Strategos Lean Briefing

The Newsletter of Lean Manufacturing Strategy
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Kansas City

11 MAR 2003

Issue# 09

TQM, Six Sigma and Lean Manufacturing 

Does It Payoff for Shareholders? YES, BUT...

TQM and Six Sigma has sometimes been criticized for not bringing benefits to shareholders. For example, several companies that have been recognized for outstanding TQM efforts fell on hard times even when the economy boomed, some prominent financial publications have questioned the value of TQM  and we've all heard horror stories of Lean or TQM gone awry.

Professors Kevin B. Hendricks and Vinod R. Singhal studied some 3000 public firms. They compared financial performance of those using TQM to control groups of similar companies that did not. The TQM firms fared significantly better in, profitability, return on assets and stock performance.

A surprising finding was that financial performance did not degrade during implementation. Implementation cost is not as great as many imagine. In addition, early savings in the first months appear to offset implementation cost. Essentially, the system pays for itself all the way.

On the downside...improved performance depends on an effective implementation (often problematic). In addition, these benefits take years to fullly develop. Here are some findings of this research:

  • TQM companies grew their financial measures, including stock price, at more than twice the rate of benchmark companies.

  • Low capital-intensive companies obtained more financial benefits from TQM then high capital intensive companies.

  • Smaller companies got more benefit from TQM than larger firms.

  • It takes 3-8 years before performance measures and, eventually, stock price reflect the results.

  • Benefits depend on complete and effective implementation. Most efforts do not meet this standard.

  • Performance does not degrade during implementation

  • Visit our latest web page. It summarizes these findings and extrapolates the results to Six Sigma and Lean Manufacturing. You can also download a copy of the original article.

All The Best-

Quarterman Lee


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