More Evidence that Baldrige Criteria Help Organizations Perform Better

February 13, 2015 by ahmed


Originally posted on Blogrige

Several recent articles in national journals support the validity of the Baldrige approach across several sectors, including health care and manufacturing.

First, “Understanding High-Reliability Organizations: Are Baldrige Recipients Models?” published in The Journal of Healthcare Management of the American College of Healthcare Executives, asks, Is the Baldrige model a platform for achieving high reliability? Author John R. Griffith analyzed the outcomes of Baldrige Award recipients in the health care sector and whether, through application of the Baldrige Health Care Criteria for Performance Excellence, they have become high-reliability organizations—those that seek zero defects in outcomes quality.

With some exceptions, Griffith looked at the outcomes data of the 15 health-care-sector award recipients to date that applied for the Baldrige Award as individual hospitals and the 7 health care recipients that applied as systems, as well as all hospitals within those systems, across several measures.

“The data show that the Baldrige approach is an effective method of generating above-average performance. Award recipients have made substantial strides in safety, reductions of infections, immunizations, and patient satisfaction,” writes Griffith. “The Baldrige model has documented successes in quality improvement and should be the standard of excellence in managing all [health care organizations].”

In his comparison, Griffith looked at the outcomes data against the concepts of high-reliability organizations. In the 2013 Joint Commission article “High-Reliability Health Care: Getting There from Here,” Mark Chassin and Jerod Loeb explain that high-reliability science is the study of organizations in industries that operate under hazardous conditions while maintaining excellent safety levels; the idea is to adapt and apply the lessons of science to health care.

In his analysis, Griffith draws the following conclusions. Baldrige Award recipients

  • are superior to national averages on all but one of five mortality measures;
  • perform 13 percent better than the national average, demonstrate central line infection rates that are more than 40 percent better, and demonstrate colon surgery infection rates that are almost 50 percent better;
  • perform significantly better on most of the Center for Medicare and Medicaid Services Core Measures than the national average;
  • perform better than the national averages on readmissions;
  • excel on five of six infection measures;
  • demonstrate patient safety results and pneumonia immunization rates that are significantly better than the national average; and
  • excel on patient satisfaction, being clearly superior on two important summary measures: “highly satisfied” and “would recommend.”

“Receiving the Baldrige Award is not equal to achieving perfection,” writes Griffith. “[Baldrige Award] recipients’ scores are usually around 60 percent. However, given the congruence of recipient processes and the Chassin-Loeb high-reliability model, the profile of recipient performance should be exceptional.”

Jayne E. Pope, CEO of 2014 Baldrige Award recipient Hill Country Memorial Hospital, supported the findings and added some insights into her organization’s own Baldrige experience: “At our organization, we have seen the benefits of the Baldrige model in that we have documented year-over-year reductions in incidence of patient harm. If applied correctly, the Baldrige Criteria will move health care organizations ever closer to achieving high reliability.”

Added Griffith, “The Baldrige journey requires knowledgeable and committed senior managers and time,” but he noted that knowledge is widely available through Baldrige Program products and services, consultants who are also Baldrige examiners, and an Alliance for Performance Excellence Program available in almost every state with programs tailored to help organizations beginning their excellence journeys. He added that both the American College of Healthcare Executives and the American Hospital Association have endorsed Baldrige.

Although some organizations may be hesitant about beginning an excellence journey, writes Griffith, “A bigger danger may lie in not pursuing the Baldrige model, instead accepting or encouraging less comprehensive change management. . . . The Baldrige approaches to corporate culture, incentive payment, and strategy now have a substantial, positive body of documentation of success. They should be the standard of excellence in managing all [health care organizations].”
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In a second recent journal article, “Is It a Good Investment Strategy to Invest in Malcolm Baldrige Award Winners?: An Update,” this one from the Journal of Finance Issues, Thomas M. Krueger and Mark A. Wrolstad write about the Baldrige Award as an “exclusive management quality distinction” and how winning the award affects share price performance.

In 1997, Krueger and Wrolstad investigated the 14 publicly traded companies awarded the Baldrige Award from 1988 until 1995, assuming an investment of $1,000 in each company on the day of the public award announcement. According to the authors, for comparison purposes, they constructed a similar portfolio that assumed an equal investment in each individual firm’s industry index. They found that by 1995 the award-winner portfolio outperformed their industry index-based portfolio and significantly outperformed the Standard & Poor’s 500 index-based portfolio for a terminal value of $31,000, compared to $6,000.

For this recent article, Krueger and Wrolstad updated their analysis by looking at all 31 Baldrige Award winners in the manufacturing, service, and small business categories earned by publicly held firms; the percentage of the firm that won the award; and the viability of those firms as of September 2012:

  • [Baldrige] Award winners had positive returns. Whole firm award winners were found to have significantly higher returns over the post-award five-year period. When looking at risk-adjusted market excess returns, the all-firms, weighted-firms, and “whole-firm” portfolios showed significantly better performance in the five-year period after winning the award.
  • Winning the [Baldrige Award] is well-publicized evidence of successful efforts taken to enhance the quality of the management processes within the recipient firm. Share price performance of [Baldrige Award] winners rises after the award announcement. In fact, in over half of the observed portfolios studied, significant raw or risk-adjusted market excess returns were present. Therefore, it appears as though investors positively reacted to the superior managerial skills and efforts of the [Baldrige Award] winners.

Supporting those conclusions, the authors cite an article by Randolph Jacob, Christian N. Madu, and Charles Tang, “An Empirical Assessment of the Financial Performance of Malcolm Baldrige Award Winners”, in the International Journal of Quality & Reliability Management. Jacob, Madu, and Tang looked at Baldrige Award winners from 1988 to 2002 and “found that award winners were superior financial performers and were valued higher by investors compared with similar-sized firms and industry benchmarks.”

A more recent analysis of Baldrige Award winners was done by Brian Cazzell and Jeffrey M. Ulmer, “Measuring Excellence: A Closer Look at Malcolm Baldrige National Quality Award Winners in the Manufacturing Category,” for the Journal of Technology Management & Innovation. They looked at five winners of the award in the manufacturing category and found that each of the companies experienced remarkable financial growth in the few years leading up to the subsequent award and in the years after winning the award.

“Clearly, these five companies have provided a roadmap or a blueprint for other companies to follow,” write Cazzell and Ulmer. “Even though the road may appear long and arduous to the new onlooker, there are other ways to take advantage of the Baldrige Program without diving in head first.” The authors suggest a self-evaluation using Baldrige tools; other options include contacting an Alliance for Performance Excellence Program and downloading Baldrige Excellence Builder, the free resource based on the Criteria.

Cazzell and Ulmer suggest that business firms begin the quality improvement process, and they “caution interested firms that even winning the award does not guarantee an organization’s financial success. They point out that other factors, such as the effectiveness of the company’s strategic plan and business model, play a vital role in their firm’s long-term success.”

Evidence suggests that consistent discipline on the use of the Baldrige Criteria can lead to sustained improvements. For example, MEDRAD (PDF) (now Bayer HealthCare Radiology & Interventional), MESA, Ritz-Carlton Hotel Company, Solectron (PDF) (now Flextronics), Sunny Fresh Foods (PDF) (now Cargill Kitchen Solutions), and Texas Nameplate (PDF) are all two-time Baldrige Award winners in the manufacturing, small business, or service categories, respectively. They report median growth in revenue at 92.5 percent and median growth in jobs at 65.5 percent (compared to average growth in jobs for the matched industries and time periods at 3.2 percent according to the Bureau of Economic Analysis and Bureau of Labor Statistics).

At the 2014 Quest for Excellence® Conference, Janet Souter, Senior Corporate Director, Quality, Ritz-Carlton Hotel Company, said, “We haven’t quit using [the Criteria]. . . . We institutionalize the framework in our system. . . . Once you have [the Baldrige framework], it becomes part of your DNA that you’re constantly self-assessing yourself and seeing how you’re doing against that.” Terry May, CEO of MESA, has said, “[The Baldrige Criteria] present in a structured, documented fashion those requirements that, when consistently followed, will result in business or organizational success and performance.”

Write Cazzell and Ulmer, “The dramatic results seen in these examples were due in large part to the high level of commitment to quality that was demonstrated by each organization’s top-level managers.” This commitment is supported by anecdotal evidence that organizations with top-leadership changes can discontinue strategy and excellence initiatives, often setting back quality gains achieved.

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