of the program to include healthcare, education, and the not-for-profit sectors, the value has grown to 820:1. Now, to be careful, this study is aimed at deriving the value of the Baldrige Program and the use of “public funds,” but the insights related to the larger question of the social value of quality are strong.
As governments and policy makers around the world look for approaches and tools to improve their economies – this study provides compelling evidence that quality is a known, and proven, contributor to improved and sustainable performance.