The Economics of Quality

1. The Economics of Quality Grace Duffy ASQ Vice President Past-Co-Chair ASQ Economic Case for Quality With materials co-developed by: Bill Denney, Ph.D. CEO: Texas Quality Foundation Quality Management Division Vice-Chair, Technical Committees

2. Economic Case for Quality • ASQ strategic theme #2: Prove and communicate the economic case for quality. • FY 08 operating plan for ECQ: • Collaboration with Sections, Divisions, Members, and their affiliations • Create synergy across all aspects of the program (online CoP, F2F events, all stakeholders) • Partner with internal stakeholders and workgroups to increase participation • Increase communication and disseminate themes and feedback with all member units

3. The “why” of QualityWho cares and what do they expect ?

4. “I want you to prove our Quality program has value.”

5. “Quality will reduce costs and help improve revenue.” - - - Mark Davis, CEO EMSI Quality Must Have Economic Impact Why else would you do it?

6. What Is Quality? • There is no single definition • A management system? • A product attribute? • A set of tools? • A method of continuous improvement? • Assessments/audits/inspections that lead to results? • Customer satisfaction?

7. Quality Is Everywhere

8. Do CEOs and senior managers see a connection between quality and the bottom line? ASQ Surveyed 600 executives • Do you believe Quality contributes positively to the bottom line? • 99% said “Yes” • What is Quality? • Resounding answer…Quality is “Customer Satisfaction” • Quality is essentially a product or service attribute…if you give the customer what they want, you have Quality and they buy more

9. Back To Senior Managers with another question… If we define Quality as an organization-wide, coordinated effort to use Quality techniques and practices to achieve business process improvement, do you think this kind of quality effort produces a positive financial return? 92% said “Yes”

10. The case for quality has been made again and again • 1991 General Accounting Office Study • “Companies that adopted quality management practices achieved better employee relations, higher productivity, greater customer satisfaction, increased Market Share, and improved Profitability.” • 1999 Emory University Study, Easton & Jarrell • 394 companies – “Vast majority of studies show positive impact associated with TQM.”

11. Baldrige Post Implementation Results

12. Stock Price

13. Are CEOs aware of quality methods?Do they use them?

14. Why aren’t they using quality methodsand what do they expect? Quality professionals seldom link “Quality” to the bottom line to strategy to tactics to cost reduction to revenue enhancement Executives expect proof of value Money talks

15. Ask Yourself What value do you bring? Are you undervalued, ignored, or overshadowed by other urgent concerns? The fact is, you do drive innovation, process management, continual improvement

16. We Have to Prove It • If we can’t show what we do contributes to cost reduction or revenue enhancement we are in trouble. • We MUST: • Align our activities with organizational strategies and specific tactics • Demonstrate organizational performance improvement

17. What Can We Do? Get out your pareto charts, and tools… • Cost of not having procedures in place • Cost of turnover • Cost of poor maintenance • Cost of low performance from no job descriptions • Cost to customers from poor training • Error rates • Rework What is the “Cost of Poor Quality”?

18. What does your company want to improve? • Share price • Market value • Revenue • Growth rate • Earnings per share • Net profit margin • Price / earnings ratio • Return on assets • EBITDA (earnings before interest, taxes, depreciation, and amortization) Finance and Accounting for Non-Financial Managers, by Weaver and Weston The Essentials of Finance and Accounting for Non-Financial Managers, by Fields

19. Use Resources • The Economic Case For Quality (ASQ) • www.asq.org/economic_case • “How To Speak The Language Of Senior Management” • Quality Progress, May 2003 • “Learn To Talk Money” • Quality Progress, May 2004 • Show Me Your Value • Theresa Seagraves • Quality Makes Money • Pat Townsend & Joan Gebhardt • “A Bare Bones Look At The Bottom Line” • Quality Progress, May 2005 • “Selling Quality on Growth Rather than Cost Reduction.” • Quality Management Forum, Winter 2005

20. A Challenge For Quality Professionals • Facilitate execution • Demonstrate value • Speak the language of executives • Show your economic value to the organization

21. CEO and Executive PerspectiveThere Are Two Qualities • A product or service – Attribute Quality • A management tool –Method Quality

22. Quality is…. What you deliver to the customer Organizational Performance is… What you do internally to deliver quality to the customer. Quality professionals have the knowledge and skills to improve both of them, which reduces cost and improves revenue. That’s all CEO’s care about.

23. What the Quality Management Division is doing 4 supporting guides for Economics of Quality driven by QMD’s Quality Technical Committees • Lean/Six Sigma – Bob Meisel (available) • Baldrige – Dennis Leonard • Quality Costs – Doug Wood • 100% Employee Involvement – Pat Townsend www.asq-qmd.org for more information

24. How can we use these guides? • Choose the best opportunity in your section to show the economic case for quality • High performance employee • Strongest team of associates • Baldrige or state award examiner volunteer • ASQ Division member • Organizational or sustaining member company • Match the right subject to executive “hot button” and make a call…

25. There are resources available to help plan and execute an effective ECQ executive call. QUESTIONS grace683@earthlink.net • Original ASQ ECQ pilot materials • QMD guides • 5 Success Stories • Homegrown by your own SMEs…