The Future of the Baldrige Performance Excellence Program


Testimony of E. David Spong  |  Q&A With NIST Director Patrick Gallagher
 

Testimony of E. David Spong

Foundation for the Malcolm Baldrige National Quality Award
American Society for Quality
Fiscal Year 2012 Budget Hearing
Baldrige Performance Excellence Program
Before the House Committee on Appropriations Subcommittee
on Commerce, Justice, Science, and Related Agencies

March 11, 2011

Mr. Chairman and distinguished members of this subcommittee, my name is David Spong. I am honored by and appreciate the opportunity to testify before you today. I represent the Foundation for the Malcolm Baldrige National Quality Award Inc., and am a lifetime member as well as past chair of the board of this foundation. I am here today as the president of the American Society for Quality (ASQ). I am here to tell you about a program that may seem small in size and funding but is very large in the way it affects our country and its citizens, companies, customers, and right now maybe most importantly, jobs.

The Program currently is funded at $9.6 million annually based on the enacted FY 2010 budget, but President Obama’s FY 2012 budget recommends reducing funding for the program by $2.2 million from his FY 2011 proposed level of $9.9—or $1.9 million from the FY 2010 enacted level. He further recommends a 2012 study to explore outside funding for the Program. I am hopeful that Congress doesn’t make the same mistake in its budget. In fact, Congress should increase the funding for this program, not decrease it. I will stress today how well the Baldrige Program addresses the urgent need to make U.S. organizations stronger at the lowest possible cost, as well as the extent to which taxpayer’s dollars are leveraged toward that goal in a way that is truly exemplary. So, my goal is to impress upon you that the Baldrige Program should get more funding and continue to be managed by NIST.

The Baldrige Performance Excellence Program was established in 1987 as a result of Public Law 100-107 with the purpose of strengthening U.S. competitiveness. To show the importance of strengthening our competitiveness, the Baldrige Program was set up within NIST, an agency of the U.S. Department of Commerce, which, for more than a century, has helped lay the foundation for innovation, economic development, and quality of life in America. Although the Baldrige office guides the overall Program, the Program involves a public-private partnership where principal support comes from the Foundation for the Malcolm Baldrige National Quality Award, not from government funding. Here we are again in a very challenging time, and the Baldrige Program could again help get our economy back on track.

Our country is discussing ways to meet the economic challenges and global competition facing our nation and the necessity to make some concessions to help solve our national debt and deficit problems, and yet we already have a program that benefits the United States by driving economic development through increasing business productivity, workforce efficiency, and job creation.

In the early and mid-1980s, many industry and government leaders saw that a renewed emphasis on quality was no longer an option for American companies, but rather a necessity for doing business in an ever-expanding and more demanding competitive world market. The Baldrige Program was established to promote the awareness of performance excellence as an important element in competitiveness and was envisioned as a standard of excellence that would help U.S. companies achieve world-class quality. From the outset, Congress anticipated how applicable the Baldrige concepts would be for organizations beyond the business sector, and it since has expanded the Award to include the education, healthcare, and nonprofit sectors so the reach of the Program expands to all sectors of the U.S. economy, including government, which I emphasize because I know our government could improve and work more efficiently by using the Baldrige criteria. Baldrige is now accepted as a proven methodology to manage all types of organizations.

The Baldrige Program is the only U.S. public-private partnership dedicated to improving U.S. organizations so they can compete globally. It educates business, education, healthcare, and nonprofit organizations on best practices in performance excellence. The federal funding is in fact only a small measure of the total amount of hours, funding, and value contributing to the Program. Yet government support is significant as it provides the integrity, consistency, and continuity the Program needs; and without an efficient and effectively managed program, the entire stakeholder system would collapse.

Studies by NIST, universities, business organizations, and the U.S. General Accounting Office have found that the benefits to organizations using performance excellence approaches, such as the Baldrige criteria, include increased productivity, improved profitability and competitiveness, and satisfied employees and customers. Award recipients have found that by applying the Baldrige criteria they created a culture for change and excellence within their organizations that ultimately improved customer service and workforce morale, increased growth and profitability, and institutionalized a process for continuous learning and improvement.

To understand the value of Baldrige, you have to understand the program as more than an award to honor companies. There’s a lot more to obtaining a Baldrige Award than balloting. While the CMA, SAG, and MTV all help us celebrate our best, Baldrige has at its heart a much more fundamental and essential purpose—our nation’s vitality.

There is a misconception that the Baldrige Performance Excellence Program is primarily an awards program. While the Baldrige Performance Excellence Program is widely known for managing the Malcolm Baldrige National Quality Award, its main mission is to provide education and global leadership in promoting performance excellence. In fact, the awards are only the culmination of the evaluation process that scores of organizations undertake each year, both at the national level through the Baldrige Performance Excellence Program and through many non-funded parallel state and local programs. These evaluations are supported by the efforts of thousands of volunteer experts who help these organizations improve their performance and competitiveness. It is estimated that these volunteers, leaders from all sectors of our economy, contribute more than 120 hours each annually, collectively 149,000 hours—at a conservative estimated value of $8.8 million—to improving U.S. organizations, as an act of patriotic service to their country. So, the Baldrige Award may be the most visible part of the Program, but the intention is not to simply give out awards, but to establish role model organizations that would share their successful strategies with other U.S. businesses.

An October 2001 study of the economic impact of the Baldrige Program, prepared for NIST by economists Albert N. Link and John T. Scott, conservatively estimated the net private benefits associated with the Program to the economy as a whole at $24.65 billion. When compared to the social costs of the Program of $119 million, the Baldrige Program’s social benefit-to-cost ratio is 207-to-1 (Economic Evaluation of the Baldrige National Quality Program). Another study, Building on Baldrige: American Quality for the 21st Century (2004), states, “More than any other program, the Baldrige Award is responsible for making quality a national priority and disseminating best practices across the United States.” The Baldrige Foundation has commissioned a reprise of the social benefit-to-cost ratio study this year, and it is expected that the ROI will be even significantly higher since the last time the study was done.

The Baldrige Program is a very strong example of an appropriate use of taxpayer dollars, and has a long-term track record of excellent return on taxpayer investment for the greater good of our nation. The Foundation would not be financially capable of achieving the goals and mission of the effort. Currently, the Foundation leverages the total program funding by providing to the NIST and federal government funding an average of $1.2 to $1.5 million annually for the training of examiners, printing of the criteria, the award crystals, and award ceremony. The Foundation cannot financially support the day-to-day staffing required to administer all the educational benefits the Program provides and still maintain the integrity and patriotic element of the Program if it were privatized.

Beyond this, countless other organizations use the Baldrige criteria as a framework for improving their operations. The Program has been emulated by numerous award programs throughout the world, which use the Baldrige criteria for their own national quality programs. Criteria are distributed at the rate of more than 2,000,000 downloads per year on the Baldrige Program website. With that in mind, the government is contributing just $5 per each user of the criteria. With the network of state and local programs reaching thousands of organizations at the local level and the award recipients sharing their best practices all across the country, the small government investment is leveraged into a national network that helps U.S. organizations improve performance, increase innovation, and ensure sustainability.

In addition, the Baldrige Performance Excellence Program is a government and industry partnership, with more than 90 percent of the support, including in-kind contributions, provided by the private sector. The federal government’s contribution is used by NIST to manage the Program. Application fees are charged to cover expenses associated with distribution and review of applications and development of feedback reports.

The private Foundation for the Malcolm Baldrige National Quality Award has raised an endowment currently valued at approximately $18.5 million. This endowment funds many other Program expenses, including the printing of Program materials and the annual presidential award ceremony, and it provides a subsidy for the review of applicants with fewer than 500 employees as well as nonprofit K-12 educational organizations.

Baldrige Award recipients serve as model organizations for everyone else to learn from and emulate. Through Baldrige, a “best practice” becomes something more than “I like your idea.” Best practices become documented, data-driven, evidence-based examples of performance excellence that reach every sector of the economy—manufacturing, small business, service, healthcare, education, and the nonprofit sector (including public service).

The Malcolm Baldrige National Quality Award and the Baldrige Award recipients constitute the visible centerpiece of the Baldrige Program. However, the Program’s enabling legislation designates it as an outreach and educational program designed to encourage performance excellence not only in applicants for the Award, but also in a much broader base of organizations that do not apply for the Award. A report, “Building on Baldrige: American Quality for the 21st Century,” by the private Council on Competitiveness said, “More than any other program, the Baldrige Award is responsible for making quality a national priority and disseminating best practices across the United States.”

The Alliance for Performance Excellence, a 501(c)3 nonprofit that represents 33 Baldrige-based state quality award programs nationwide, strongly supports the mission and continuity of the Baldrige Performance Excellence Program. The number of state and local, regional, and sector-specific award programs has grown tremendously. In 1991, only eight state and local award programs existed. Today there are 37 state and local, regional, and sector-specific quality award programs. These programs have been especially successful in reaching out to locally based small and medium-size organizations. The state and local programs have become a feeder system to the Baldrige Award. In the last 14 years, 45 out of the 60 Baldrige Award recipients also have won their state’s highest-level quality award. The state and local programs greatly extend the reach and impact of the Baldrige Program. State and local programs have distributed tens of thousands of paper and electronic copies of the Baldrige criteria, including 20,788 paper copies in 2009 alone. The criteria at the state level are Baldrige-based, with most being word-for-word copies. This has helped the Baldrige Performance Excellence Program reach a widespread audience.

In addition to the state and local network, an international network has evolved. As of January 2010, there were 95 international quality/performance excellence awards (besides the Baldrige Program), most of which either use the Baldrige criteria or some derivative of the criteria.

In keeping with the continuous improvement philosophy of the Baldrige Program, the criteria are updated every two years through a consensus process to stay at the leading edge of validated management practice. The criteria have evolved significantly to help organizations address a dynamic environment, focus on strategy-driven performance, and address concerns about customer and workforce engagement, governance and ethics, societal responsibilities, and long-term organizational sustainability. The criteria have continually progressed toward a comprehensive, integrated systems perspective of organizational performance management.
 
The year-to-year changes to the Baldrige criteria have been evolutionary. However, since the Baldrige Program’s inception more than 20 years ago, the changes to the criteria have been revolutionary. They have evolved from having a specific focus on manufacturing quality to having a comprehensive strategic focus on overall organizational performance, competitiveness, and sustainability. The Baldrige criteria have changed over time to reflect the changing challenges faced by U.S organizations. While the history of management theory in the United States is littered with outmoded fads, most of these fads were tools that had a short shelf life. By contrast, the Baldrige Program reflects a nonprescriptive and dynamic systems approach to performance excellence. It is a system of assessment that does not prescribe the tools an organization should use, leaving those decisions to the organization. While specific tools go in and out of fashion, the Baldrige criteria, which define what constitutes performance excellence, have remained and continue to evolve. What it takes to be competitive today is much different than 20 years ago. Award recipients are sharing much different strategies today that help other U.S. organizations meet today’s challenges.

The Baldrige Program is far more than just an awards program; it’s a culture of performance excellence. While the Program has touched hundreds of thousands of American citizens in overwhelmingly beneficial ways, it directly provides a significant economic payback to America far in excess of the underlying cost of the Program. From the employees of the Program applicants (those who apply for the award and use the Baldrige framework to improve their operations), to the customers of these organizations who benefit from the focus on customer service and efficient management structure, participants in the Baldrige community strive to implement the Baldrige principles in a way that measurably improves the fabric of American society.

It would send an unfortunate and misguided signal if we eliminated a program or reduced a program that our government has supported for more than two decades as the model of performance excellence. Certainly this is not the right message to our U.S. business organizations—large and small—educational institutions, healthcare organizations, and nonprofit/government agencies that have learned firsthand how beneficial the Program is. And, with the popularity the Program has gained globally, it would not be a positive message to other countries.

I respectfully urge that you vote to invest in the Baldrige Program. The net return on the annual investment in the Program cannot only be measured in positive payback dollars, but in the sustainability of organizational performance excellence. Once you review the facts, I’m sure you will agree that the $10 million appropriation for the Program is one of the best investments taxpayers can make to promote economic growth, improve America’s competitiveness, and contribute to the goal of reducing our national debt and deficit.

Respectfully submitted,

E. David Spong


Q&A With NIST Director Patrick Gallagher


QP recently posed several questions to NIST Director Patrick Gallagher about the proposed funding cuts and what it means to the future of the Baldrige Performance Excellence Program. Here is the complete Q&A:

Q.     The $7.7 million approved is less than the $9.9 million Obama requested and $1.9 million less than last year. In your opinion, does this reduction in funding signal a de-emphasis and undervaluation of the impact Baldrige has had on organizations and businesses?

A.     The $7.7 million is the President’s request for the fiscal year 2012 budget. The $9.9 million was the President’s request for fiscal year 2011. The administration strongly supports the Baldrige program and wants it to continue to thrive. However, a tough budget climate requires some difficult decisions. The aim is not to change what the Baldrige program delivers, but rather to explore ways to maintain and grow the program’s reach, high level of service, and value with little or no dependence on federal funding. 


Q.     With $1.2 million less to work with than requested, where will those cuts show up? What parts of Baldrige will be affected and how? In what areas will Baldrige still be able to meet or exceed its goals? How will it do that?

A.       The 2012 budget request provides federal funding for the continued development of the Baldrige Program Criteria, dissemination of best practices, and the annual awards process while we explore ways to transition the program out of federal funding. Administrative efficiencies will enable us to operate under the proposed funding level.


Q.      Did NIST have any indication these cuts were coming and planned accordingly, or did they come out of left field?

A.        Continuing to provide everything that the Baldrige program delivers, but exploring the possibility of transitioning out of federal funding, is something we have been aware of. We will work closely with the Baldrige Foundation as we explore options. We’re not thinking in terms of contingencies, as that would suggest a reduction of services, but rather exploring how to do what we have always done under a model that does not require federal funds. 
 

Q.     In a time when the need for improved quality seems so essential—in healthcare, education, etc.—isn’t it counterintuitive to shift dollars away from a program that is designed to reduce costs and inefficiencies within these systems?

A.     The proposed shift in funding is intended to have the private sector contribute more to the program’s cost through the fees it pays and to secure additional support from the private-sector Baldrige Foundation. The President’s 2012 budget proposal calls for us to explore these and alternative sources of funding for the program. We are exploring options closely with the Baldrige Foundation.

We value the great impact the Baldrige Program is having in education and healthcare, and we will work with these communities to ensure that the benefits not only continue, but grow.
 

Q.      Baldrige is also designed to increase innovation and improve the overall economy. How can NIST promote and prove that fact so that dollars are allocated to the program, rather than taken away? What has been done so far to further this agenda?

A.      The administration is fully aware of the benefits of the Baldrige Program and appreciates its many accomplishments. An independent economic impact study conducted for the program in 2001 found that it produced $207 in social benefits for every $1 spent. Studies of individual Baldrige winners have also shown very positive returns on investment. Educational efforts to explain the program’s benefits through social media and other means have been substantially improved in the last two years. As mentioned earlier, difficult choices are necessary during times of constrained federal spending.


Q.     What could Baldrige do with $10 million that it isn’t or can’t today? What could it do with $12 million? $20 million?

A.     The Baldrige Program is engaged in a strategy mapping exercise that began several months ago. Part of that strategy mapping is to look at the services the Baldrige Program should and could provide in fulfillment of its three-fold strategic thrusts of educating and promoting performance excellence, defining performance excellence criteria, and recognizing performance excellence through Baldrige Award recipients. Should additional funding be available in the amounts you propose, the program would be prepared to offer concrete ideas about which services would likely provide the best return on investment.


Q,      NIST has said that it’s planning for Baldrige to transition away from federal funding. Can you describe that process? How long will it take? What are the benefits? How will the program suffer? Why is this a necessary step?

A.       The President has expressed a commitment to cut spending and reduce the deficit, and that involves some tough choices. In line with the administration’s goal of making responsible and rational choices in reducing the federal budget deficit, the Baldrige program is at a stage at which it is possible to evaluate alternative sources of funding and alternative cost models, with the goal of enabling the program to do all it has in the past while exploring ways of transitioning the program out of federal funding. We are at the beginning of a process that will continue through 2012, and it is too early to comment on specifics of the proposed transition.


Q.     Regarding the eventual privatization of funding and program administration: How do you know this is a viable option? Was the issue analyzed, surveyed, etc.? Specifically, one section says: “(the program’s) core functions could be funded by non-federal organizations, which may also be better-suited to provide performance management education than the federal government.” Have private organizations indicated a willingness to take a larger role in the program’s operation and disseminating the criteria? How was it determined that participating organizations would react favorably to a fee-based system rather than skip participation altogether?

A.     As you noted, the section states “could be funded by non-federal organizations which also may be better-suited to provide performance management education.” That is the premise we will be exploring in 2011 and 2012. NIST has strong partnerships and will be working with those partners throughout this year and next to explore these options.


Q.     Is there anything I missed you’d like to comment on?

A.     The Baldrige Performance Excellence Program is highly regarded by all who know it.  It is truly a public-private partnership. The Baldrige Foundation, the Board of Overseers, the more than 500 Baldrige examiners, the state and local program alliance, and the award recipients have always played a crucial and integral role in making the program what it is. The administration strongly supports the Baldrige program and it is committed to helping it continue to thrive. We will be carefully exploring options to make sure that happens.

 


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