Why use the Baldrige criteria as a business model?

While the Baldrige Award was created to encourage companies to improve, it’s the improvement itself, not the prize, that’s important.

In fact, since the inception of the Baldrige in 1988, there have been roughly 1,000 applicants. In that same period, the NIST has sent out more than two million copies of the criteria. That’s 2,000 criteria books per applicant. It’s estimated that, on average, each book is copied once, making four million total. The criteria are also available for download from the Baldrige web site and available through forty-four state programs.

In other words, it’s not recognition that most companies are after. They’re using all those Baldrige criteria books as a business model; to improve efficiency, employee morale, and bottom line results.

The seven categories of the criteria are things that every company must do, and do well, to be successful. They are:

• Leadership
• Strategic Planning
• Customer and Market Focus
• Measurement, Analysis, and Knowledge Management
• Human Resource Focus
• Process Management
• Business Results

The Baldrige criteria provide a framework for measuring how we’re doing now, identifying opportunities for improvement, and measuring our success.

SSM Health Care of St. Louis, who won the Baldrige in 2002 and has won at least one state award in every state where they do business, has one of the best mission statements around:

“Through our exceptional health care services, we reveal the healing presence of God.”

They were very surprised when the Baldrige feedback report listed this as an opportunity for improvement. The examiners wanted to know exactly what “exceptional” health care meant. What is it? How do you measure it? What do your customers think it is? What do your employees think it is? How do you know if you’ve achieved it?

It’s not about doing something extra, it’s about doing what we already do, only better.

The seven criteria provide a common language for benchmarking other successful companies. One of the requirements for a winner of either the Baldrige or the state awards is that they share their story with other interested companies. Summaries of each winner’s application are readily available.

What about the cost versus the return?

Thom Crosby is the CEO of Pal’s Sudden Service, a 2001 Baldrige winner. In an interview with Quality Digest he was asked to quantify the cost of winning the award.

“To do that, we put a dollar value to time plus the hard dollar cost. Basically, we can start the clock running in 1995. From 1995 to today (2002) we have invested just slightly more than a half million dollars. That includes improvement projects, and learning and application fees—even the money we put into celebrating wins. The return on this investment is one of the highest we’ve seen. We’re estimating the ROI at slightly north of 600 percent.”

Over eight years, they spent an average of $62,500 per year. Asked what that ROI figure includes, he said:

“We try to plot where we are today in sales and profitability and run a trend line that projects where we would have been without Baldrige. We have a long history of trims, and we look at that in relationship to each given year since we’ve been using Baldrige. We use our historical trend plus or minus what was going on within our industry. We’re talking about hard dollar returns: money in our pockets.”

Branch-Smith Printing, Dallas-Ft. Worth, won the Baldrige in 2002. Their business results include a 72% increase in sales over four years while the printing industry declined 6.6%. From 1998 to 2002, their customer base grew from 91 to 167.

Horst Schulze, president and COO of Ritz-Carlton was asked, financially, how expensive was getting your company to the Baldrige level?

“(Laughter) I think that's one of the biggest fallacies out there. I cannot even comprehend how we could afford not to be involved in improving quality. I can only say that since this improvement effort has begun, we reduced our employee turnover from 80 percentage points to the middle 20s, and that's in an industry that runs at around 100 percent. And with a labor force of nearly 20,000 employees, you can imagine how much money we now save. Turnover is very expensive.

“We also have considerably fewer defects in the organization than we used to. Defects are very costly. So I can't even comprehend how we could financially survive in our market without being in quality. It's an investment that has to be made. It also costs me to buy bed sheets, but I certainly couldn't live without them. In thinking of quality as an investment, there's absolutely no higher return on any of our other costs.”

I mentioned that SSM Health Care has won awards in every state where they do business, as well as winning the Baldrige. They actually began using the criteria as a business model before health care organizations were even eligible to compete. Do they think it’s valuable? Even though they’ve already won the highest award, every SSM entity is still expected to apply for their state award each year. SSM will apply for the Baldrige again in 2007, the first year they will be eligible again.

This year, two of their Missouri hospitals won the state award, Cardinal Glennon and St. Francis Hospital of Maryville. St. Mary’s Hospital, Mt. Vernon won the 2004 Illinois award.

In a speech to the NIST, Sr. Mary Jean Ryan, CEO of SSM, said,

“I've always maintained that the reason to apply for Baldrige is that it's the best way to get better faster. And having received Baldrige feedback for four years in a row, I can say without a doubt that it's the best thing SSM Health Care has done to improve as an organization.

”So let me describe what Baldrige has done for us at SSM Health Care. Baldrige has given us a framework, a focus, and discipline. First of all, in our applications, we had to be able to describe our large and complex organization in 50 pages, including results. This exercise gave new meaning to the word "discipline."

”In all honesty, Baldrige has helped us look at our organization in a very different way than we did in the past. Although our CQI culture was firmly established, our approach to improvement was scattered, so it didn't have the overall impact that it could have had. Baldrige has provided a new lens through which we see our organization. It has offered us a way to systematically evaluate our entire organization, and understand the link between the hundreds of processes that make up the health care experience.”

“The additional value of Baldrige as a business model cannot be overstated, because it offers a structured way to look at an organization. It asks very basic questions, but coming up with the answers is hard. . . And once we'd gone through a Baldrige application and received feedback, we saw our organization in a new light.”

“And finally, a financial result. In 1999, the first year we applied for the Baldrige, our St. Louis network lost $20 million. Well, since then, with many process improvements, SSM St. Louis has made a $50 million financial turnaround.

And for SSM Health Care as a system, we reported a positive operating margin of 3½% in 2003, compared to a negative operating margin of minus 2.2% in 1999.

David Spong is president of Boeing Aerospace Support. In his Baldrige acceptance speech he said:

“I’ll admit that in the beginning I was a skeptic. ‘Who has time for all of this extra stuff?,’ I’d ask myself. ‘I have a business to run.’ Ironically, that was precisely the point. We could run a decent or even a great business, but is that what we wanted? Why not strive for being the best?

“For those who don’t believe in Baldrige, I tell you this. Act like you believe, and eventually you will believe, because you’ll see great results.”

James S. Beard, President of Caterpillar Financial Services was interviewed in Quality Digest Magazine. He was asked:

QD: Is there any advice you can offer to other companies thinking about the Baldrige process?

Beard: We often repeat a quote John F. Kennedy made in relation to our space program: “We choose to do these things, not because they are easy, but because they are hard.” Our advice to other companies is to get in the game now. Don’t wait until you get better. The application process is hard, but it makes you better--it measures your progress, establishes a goal, disciplines assessments and provides invaluable third-party feedback. In the end, the use of the Baldrige criteria helped Cat Financial improve its financial results, better satisfy customer needs and become a better place to work for our employees.

What about your potential costs?

Thom Crosby gave a concrete figure of $62,500 per year for Pal’s Sudden Service’s efforts leading up to winning the award. In that figure, he includes improvement projects. Part of our mission is to “always find a better way”, to continuously improve. We’ve already decided to improve. We’re already spending money. The question is, what framework do we use to make the improvements?

The Baldrige criteria are a model, a map. They give a company a way to see where they are, where they want to go, and a way to get there. This type of approach to continuous improvement does away with duplicate efforts and false starts. It could actually save you money.

The Baldrige organization as well as the state award programs provide materials, training, and support at little or no charge. Award winners are required to share their experiences with interested companies. They’re proud of their accomplishments and like to talk about them.

Consider it an investment, rather than an expense. The evidence is there that money spent on improved processes yields high returns. Huge companies like Boeing and tiny companies like Stoner, Inc. (2003 Baldrige winner, 43 employees) have seen the investment pay off.

Next Steps

Continuous improvement is not something separate. Everyone “does quality”. Some just do it better than others. Take the time to review the criteria. Visit the web sites of some of the winners. Check out your state organization. Most offer on-line information as well as workshops and other training opportunities.

Consider applying to be a volunteer for your state program. You will receive invaluable training at little or no cost. If chosen as an examiner, you will have an opportunity to study another company in a way that would never be possible otherwise. While company-specific information is confidential, the lessons you learn from the process are not.

Most of all, remember that it’s not the award that’s important. It’s the improvement in the way that your company does business. We all “do quality”. Some of us just do it better.