Few readers will doubt that the principles of managerial excellence are so clearly important nowadays that research is hardly needed to establish the link between excellence and excellent achievement. But doubters still exist. Recent research, however, has produced still more evidence that companies which effectively implement the principles underlying the EFQM Excellence Model produce superior performance. By Derek Medhurst, a director of D & D Excellence.
In the model assembled by the European Foundation for Quality Management, these eight principles are:
(1) Results orientation
(2) Customer focus
(3) Leadership and constancy of purpose
(4) Management by processes and fact
(5) People development and involvement
(6) Continuous learning, innovation and improvement
(7) Partnership development
(8) Corporate social responsibility
The most recent research was specifically targeted at identifying links between superior performance and the use of the Excellence Model – a framework for bringing together the concepts into a usable tool.
The aim was to establish any correlation between the implementation of the principles of the Model and improved business performance.
The research used companies that have been recognised in quality awards based on the Model – at European, national or regional level - to identify firms that have effectively implemented the principles of that Model. Recognition typically awarded after rigorous evaluation of the entrants' activities and results: to maintain credibility, the organising bodies have strong incentives to make awards only to those which have truly implemented Excellence effectively.
For each of the 120 award winners, a closely matched comparison was selected to act as an individual 'control' company. The relative performance of each award winner was compared with its individual control. Performance was analysed before and after a company received a first award: the first period (the implementation period, when Excellence is being embedded) starts five years before and ends one year before a company's first award.
The second period (the post-implementation period) starts one year before and ends five years after a company's first award. This fairly long period was used because the principles of the Model require time to be fully integrated into the organisation's normal way of working.
The research focused on publicly available financial data to ensure objectivity, rather than just relying on subjective views. Accounting measures used included sales, costs, operating income, capital expenditure and total assets. Share value was also examined.
The analysis focused on the differences in growth rates. Although there were different patterns of progress, by five years after the award, the winners' average out-performance over the whole post-implementation period included:
• Total Sales: higher growth by 77%
• Operating Income: 18% higher growth
• Total Costs as percentage of sales: 4.4% greater reduction
• Capital expenditure as a percentage of sales: 31% higher growth
• Asset growth: 44% higher
Share price performance indicates that generally the award-winning companies out-perform the comparison companies up to three years after first winning an award, by when performance averages 36% more.
Note that the EFQM Excellence Model, introduced in 1992 and based on the principles of Excellence, has been regularly revised to ensure that it continues to represent a stretching view of 'Excellence'.
The diagram below shows the 9 box framework of the Model. The short explanations in the boxes ("criteria") are not part of the standard representation – I have included them to summarise the meanings.
The nine criteria divide into 32 parts, and then about 300 guidance points. These do not tell an organisation exactly what it must do and how, rather they outline things that should always be considered. There might also be other issues that organisations can include for themselves. The Model is not only used as the basis for Awards; organisations can use it for self-assessment. The Model is adaptable, and not overly 'prescriptive': it is an excellent framework to help you think in depth about all aspects of your organisation, not just to tick boxes. Companies identify, for themselves, their own strengths and areas for improvement, and then work to improve their performance.
This research did not look at the reasons for the success of specific award winners, so it cannot say why it worked for them. But other feedback from Model users reveals some key benefits. It helps you to look at the organisation as a 'system': there are not just nine independent boxes, there are countless linkages. It helps you to explore how your activities are aligned – or whether there are conflicts.
It reminds you that, in the long term, the results that an organisation achieves depend on the quality of what it does. The financial results are found in the Key Performance Results criterion, and the dynamics of the Model show that everything drives towards them. But it is not just for the private sector – by clarifying definitions and clearly defining the strategy against which things are assessed, the overall principle applies equally in not-for-profit sectors.
While you can start simply, the Model can be tremendously comprehensive, and it asks you to consider everything you do: is it right for your strategy; is it done as well as it can be? (It even tests how you developed your strategy.) There are many other management tools, but none is as all-embracing as this type of framework. It forces you to 'shine a light into areas you don't usually look at'.
How do leaders understand customer needs? How do you identify and understand relevant economic and demographic indicators? How do you recognise your people – and other stakeholders – to encourage their involvement? How do you use process performance data to set priorities for improvement? And much more.
There is some jargon, but at heart the messages are simple. So much complexity can be introduced to organisations that it is easy to forget that the basics are still relevant. The Model doesn't ask you to forget other management tools, but it helps you to remember where the latter fit in the fundamentals of running the business.
Self-assessment against the Model is more useful if done regularly – typically, on an annual basis. A one-off effort can deliver benefits, but may be less effective in helping to embed the principles within the organisation. Used regularly the Model can be a component of the regular planning round: a rigorous assessment of what has been achieved and how, with improvement activities being fed into the plans.
Use of the EFQM Excellence Model does not guarantee anything, of course. It is a tool, and so can be used effectively or not. One could say that it is self-evident that organisations that win awards have done better - in some way - than others which don't. But this research shows that award-winning companies go delivering superior financial performance compared with others.
Similar research in the US adds to the evidence that real benefits are to be gained from assessment against a comprehensive framework of excellence. It follows that real benefits are being lost by companies and CEOs which ignore this truly excellent methodology.
Derek Medhurst is Director of D&D Excellence Ltd. D&D Excellence, founded in 2000, specialises in helping organisations to use the EFQM [European Foundation for Quality Management] Excellence Model to improve their performance. The directors, Derek Medhurst and Dave Richards, have worked with this world-class management tool since 1993 and have a wide understanding of the issues for organisations wanting to work with the Model.
Their services range from delivering introductory sessions, through assessor training and facilitating self-assessments, to helping put together award submissions. They enjoy tailoring support to help clients use the Excellence Model effectively, whatever their level of Excellence experience: from beginner to award applicant.
Clients have ranged from small businesses up to global firms, in many industries and in the for-profit, public and not-for-profit sectors. They have worked in mainland Europe, Middle East, USA and Africa and are proud of empathising and working with people from different firms and cultures. In 2003 their long-term commitment to supporting the Excellence movement was rewarded when Derek Medhurst was one of the first recipients of the EFQM Personal Recognition Award for Leadership.
See their website at www.ddexcellence.com for more on both the EFQM Excellence Model and D&D's services.
Contact: derek.medhurst[at]btopenworld.com
Summaries of both research findings can be found at www.ddexcellence.com - in the 'Does it Work?' section.
References
1. Organisational Excellence strategies & improved financial performance. Carried out by the Centre of Quality Excellence, the University of Leicester. Copyright 2005 EFQM and BQF.
2: The Impact of Total Quality Management (TQM) on Financial Performance: Evidence from Quality Award Winners. Professor Vinod Singhal, Georgia Institute of Technology and Dr. Kevin Hendriks, The University of Western Ontario. 2000.
®The EFQM Excellence Model is a registered trademark of the EFQM
The articles published here in the Thinking CEO are internet updates of the latest management knowledge and practice, which have been commissioned by Sovereign Publications for their bi-annual magazine, CEO Today, and will appear later in the first 2007 issue of this publication. To contact Sovereign and CEO Today, go to:
http://www.sovereign-publications.com/ceo-art.htm
