Although you won't hear it quoted on the nightly business news or find it listed in the financial section of your newspaper, the "Baldrige Index" is a winner, outperforming the Standard & Poor's 500 for the third year in a row, according to a study released today by the Commerce Department's National Institute of Standards and Technology.
The fictitious index is made up of winners of the Malcolm Baldrige National Quality Award. The award is given to U.S. companies in recognition of their achievements in quality and business performance.
"While stock market performance is only one indicator of business success, this study demonstrates that a quality approach to running a business can be financially profitable and can lead to increased productivity, satisfied employees and customers, and a competitive advantage," said Harry Hertz, director of the NIST Baldrige National Quality Program.
In the third study of its kind, NIST "invested" a hypothetical $1,000 in each of the five publicly traded, whole company winners of the Baldrige Quality Award and a percentage of $1,000 in the parent companies of nine subsidiary winners (a list of the companies is attached). The percentage represents the number of employees the subsidiary has as a percentage of the whole company's employee base. An equal amount was hypothetically invested in the S&P; 500 at the same time.
The investments were tracked from the first business day in April of the year the companies won the Baldrige Award (or the date they went public) to Dec. 2, 1996. Adjustments were made for stock splits. Also, if a subsidiary was sold to another company or if a company was divested, the progress of the subunit was followed, not the original parent company.
NIST found that the group of five whole company winners outperformed the S&P; 500 by 3.5 to 1, achieving a 380 percent return on investment compared to a 110 percent return for the S&P; 500. The group of 16 publicly traded winners—which includes the five whole company winners and the parent companies of winning subsidiaries—outperformed the S&P; 500 by about 3 to 1, a 325 percent return on investment compared to a 112 percent return for the S&P; 500. NIST studies in 1994 and 1995 also found that Baldrige Award winning companies outperformed the S&P; 500.
NIST also conducted a similar investment study for the 48 publicly traded companies receiving site visits as part of the Baldrige Award application process. That group outperformed the S&P; 500 by 2 to 1, achieving a 167 percent return on invest-ment compared to an 83 percent for the S&P; 500. (Names of applicant companies are confidential.)
"While there are no guarantees for success," said Hertz, "year after year, Baldrige award winning companies have shown that any U.S. business, large or small, service or manufacturing, in any sector of the economy, can use the concepts embodied in the Baldrige Award criteria to improve the way it does business."
The Malcolm Baldrige National Quality Award was established by Congress in 1987 to enhance U.S. competitiveness by promoting quality awareness, recognizing quality achievements of U.S. companies and publicizing successful performance strategies. The award is not given for specific products or services. Since 1988, 28 companies have won the award.
A non-regulatory agency of the Commerce Department's Technology Administration, NIST promotes U.S. economic growth by working with industry to develop and apply technology, measurements and standards. NIST was selected by Congress to design and manage the Baldrige Award program because of its role in helping U.S. companies compete, its world-renowned expertise in quality control and assurance, and its reputation as an impartial third party.
A copy of the two-page study is available on the Baldrige Quality Award's World Wide Web site at http://www.quality.nist.gov. Reporters also can call NIST Public and Business Affairs at (301) 975-2762 to get a copy. Others should call the NIST Baldrige Award office at (301) 975-2036 or fax a request to (301) 948-3716.
Whole Company Winners:
Subunit Winners: (The sum invested was $1,000 x the % of the parent company's employee base that the subunit represented at the time they applied)