Does Investing in Excellence Pay? Across Europe a large number of companies have invested in a systematic approach to pursuing Excellence Many more have not Who is right?

What is the Evidence? Systematic Balanced Stakeholder-Inclusive management approaches to deliver business success are in widescale use around the world Most established are the Deming Prize Model (Japan since 1950s) the Malcolm Baldrige National Quality Award Model (US since 1980s) the EFQM Excellence Model (Europe since 1990s)

What is the Evidence That Pursuing Excellence Pays? The danger of self-evident truth; the Quality Religion Case Studies or Surveys; reliance on management perception What is the objective evidence?

Vinod Singhal and Kevin Hendricks - US Baldrige study 1990s (Management Science 1997) Used publicly available data to compare performance of Excellence Award winners and other companies in their sectors Found Award winning companies have superior performance on share price and usual financial measures, for up to five years following an award The perfect investment portfolio! The Excellence Strategy Pays!

Methodology Identify award winners that have effectively implemented the principles of Excellence Identify the year in which a company received a first award Collect accounting data for the award winning companies Identify comparison companies Collect accounting data for the comparison companies Calculate the performance differences between each award winner and its comparison company Trim for Outliers

Key Requirements Companies need to be publicly traded Where an award winner is a subsidiary of a publicly listed company, account data is collected on the parent company Multiple Awards Selection of Comparison Companies Outliers

European Study Data collected Commissioned by EFQM and BQF Undertaken by the Excellence Team then at the Centre of Quality Excellence at the University of Leicester Dr Louise Boulter (Project Leader) – Senior Lecturer Middlesex University Business School Professor Tony Bendell – Services Ltd./Middlesex University Ms Hanida Abas – Gloucester University Prof. Vinod Singhal - Georgia Tec and Prof. Jens Dahlgaard - Linköping University Methodology similar to US study

Creating Matched-Pairs of Companies For each award winning company a comparable company was identified This is based on the following key criteria: Same country of incorporation of the parent company Accounting data available over the same period as for the award winning company Has at least the same first digit industry code as classified by Datastream Is closest in size as measured by total assets at the fiscal year end before the award winning company first won an award, with the constraint that the ratio of value of assets is always less than a factor of three

Time Period for Analysis For the Accounting measures (Assets, Sales, Costs, etc.) we take: The fiscal year the parent company or any subsidiary first received an award The five years before the company received the first award The five years after the company received the first award For Share Value we take: The month (21 trading days) during which the parent company or any subsidiaries received a first award The five years before the company received the first award The five years after the company received the first award

Overview of Key Performance Measures Share Value (Buy & Hold returns) – Primary measure Revenue/Sales measures Cost measures Operating income measures Other accounting based measures

Share Value Primary measure for the study Return on shares that an investor would have earned by investing in companies that have effectively implemented the principles of the EFQM Excellence Model The buy and hold returns for each award winning company has been calculated and compared against buy and hold returns for each comparison company The returns include capital gains, regular dividends and special dividends, having been already adjusted by Datastream for any stock splits The aggregate differences give an estimate of the element of share value that corresponds to the effective implementation of the principles of the EFQM Excellence Model

Size of Study All available European, National and Regional Award winners Numbers reduced due to requirement to be publicly listed plus match pair requirement Overall analysis thus based on population of 120 Award winning companies and their Comparison companies 85 European head-officed companies: 70.8% 35 Non-European head-officed companies: 29.2%

Share Value Mean Difference of % Change in Share Value between each Award Winning Company and the Comparison Company from one year before to various years after winning the first award Mean Difference of % Change in Buy and hold returns Year after winning first Award

Award Winners: One Year Before to One Year After Winning Improvements within a short period of time after having received a first award Compared to the comparison companies award winners experience further mean increases in performance by an average of: 8% in sales 3% in sales over assets 13% in capital expenditure over assets 10% in capital expenditure over sales 12% in assets 3% in employees 1.5% reduction in total cost over sales

Award Winners: One Year Before to Three Years After Winning Compared to the comparison companies award winners experience further mean increases in performance by an average of: 17% in revenue/sales 20% in assets 5% in sales over assets 1.5% reduction in total cost over sales

Award Winners: One Year Before to Five Years After Winning Award winners experience even greater increases in growth and cost efficiency measures Compared to the comparison companies, award winning companies indicate higher performance by an average: 77% in sales 18% in operating income 28% in capital expenditure over assets 30% in expenditure over sales 40% in assets 4.4% reduction in costs over sales

Summary of Findings: An Excellence strategy appears to pay! Improvements in Excellence-focussed companies compared to the comparison companies are more about increased/improved sales and assets etc than cost reduction Its not just about leanness and process efficiency Performance over time is complex and varies between companies, markets and countries

CONTACT INFORMATION: Further details of the study & other research can be obtained from: Dr Louise Boulterl Middlesex University Business School