The Contribution of Quality Management To The UK Economy

Report for the Chartered Quality Institute
and Chartered Management Institute
The contribution of
quality management
to the UK economy
This report was written and researched by the
Centre for Economics and Business Research (Cebr)
June 2012
This report was written and researched by Daniel
Solomon and Oliver Hogan from the Centre for
Economics and Business Research (Cebr)
The contribution of quality management to the UK economy | CQI and CMI

Contents
EXECUTIVE SUMMARY 02
Brief introduction
Key conclusions of the report
Synopsis of the findings
Estimated quantitative impacts on the economy 03
Overview of the report
1 INTRODUCTION AND METHODOLOGICAL OVERVIEW
1.1 Overview and aims of the report
1.2 A history of quality management
1.3 Structure of the report and overview of study methods
2 LITERATURE REVIEW: THE EFFECTS OF QUALITY MANAGEMENT ON BUSINESS OUTCOMES AND GDP 12
2.1 Literature review introduction
2.2 QM definition and preliminary discussion
2.3 Stock prices
2.4 Customer and user retention and satisfaction, and employee and volunteer satisfaction
2.5 Costs 14
2.6 Financial performance and profits
2.7 Organisational culture 17
2.8 Conclusions from the literature review 18
3 CASE STUDIES: REPORTED EFFECTS OF QUALITY MANAGEMENT ON BUSINESS OUTCOMES 22

3.1 Structure of the case studies
3.2 Manufacturing sector case studies 23
3.3 Defence engineering sector case studies 25
3.4 Engineering and construction sector case study 26
3.5 Legal services sector case studies 27
3.6 Business services sector case studies 29
3.7 Transport and telecommunications sector case studies 31
3.8 Voluntary sector case studies 33
3.9 Public sector case studies 35
3.10 Quality excellence body case study 36
4 SURVEY: REPORTED IMPACTS OF QUALITY MANAGEMENT ON BUSINESS OUTCOMES 40

4.1 Survey introduction
4.2 Survey results and discussion
4.3 Conclusions on the survey findings 42
5 MODEL: ESTIMATED IMPACTS OF QUALITY MANAGEMENT ON HEADLINE UK ECONOMIC INDICATORS 44

5.1 Introduction to the model
5.2 The modelling method, assumptions and limitations 45
5.3 Estimated QM impacts on real annual GDP
5.4 Estimated QM impacts on sectoral production technology 49
5.5 Estimated QM impacts on the Exchequer’s net tax receipts 50
5.6 Estimated QM impacts on employment 51
5.7 Model conclusion 52
6 CONCLUSION 56
6.1 Aims and structural overview of the report
6.2 Summary of the report’s findings
7 BIBLIOGRAPHY 58
CQI and CMI | The contribution of quality management to the UK economy 01

EXECUTIVE SUMMARY
Brief introduction study respondent’s data yielded a Profit RoI of 3:1, implying
This study by the Centre for Economics and Business Research that for every £1 spent on QM, profits increased by £3.
(Cebr) concludes that, not only has the effective application of Finally, one interview respondent, a quality excellence body,
quality management (QM) procedures already contributed to past reported that across 830 business services firms, investing
UK business and economic successes and that it will continue in QM programmes had reduced costs by £18 for every £1
to do so in the future, but that it could well provide an important spent. These impressive RoI findings indicate that if QM
foundation on which future business and institutional success programmes were instituted more widely, businesses would
could be built. Such success is vital to the task of returning the stand to benefit from net reductions in costs and net increases
UK to positive economic growth. in revenues and profits.
At the request of the Chartered Quality Institute (CQI) the Cebr These three conclusions are the final product of the combination
has investigated the economic impact of QM programmes, of primary and secondary data inputs provided through
through its effects on the productivity and success of organisations case studies (based on in-depth interviews), a survey of 120
in the private, public and voluntary sectors. organisations, and a review of the literature on business and
economic effects of QM.
The fruits of our lengthy investigation are contained within the
pages of this report, and summarised in this preamble. Our These three sources were generally coherent with each other.
investigations were carried out in accordance with the study’s Also, because they were independent their coherency indicates
twin research aims to, firstly, demonstrate and quantify the extent that the information they yielded is correct. That is, it is unlikely
to which more effective, intensive and longer-term use of QM that three independent data sources would all be incorrect in
systems and techniques create more productive and successful similar ways. This means that Cebr has every confidence in the
organisations and secondly, to show how this translates into three broad conclusions stated above.
positive effects on headline economic indicators.
Synopsis of the findings
Key conclusions of the report The literature review evidence suggests that effective QM
Overall, Cebr’s investigations of QM in the UK economy point to programmes can contribute to increases in share price, profit,
three broad conclusions: revenue and customer retention, as well as employee, customer
i. 5 Insofar as they have been implemented by organisations in the and user satisfaction. There was also a significant body of
different sectors of the economy, QM systems have already evidence indicating that QM programmes, particularly Lean
contributed substantially to the success of those organisations, programmes, reduce costs. This is especially relevant to public
judged against a wide array of metrics. Return on investment sector organisations1.
(RoI) data support this conclusion, indicating that businesses
can typically expect to make more from their QM systems The evidence reveals that QM mechanisms mitigate the cost of
than they spend implementing them. identifying and rectifying problems during or after production,
ii. 5 Via their impact on organisations’ outcomes, QM systems while raising those expenditures that are focussed on stopping
have, in aggregate, proven themselves important contributors problems before they occur. This cost rebalancing was found to
to the health of the UK macroeconomy. In other words, QM be associated with a reduction in overall costs.
programmes have already improved UK macroeconomic
outcomes significantly. The evidence also supports the contention that QM programmes
iii. 5If QM programmes were instituted more widely by often become effective with a lag, in that their most substantial
organisations in all sectors of the economy, these desirable impacts on an organisation’s economic outcomes can come
effects would become even more pronounced, to the several years after implementation2.
benefit of both the organisations individually and to the UK
economy as a whole. RoI data, estimated from a series of We also find, from the literature review evidence under scrutiny,
in-depth interviews, support this conclusion. Across a number that a precondition of a QM programme’s success is senior
interview respondents, the data indicated an average Revenue management’s active commitment to the programme in the first
RoI of 6:1, i.e. for every £1 spent on a QM programme, place.
revenues were increased by £6. They also indicated an
average Cost RoI of 16:1. This implies that for every £1 spent Responses to the survey questionnaire indicate that QM
on a QM programme, costs were reduced by £16. One case mechanisms were utilised primarily by businesses to control
02 The contribution of quality management to the UK economy | CQI and CMI

cost, and maintain or improve customer retention rates. QM These estimates are the outputs of a spreadsheet-based economic
programmes were also often found to be useful in justifying model which formulates estimates of QM’s effects on headline UK
premium pricing of goods and services. The survey results macroeconomic indicators by utilising the inputs provided by the
generally cohere with the literature. literature review, case studies and survey.
The case studies also tend to cohere with the literature when The cause-and-effect assumption upon which the model was
examining QM’s effects on outcomes for organisations in given predicated – that QM can improve the efficiency of individual
sectors. For instance, case study respondents from all sectors often organisations’ productive processes and that this can improve
identified that their organisation’s QM programme had helped to headline UK economic indicators – was, in turn, premised upon
control costs and/or raise customer retention or satisfaction. widespread conclusions derived from the literature review. As
However, the literature and case studies do not always agree. such, Cebr is satisfied that this assumption is sufficiently robust for
For example, responses to the case study questions in the legal the purposes of this investigation.
services industry suggest that QM mechanisms become effective
comparatively quickly in that sector, more rapidly in fact than in Overview of the report
other types of commerce or industry. In order to garner the research materials needed for such a report,
Cebr gathered primary evidence from three main sources. They
Estimated quantitative impacts on the economy were: (i) an exhaustive global and academic literature review;
Using inputs drawn from the aforementioned sources, Cebr’s (ii) an extensive survey of 120 pertinent organisations; and (iii)
bespoke economic model fulfils the second aim of the report by a quantity of relevant original high-level case studies attained
formulating estimates of QM’s impacts on headline UK economic through interviews.
indicators.
A working definition of quality management (which accords
The model formulates estimates for each year of the 2009-13 with the CQI’s most up-to-date interpretation) is adopted at the
study period, and for an average or typical year of that period. beginning of the literature review. This working definition then
As the completed year with the timeliest data, the model’s applies thematically throughout the report as a whole.
headlined estimates focus, consequently, on 2011. They are:
The study begins with an overview of the historical development
i. 5 GDP of QM. The historical overview itself commences with the
In 2011, Cebr estimates QM procedures contributed £86bn beginnings of modern quality management in armaments’
to Gross Domestic Product (GDP) in real terms (based on production during the First World War, when specialised quality
2009 pounds sterling).3 In other words, we estimate UK GDP managers first began to intercept defective items and had
would have been 6.02% lower than it really was in 2011, had them scrapped or reworked post-production. The subsequent
no QM procedures been in place in the economy. development of QM is then discussed through the prism of
the theorists contributing most to its systems and practice
Furthermore, if QM programmes had been rolled out as fully development, notably Shewhart, Deming and Juran. The
as possible throughout the UK economy then 2011 GDP discussion focuses on their application of statistical methods
might have been £46bn higher (in terms of real 2009 pounds). to quality, and the broader management and organisational
This estimate implies that, in 2011, had QM systems been principles they developed and refined.
implemented throughout the economy, GDP would have been
3.37% higher. Then, in light of US and British concerns over their international
competitiveness in the 1970s and 1980s, and building on growing
ii.5 EMPLOYMENT industrial and political opinion that the promotion of QM could
In 2011, Cebr estimates that QM procedures caused UK supply a desirable additional competitiveness, the introduction
economy-wide employment to be 1.43 million higher than it discusses the wholesale adoption of new QM techniques, such as
would otherwise have been. This means our economic model Kansei Engineering, Continuous Improvement and Lean.
estimates that UK employment would have been 4.94% lower The historical overview finishes by discussing the development
than it actually was in 2011, had no organisation in any sector of QM certificates – such as ISO 9001 and PQASSO – and the
of the economy had any QM procedures in place that year. benefit that organisations derive from them.
Moreover, if QM programmes had been instituted as fully The second part of the introduction explains that the report adopts a
as possible in all sectors of the UK economy, employment diverse set of methodologies: (i) a literature review; (ii) case studies;
in 2011 could have been higher than it actually was by (iii) a survey of 120 organisations; and (iv)the formulation of a new
455,000 jobs. This represents a forgone potential increase in bespoke economic model by Cebr, the purpose of which is to estimate
employment of 1.57%. the impacts of QM on headline UK macroeconomic indicators.
iii. 5TAX RECEIPTS TO THE EXCHEQUER The first three methodological stages are primarily focussed on
In 2011, QM procedures are estimated to have contributed achieving the report’s first aim, and constitute primary sources of
a minimum of £8.4bn (in terms of real 2009 pounds) to the data in their own right for use in the fourth stage.
Exchequer4.
The final methodology, Cebr’s new economic model of the impact
What is more, if QM programmes had been rolled out as fully of QM, uses the primary data inputs provided by the first three
as possible, in 2011 the Exchequer’s net tax takings would methodology stages to estimate the impact of QM mechanisms
have been nearly double that and might have been £8bn (in on headline UK macroeconomic indicators, thus achieving the
terms of real 2009 pounds) higher than they actually were. report’s second aim.

The use of these different and independent methodologies makes organisation’s QM programme had reduced costs.
the report robust, in that it is not solely reliant upon any single data
input or methodological approach. Discussion points throughout The case study results are summarised in section 1.3. The case
the report note that the primary data sources are coherent with studies are grouped into sectors (such as business services,
each other and are mutually independent, further increasing Cebr’s manufacturing, public sector, etc) to enable their sectoral results
confidence in the robustness of the report’s findings. to be compared to the literature’s outline predictions and insights.
This enables Cebr to evaluate how typical of the literature each of
The literature review section of the report discusses the real- the specific case study-grouped sectors are.
world evidence of how QM systems causally affect the outcomes
of private sector businesses, and of public and voluntary sector The grouped sector structure of the case studies also enables
organisations. Effects on the following outcomes are examined: Cebr to highlight interesting points of departure, identifying areas
stock prices, profits, revenues, customer and employee where the QM experiences of specific sectors do not entirely
satisfaction, costs, customer retention and organisational culture. agree with the literature’s predictions.
The literature review finds that QM mechanisms tend to improve
all these metrics, although effects often occur with a lag. These points of departure suggest that, regarding a few specific
outcome metrics, QM programmes impact organisations in a
The main body of the literature review highlights that any one few specific sectors in a manner which is different to that which
QM programme can affect multiple outcomes both directly is predicted by the literature. For example, QM systems seem to
and indirectly, drawing linkages between QM’s effects on these achieve their effects more rapidly in the legal services sector than
different outcomes. the literature would predict. Overall, however, the case study
responses agree with the literature’s predictions across different
In the conclusion of the literature review, the different strands of sectors.
the discussion are brought together in two ways:
Speaking directly to business leaders, where a case study
Firstly, in relation to the analysis of a 1982 UK Government White respondent provided sufficient data, the RoI of his or her
Paper on QM’s potential contribution to the UK macroeconomy business’s QM programme was estimated. These RoI estimates
in the current economic context, Cebr concludes that, taken consistently indicated that businesses achieve gross monetary
together, the widespread implementation of QM procedures can: benefits, in terms of reduced costs or increased revenues and
(i) improve the UK’s international competitiveness; and (ii) boost profits, which far outweigh the cost of their QM programmes.
its rate of economic growth. Across those case study respondent businesses which provided
sufficient information, the data indicated an average Cost RoI of
Secondly, the literature’s discussions which link any one QM 16:1. This implies that for every £1 spent on a QM programme,
programme to changes in several outcomes are tied together in costs were reduced by £16. The data also indicated an average
the framework provided by Deming. In Out of the Crisis (1982) Revenue RoI of 6:1, ie for every £1 spent on a QM programme,
Deming reached the crucial insight that any one QM programme revenues were increased by £6.5 All case study respondents who
could bring about a “chain reaction,” by which the programme provided sufficient data were found to have derived positive RoI
directly and indirectly affects several business or organisational benefits from their QM programmes. The consistency of these RoI
outcomes. This insight is echoed throughout the literature. findings suggests that businesses will generally gain more from
their QM programmes than they spend on them.
Each subsequent section of the report focuses on a different
method of analysis. The analyses in these sections build logically A reassuringly high degree of coherency between the literature
on the results attained by the preceding sections. The overall review and case studies began to emerge and, indeed, in the
structure of the report is ultimately a product of the initial final analysis, the findings of the literature review, case studies
literature review, because: and survey (discussed below) were predominantly found to be
logically coherent and consequently consistent with each other.
i. The working definition of QM which the literature review The report then surveys 120 organisations, asking questions about
adopts defines the limits of the discussions and analyses the effects of QM on their outcomes. The survey data yield two
which take place in the remainder of the report. principal findings:
ii.5 The case studies and survey section are structured in such a
manner that their findings can be easily compared to those 1.5 Q M programmes often induce significant cost savings for
of the literature review. This enabled Cebr to examine how businesses.
coherent the three primary data sources are with each other 2.5 QM programmes are perceived to be a key driver of wider
and thus ascertain, to a certain extent, how much confidence business success. Survey respondents reported their belief
can be placed in the report’s overall findings. Cebr found a that the successful implementation of QM programmes is
high degree of coherency between the three independent particularly important when working to retain customers, and
primary data sources, lending a high level of confidence to justify price premiums on goods and services.
the report’s final conclusions.
The survey findings are presented so that they can be compared
After the literature review, a series of 18 case studies is presented. to the literature review’s findings. The overall picture is one of
A summary of the structure of the case studies and an explanation agreement between the literature and survey findings.
of how they relate to the rest of the report is then given. The survey’s first finding is supported by several papers, which
The case study respondents answered questions as to how far QM found that the implementation of QM programmes, particularly
in their organisation had increased revenues, customer retention Lean programmes, drives down costs across institutions in all
and employee satisfaction. They also discussed how far their sectors. The second finding is given support by a large number

of the papers under review. These papers find that a variety of
QM mechanisms have improved customer retention rates and
revenues, as well as overall financial performance. Because price
premia are a key driver of healthy revenues, these papers support
the second case study finding.
In summary, the findings of the literature review, case studies and

survey were predominantly found to be coherent with each other.
Because these sources were independent, this coherency provides
a strong indication that the data provided by the sources are
correct. It is extremely unlikely that three independent primary
data sources would all be incorrect in the same way.
As a consequence, Cebr has a high degree of confidence in the

report’s findings as they relate to QM’s efficacy in creating more
productive and successful organisations.
References
1. See Cohen and Brand (1993) and the Scottish Executive
(2006) for discussions on Lean programmes’ particular
effectiveness in reducing public sector organisations’ costs.
2. Empirical investigations tend to agree that QM programmes
become effective with a lag, but disagree as to the length of this
lag. For example, Hannah (2011) finds that ISO 9001-certified
businesses’ asset returns become noticeably higher than those
of comparable businesses about two years after certification.
By contrast, Hendricks and Singhal (2001) find that QM
programmes tend to become effective with a lag of up to five
years.
3. The model yields’ estimates for each year from 2009-13 and all
other estimates are given in terms of real 2009 pounds; 2009
is the first year of the model. Presenting the estimates in this
manner strips out the effects of inflation, which reduces the real
buying-power of a pound in each subsequent year. Giving the
model’s annual estimates in terms of 2009 pounds makes the
estimates for each year directly comparable. Achieving direct
comparability in this manner – ie by presenting estimates in
terms of currency in the first year of the model – is standard
practice in multi-year empirical models.
4. Taxes on incomes are not included in these estimates.
5. Only one respondent provided data which enabled Cebr
to estimate a Profit RoI. Hence, no average Profit RoI was
estimated across different businesses. The Profit RoI was found
to be 3:1, implying that for every £1 spent on QM, profits
increased by £3.

1 INTRODUCTION AND METHODOLOGICAL OVERVIEW
1.1 Overview and aims of the report These new mechanisms were dependent on a statistical analysis
This report, commissioned by the Chartered Quality Institute of processes, but QM has since evolved to include a holistic
(CQI), details Cebr’s analysis of quality management’s (QM) toolkit that is applied in all sectors of the economy. Modern-day
contribution to the UK economy. This introduction provides QM mechanisms typically employ statistical process control
context for the rest of the report by summarising the evolution mechanisms, and emphasise management leadership and
of QM since its inception during the First World War. It then employee commitment to quality improvements.
describes the investigative methods used and the report’s
structure. The structure is such that the analysis of each section Noticing that poor-quality military equipment was contributing to
builds logically on the preceding sections. casualties, the belligerent governments instituted QM procedures
in their armaments factories. While these procedures were
The dual objectives of the research were to demonstrate and rudimentary by today’s standards, it is accepted that modern QM
quantify the extent to which more effective, intensive and systems materialised during the First World War. The procedures
longer-term use of QM systems and techniques: (i) creates created a number of quality inspectors who focussed on selecting
more productive and successful organisations by delivering which armaments did not meet required standards after they
demonstrable RoI value; and (ii) affects headline UK economic had been produced. These armaments were then reworked or
indicators. These aims are complementary but distinct, as are the scrapped.6 QM processes during the First World War were simpler
methods used to achieve them. The three investigative methods than those which came after because they focussed primarily on
used in the report - a literature review, case studies and a survey managing quality after production, as opposed to during it.
of 120 organisations – have focussed on achieving the first aim.
We then used a bespoke economic model to gather the evidence More advanced QM mechanisms came about in the mid-1920s
from the three investigative streams as inputs for the purpose when a statistician, Dr Walter Shewhart, formulated the first-ever
of estimating the effects of QM on headline UK economic statistical ‘control chart’ while working in manufacturing at the
indicators. Western Electric Company’s Bell Laboratories in the US. The
contribution of these charts was to quantify the extent to which
This report adopts the CQI’s definition of QM as its own working variation in the outputs of a productive process was caused by the
definition of QM. A short version of the definition is now given to production process itself, as opposed to being caused by factors
contextualise the discussion in this introduction. The full version outside the specified parameters of the process.
of the definition is given and discussed at the start of sub-section
2.2. Under the working definition, QM techniques: (i) are applied This gave the charts two principal functions: (i) they could be
across entire organisations and focus on meeting customer used to reduce variation in output quality which resulted from
requirements; (ii) facilitate the planning of product lifecycles and factors outside the productive process; and (ii) they could inform
delivery; and (iii) quantify all elements of productive processes to changes to productive processes in order to alter the quality of
drive continual improvements in quality. This working definition outputs. This innovation was the first attempt to determine how
of QM ensures that only those organisational practices that have a productive processes affected the quality of outputs, and to tie
prima facie right to be called QM are discussed in this report. the quality of outputs closely to productive processes. Previous
attempts to control output quality (during the First World War)
1.2 A history of quality management focussed largely on rejecting units post-production. Shewhart’s
The development of modern QM has been driven by the unique innovation was to use statistics to analyse and alter
innovations and ideas of notable individuals. These have altered productive processes with the aim of stopping defects before they
the way in which entire businesses manage quality, and have occurred in the first place.
led to radical changes in the business culture and practices
of entire countries. In particular, they have promoted the role During the inter-war and Second World War periods, Shewhart’s
of management and the active involvement of staff in driving ideas were built on by Deming, Dodge and Roming. While all
quality improvements. Modern QM began modestly during the of their contributions were important, we focus on Deming’s
First World War, when armaments were sent back for fixing or pre-eminent role. Deming realised that Shewhart’s methods could
discarded if they did not meet quality standards after they had be applied outside of manufacturing and provided four principal
been produced. By the mid-1920s, QM systems had shifted their innovations:
focus to analysing and altering productive processes, to stop
defects before they became apparent in finished products. This 1. He explained that statistical sampling methods could be
reduced the need for post-production reworking or scrapping. used to inform QM processes and regulate the quality of

outcomes.7 These techniques were applied by the United always outweigh the costs of its implementation, hence the title
States Government during the Second World War. of his book, Quality is Free. Crosby suggested that producing
some positive number of defective units did not need to be an
2. He undertook a quantitative analysis of organisational inherent feature of any given productive process, maintaining that
structures to pinpoint the causes of quality failures. He it is possible to reduce defective units to nil, whilst still meeting
found that systemic weaknesses in productive systems and product specification and customer requirements. Crosby’s ideas
poor management processes had caused the majority of contributed to attempts by businesses in the USA to address the
quality failures – that is, he found that design flaws inherent issue of strong quality competition from Japanese businesses.
in the productive processes themselves often necessitated a Crosby’s main practical achievement was to realise substantial
disappointingly high proportion of defective units of output. reductions in defect rates whilst employed as the quality control
Deming also found that poor management had a similar manager of the Pershing Missile Programme.10
effect.
The 1982 UK Parliament White Paper entitled ‘Standards, Quality
3. Based on these findings, he suggested that the onus was on and International Competitiveness’ noted that “success in world
management to remain committed to the rectification of markets increasingly depends on a supplier’s ability to satisfy
process failures, and to engender an environment in which customers on… quality.” Hence, the White Paper suggested that
workers – in whom he advocated vesting a key role in the QM the widespread implementation of QM systems by UK firms will
system – could flag up and rectify deficient processes. “strengthen its [the UK’s] international competitiveness.”
By increasing the total value, quality and quantity of exports, the
4. The Plan-Do-Check-Act cycle. This is an iterative process in White Paper anticipated that the adoption of quality management
which an organisation: (i) Plans, by establishing the processes techniques would boost UK economic growth.
necessary to achieve its specified quality aims; (ii) Does, by
carrying out the process and producing the finished goods or Since then, QM has continued to develop and its techniques are
service while making sure to collect quantitative data on the now applied widely by private sector manufacturing and services
process and the quality of its outputs; (iii) Checks, through businesses and by public and third sector organisations. Modern
analysis of the data collected, identifying disjoints between QM techniques include:
the output quality desired in the planning phase and that
which was achieved in the doing phase; and (iv) Acts, by i. Kansei engineering: this technique aims to incorporate the
augmenting its processes in line with the data analysis to emotional and psychological requirements of the customer
move the quality of outputs closer to their desired level.8 into the features of a product or service. As such, Kansei
engineering uses statistical techniques to enable customers’
During the post-WWII period, Deming exerted a significant psychological requirements to inform product parameters.
influence on Japanese QM culture. Japanese industrialists were Statistical techniques are also used to refine productive
keen to use his ideas to re-grow their economy following defeat processes so that deviations from those parameters are
by the Allies. The application of Deming’s ideas contributed to minimised.
improvements in the quality of Japanese goods. Deming’s ideas
were encapsulated in his seminal work, Out of the Crisis and ii. Taguchi methods: a set of QM techniques focussing on
the Deming Prize was established in Japan in recognition of his product and service design quality. The rationale for these
unique contribution to QM. techniques was the belief that it is more cost-effective to
design products and services effectively than to correct defects
Following Deming, Juran (1951) made significant contributions during or after the production process.
to the theory and practice of QM.9 He highlighted that the quality
of a product or service should take account of the degree to iii. Six Sigma: this technique was developed by Motorola in
which it satisfies customer expectations, as opposed to purely 1986 and aims for the complete elimination of the causes
capturing the degree to which it satisfied technical specifications. of defects and product variation through the application of
He pioneered the ‘Costs of Poor Quality’ approach which allowed statistical methods. Six Sigma techniques have four principal
organisations to quantify the cost of quality failures, making QM characteristics: (i) they focus on quantifying the impact
achievements directly comparable across organisations. Like that process improvements have of financial returns; (ii)
Deming, Juran believed that workers had a key role to play in they emphasise the necessity of active leadership by senior
continuously driving quality improvements. Juran also exerted management to drive forward process improvements; (iii)
significant influence on Japanese QM culture. they seek to integrate human elements – eg workplace culture
and customer relations – and process elements – eg process
By the 1970s, the high quality of Japanese goods was beginning management and statistical analysis – to achieve process
to weigh down on markets in the USA, which were producing improvements; and (iv) they use a defined set of tools to
comparatively low quality products. It was in this context that improve processes in a sequential and consistent manner.11
Crosby wrote Quality is Free in 1979, emphasising the notion of From its beginnings in the manufacturing sector, Six Sigma
Zero Defects. is now applied widely in private sector services, and in the
public and third sectors.
Crosby maintained that it is possible to design and implement
processes which do not produce any defective outputs. He iv. Continuous Improvement: this set of techniques emphasises
argued that this should be the aim of QM processes, maintaining an employee-led gradual improvement in productive
that allowing some positive proportion of goods or services techniques. This purports to deliver three principal benefits: (i)
produced to be defective actually encourages defects. He also ongoing incremental changes are unlikely to disrupt product
argued that the benefits of a robust QM programme almost or service production to the same extent as larger (such as

R&D-based) changes; (ii) they tend to be less expensive ii. The Six Sigma certificate has its origins at Motorola in the
than changes arising from specific (such as R&D or external 1970s, resulting from senior executive, Art Sundry’s criticisms
consultancy-based) QM initiatives, because such changes flow of the business’ quality procedures and standards. The term
from the day-to-day work of employees; and (iii) continuous Six Sigma is derived from a statistical condition under which
improvement mechanisms might identify improvements almost all units produced meet specifications – emphasising
which other QM techniques could have overlooked because a focus on solving quality problems through data analysis.
employees, being closer to the production process, might The Six Sigma certificate can be awarded to individuals in
identify improvements which management could miss, and all sectors according to their degree of proficiency with Six
because the process is employee-led.12 Sigma procedures and standards. For example, indicating
increasing degrees of competency, certificated individuals
v. Lean: this is a comprehensive set of QM techniques aimed are awarded the following titles: ‘Green Belts’, ‘Black Belts’,
at eliminating wasteful or inefficient steps in the production ‘Master Black Belts’ and ‘Champions’. These individuals
process of a good or service. The process also focuses on drive the implementation of a Six Sigma programme within
increasing the flow and synergies between steps, thereby an organisation. Six Sigma requires: (i) a drive to reduce
reducing their overall costs. Toyota was the first proponent process variability; (ii) the measurement and improvement
of Lean, defining the approach as having five principal of the characteristics of productive processes; (iii) senior
components: (i) specification of the value desired; (ii) management that actively drives forward improvements;
identification of the value stream and challenging the (iv) the attainment of quantifiable financial returns for any
wasteful steps; (iii) make the product flow continuously; (iv) Six Sigma project; and (v) a commitment to making quality
introducing pull between all steps; and (v) continuous falls decisions based on data analysis.17 Many different bodies
in the time and information needed to serve the customers.13 award Six Sigma certification, and certification requirements
Since then, authors have identified two principal aims of are subject to some variability depending on the awarding
Lean, now accepted as conventional wisdom, as being: (i) to body.18 For instance, the American Society for Quality requires
deliver consistent value to the customer while reducing the Black Belt applicants to demonstrate substantial practical
costs of productive processes, thereby raising profits; and (ii) experience in applying Six Sigma and to pass an exam.19
to increase the final value the customer receives.14 Other organisations, including Air Academy Associates,
Six Sigma Qualtec and Aveta Business Institute, also offer
Finally, in recognition of its importance, a large body of certification.20 Just like Motorola in the 1970s, many
QM certificates have evolved. In general, these certificates organisations certify their employees using procedures which
enable organisations and individuals to demonstrate that they are (at least partially) internal, while others outsource part
have achieved a level of proficiency in a given set of quality of the certification process. For instance, the International
management techniques. Interestingly, several case study Quality Federation provides Six Sigma exams for organisations
interviewees noted that the process of working to attain these to use in their internal certification procedures.
certificates improved their QM procedures (see the case studies
in section 4.) Three of the most widely applied certificates iii. The PQASSO certificate is widely applied in the voluntary
are now described here. These certificates were chosen, not sector.21 Under the PQASSO framework, a voluntary sector
as an exhaustive description of the current QM certification organisation may be awarded a Level 1, 2 or 3 certificate,
environment, but rather to capture some of what is a wide indicating basic proficiency, advanced proficiency and
spectrum of available QM certification techniques in terms of the outstanding performance, respectively, in 12 aspects of
sectors they apply to, their requirements, and whether they are quality. These are planning, governance, leadership and
awarded to individuals or organisations: management, user-centred service, managing people, learning
and development, managing money, managing resources,
i. The ISO 9001 certificate is applicable to organisations in the communications and promotion, working with others,
private, public and voluntary sectors. ISO 9001 is awarded monitoring and evaluation, and attaining results. To reach a
to an organisation, or some part of an organisation, by an particular level in a given aspect of quality, an organisation
independent certification body15, provided: (i) its quality policy must meet the relevant indicators for that level and plan for
is actively followed by all employees and is driven by senior necessary improvements. To attain PQASSO certification, a
management; (ii) its QM decisions are based on an analysis voluntary sector organisation undertakes a self-assessment
of relevant data and the QM system is subject to regular exercise which must then be independently verified by
review; (iii) it communicates with customers, ascertaining “PQASSO Quality Mark peer reviewers – members of the
their requirements via formal communication procedures, voluntary and community sector who are specially trained
and its QM systems are informed by these communications; and supported by Charities Evaluation Services to carry out
(iv) its QM policy is formally stated and linked to customer reviews of organisations against the PQASSO standards”.22
requirements; (v) product and service development is The external assessment is comprehensive, involving a review
rigorously planned and linked to QM procedures; and (vi) of documentation, interviews with staff and board members
the organisation regularly reviews its own performance and evidence gathering.23
via a system of internal audits, thereby alleviating past and
potential future QM problems. The certificate also requires From simple beginnings in the First World War armaments
that organisations document their quality policies, QM industry, and then as a purely statistical control methodology
procedures, QM verification and improvement procedures, in private sector manufacturing in the 1920s, QM has gradually
audit procedures and control procedures. For ISO 9001 to be expanded to influence management and worker practices and
awarded to an organisation, or some part of it, the certification culture. QM is now applied widely in all areas of the private,
body must be satisfied that it has achieved and maintained a public and third sectors and there has occurred a proliferation
high standard in all of the above areas.16 of QM techniques and certifications. Even at the level of entire

nations, the effects of QM cannot be understated. The embrace of This allows Cebr to investigate how far real-world organisations’
QM was a key factor in Japan’s post-war economic recovery and, experiences cohere with the literature’s predictions. The case
in response to the dynamism QM lent to Japanese manufacturers studies will be grouped by sector and the extent to which each
relative to their own, Western economies saw little choice but sector’s case study results are consistent with the literature will be
to adopt QM practices and philosophies. For the UK, this report discussed.
aims to present evidence demonstrating the extent to which
the adoption of QM has: (i) improved public and private sector In cases where the case study respondent has provided
organisations’ outcomes; and (ii) has impacted on headline sufficient information, Cebr will endeavour to estimate his or
economy-wide indicators. her organisation’s RoI from QM.25 In all cases, Cebr found that
respondents’ companies had received significant RoI benefits
1.3 Structure of the report and overview of study methods from their QM programmes. They gained more in terms of
In order to achieve these objectives rigorously, the study adopted increased profits, increased revenues and reduced costs than
a diverse set of methodologies: a literature review; case studies; they spent on their QM systems. The consistency of these findings
a survey of 120 organisations; and the formulation of a bespoke means it is reasonable to infer that, as a general rule, private
economic model to estimate the effects of QM on headline UK sector companies can expect a positive RoI from their QM
economic indicators. The use of several methodologies means programmes, ie they can anticipate making more from their
that the report’s results are not wholly reliant on any single QM programmes than they spend implementing them.26
method of analysis, making them more robust. The literature
review, case studies and survey focus largely (although not The results of a survey of 120 organisations will then be
exclusively) on achieving the report’s first objective: analysing presented. These results show QM’s impact on the survey
the extent to which QM creates more productive and successful respondents’ organisations’ outcomes, naturally building on the
organisations. The model furthers the report’s second aim by literature review and case studies which analysed the same issue.
providing estimates of QM’s impact on headline UK economic The survey results will be compared with our findings from the
indicators. literature review and the case studies, thus providing another
measure of how far real-world organisations’ experiences agree
Each section of the report focuses on a different method of with our findings from these processes. Broadly, the literature and
analysis. The analysis in each subsequent section of the report survey results are mutually supportive of each other. However,
builds logically on the results presented in the preceding sections, there is one point picked up by the survey which the literature
and the overall structure of the report is ultimately a product of does not address, which is, that businesses may be underinvesting
the initial literature review. and under-incentivising QM.
The literature review adopts a working definition of QM (which The following are details of the construction of Cebr’s bespoke
applies to the literature review and to the report as a whole) economic model, which seeks to analyse QM’s effect on four
before discussing the findings of the literature review as to how key UK economic indicators: GDP; the efficiency of sectors’
QM has affected different outcomes. These outcomes cover: (i) productive technology; employment; and the Exchequer’s net
stock prices, (ii) customer and user retention and satisfaction, tax receipts.27 Detail of the model’s construction is reserved until
and employee and volunteer satisfaction; (iii) costs; (iv) financial nearer the end of the report, because it builds on the evidence
performance and profits; and (v) organisational culture. Using this base provided by the literature review, case studies and survey
outcomes-based structure, the literature review discusses how results. For now, five points should be noted:
the application of QM techniques has affected these outcomes in
the public, private and voluntary sectors. Linkages between QM’s i. The model sought to estimate the values headline UK
effect on the different outcomes are discussed throughout, and economic indicators would assume under two scenarios: the
general conclusions are drawn at the end of the literature review. first, if no institutions had implemented QM at all; the second,
if all institutions had implemented QM as fully as possible.
The remainder of the report builds on the literature review, The use of scenario-based analysis enables the model to
using it to inform the structure of the case studies and survey. estimate the effect QM has already had on the UK economy,
The results of the literature review are compared to those of the and the further benefits which could result if it were rolled out
case studies and survey, to determine the extent to which the more comprehensively.
three different elements of the evidence base are consistent.
Finally, Cebr’s bespoke economic model builds on these three ii. The model attains these headline results by breaking the entire
elements, using the quantitative data they provide as inputs in economy down into eight broad sectors, analysing the effects
order to estimate the UK economy-wide impact of QM. The QM has on outcomes in each of these sectors, and then
model is not an evidence source in its own right. Rather, it is a aggregating the results.
tool of analysis which uses the evidence base provided by the
literature review, case studies and survey to estimate the effect of iii. The theory underlying this sector-based methodology,
QM on headline UK economic indicators.24 Cobb-Douglas production functions, is well-established in
the economic literature. The model estimates QM’s effect on
Following the literature review, the report moves on to consider sectoral production technology (as operationalised within the
the case studies that were formulated based on a process of in- Cobb-Douglas framework) and this feeds through into how
depth interviews that formed part of the research brief. Following QM affects the sectoral outcomes.
the objectives of the literature review, these case studies seek to
determine how QM techniques have affected the outcomes of iv. The modelling estimates of interest are QM’s effects on UK
different organisations. The case study responses will be linked to economy-wide GDP, net tax receipts and employment. The
the literature by examining the extent to which they agree with it. model also provides estimates for how QM implementation

has affected the production technology in each of the eight 18. C ordy and Coryea (2006), Champion’s Practical Six Sigma
sectors. Summary, Xlibris Corporation
19. Keller
(2004), Six Sigma Demystified, McGraw Hill
v. Cebr’s bespoke economic model uses data from the 20. Webber and Wallace (2007), Quality Control for Dummies,
literature review, case studies and surveys as inputs to Aspen Publishing
formulate estimates of the UK economy-wide impact of QM 21. In previous iterations of the certificate, PQASSO was an
mechanisms. The model cannot, therefore, be thought of as a acronym for ‘practical quality assurance systems for small
source of empirical evidence in and of itself – rather, it uses organisations’. The current version of the certificate is
empirical evidence to estimate the effects of QM. Because the designed to apply to organisations of all sizes, not just small
model is reliant on these inputs, its accuracy as an estimation organisations. Hence, under the current version of the
tool is entirely dependent on the extent to which those inputs certificate, PQASSO does not stand for anything.
are themselves accurate. 22. C harities evaluation services, CES (n.d), ‘How to achieve the
PQASSO quality mark’, http://www.ces-vol.org.uk/index.
The report closes with a concluding section, in which we cfm?pg=331
summarise the report’s aims, methodological rationale, and 23. S ee the Charities Evaluation Services, CES (n.d), ‘About
principal findings. PQASSO’, http://www.ces-vol.org.uk/index.cfm?pg=172, for
more on this discussion.
References 24. The model’s findings will not be compared to those of the
6. Murray (1997), ‘Thinking about revolutions in military affairs’ literature review, case studies and survey. Such a comparison
and (anon, n.d.) Handbook for TQM and QCC – Volume 1. would be redundant because the model – being built on
7. Deming and Stephan (1940), ‘On a Least Squares inputs from the literature review, case studies and survey –
Adjustment of a Sampled Frequency Table When the will cohere with them by construction. For the same reason,
Expected Marginal Totals are Known’, Annals of Mathematical the model’s estimates of the effects of QM on headline UK
Statistics, Vol 11, Number 4, pp. 427-444. economic indicators will be accurate insofar as the inputs
8. Moen and Norman (2011), ‘Evolution of the PDCA Cycle’ from the literature review, case studies and survey are correct.
(article). 25. This analysis of RoI does not relate directly to the literature
9. Juran (1951), Quality Control Handbook, McGraw Hill. Also review, because the literature does not focus directly on the
see, Juran (1964), Managerial Breakthrough, McGraw Hill. RoI of QM. The rationale underlying the organisation-level
10. The Pershing Missile was developed during the Pershing RoI analysis is to speak directly to businesses and non-private
Missile Programme, managed by the US Army Missile sector organisations, providing indicative examples of the
Command (MIMCOM). The Pershing Missile was in service benefits they might expect to see per pound invested in QM.
from the mid-1960s until 1991. Named after US General John 26. C ebr has estimated average RoIs using the case study data
Pershing, the rocket was a two-stage, solid fuel, medium-range (see this report’s Executive Summary and Conclusion). The
ballistic missile. It was used by the US army and West German business-specific RoI estimates which Cebr used to calculate
air force. these average RoIs varied significantly. Hence, we claim
11. Anthony (2008), ‘pros and cons of Six Sigma: an academic with a middling degree of confidence that the magnitudes
perspective’, www.onesixsigma.com of these average RoI estimates are representative of a typical
12. Imai (1986). Kaizen: The Key to Japan’s Competitive Success, company’s experience. However, the RoI estimates mean that
McGraw-Hill/Irwin Cebr is very confident that a typical company can expect to
13. Points iii and iv, when taken together, can be interpreted as gain more from implementing a QM programme than it costs
meaning that Lean programmes should introduce synergies them to implement it.
between the different steps of a productive process. An 27. This refers to QM’s effects on those net tax receipts which are
example is used to fix ideas. Suppose the first step in a derived from taxes and subsidies on products and production
productive process (A) is to make parts which are assembled only.
during a second step (B). The following synergy could be
introduced: workers from step B could ask their colleagues
in step A to give them parts in an order which makes
assembly easier. This would tailor step A to step B, lowering
B’s assembly costs and the overall costs of the production
process.
14. Liker, (2004), The Toyota Way: 14 Management Principles
from the World’s Greatest Manufacturer, New York:
McGraw-Hill.
15. These certification bodies derive their competence to issue
ISO 9001 certificates – ie they are accredited by independent
national accreditation bodies. Agreements between
certification and accreditation bodies ensure that ISO 9001
certificates are accepted globally.
16. Please see ISO (n.d.), ‘Management and leadership
standards’, http://www.iso.org/iso/iso_catalogue/
management_and_leadership_standards.htm for more on this
discussion.
17. Anthony (2008), ‘Pros and cons of Six Sigma: an academic
perspective’, www.onesixsigma.com

The contribution of quality management to the UK economy <#>
2 LITERATURE REVIEW: THE EFFECTS OF QUALITY
MANAGEMENT ON BUSINESS OUTCOMES AND GDP
2.1 Literature review introduction This literature review and the report as a whole adopt the working
This literature review discusses the real-world evidence of how definition of QM used by the CQI itself: “Quality management is
QM systems causally affect the outcomes of private sector an organisation-wide approach to understanding precisely what
businesses, and of public and voluntary sector organisations. customers need, and consistently delivering accurate solutions
The section seeks to further Cebr’s first research objective, that is within budget and on time. QM techniques ensure the effective
to demonstrate and quantify the extent to which more effective, design of processes that verify customer needs, plan product
intensive and longer-term use of QM systems and techniques lifecycle and design, and produce and deliver the product or
creates more productive and successful organisations. service. Finally, QM techniques measure all process elements,
the analysis of performance and the continual improvement of
In concluding our findings from the literature review, the different the products, services and processes that deliver them to the
strands of the discussion are pieced together to suggest that the customer.” This definition provides a rigorous description of QM,
widespread implementation of QM procedures can: (i) improve facilitating Cebr in determining which organisational practices
the UK’s international competitiveness; and (ii) boost its rate of have a prima facie right to be referred to as QM. At the same
economic growth. This furthers Cebr’s second research objective, time, it is not unduly restrictive. The application of this definition
that is to examine how QM programmes, taken in aggregate, in the literature review and throughout the report ensures that the
affect headline UK economic indicators. report’s findings will be attributable only to those organisational
practices which the CQI defines as QM.
The review adopts a structure whereby QM’s effects on different
outcome metrics are examined, cutting across the public, private The following preliminary discussion highlights four difficulties
and voluntary sectors. QM’s effects on the following outcomes that occur throughout the discussions of QM in the literature.
are examined: (i) stock prices; (ii) customer and user retention These will not be referred to going forward, but the reader should
and satisfaction, and employee and volunteer satisfaction; (iii) be aware of them:
costs; (iv) financial performance and profits; and (v) organisational 1. While this report adopts a working definition of QM, there
culture. The linkages between QM’s effects on these outcomes is actually no single widely-agreed definition of QM used in
will be highlighted throughout the literature review. This structure industry or across the public or third sectors. This means that
was chosen for three reasons: the precise features of any given QM programme will be case-
i. There are linkages between QM’s effects on these different specific. A QM programme may take the form of a Six Sigma,
outcomes and this structure enables those linkages to be Kaizen, ISO 9001, Total Quality Management (TQM), Taguchi,
highlighted. Any one QM programme or award can directly Lean Manufacturing, Kansei Engineering or another, perhaps
affect a number of different outcomes for an organisation. bespoke, programme.
For instance, a single programme might affect both costs and 2. The causal effects of specific QM mechanisms are difficult to
customer retention. Furthermore, any given programme might tie down. For example, if a business experiences rising profits,
also have indirect effects. For example, a QM programme it is difficult to determine the extent to which the rise was due
could improve employee satisfaction and this, by making to its QM mechanism(s) or to changing market conditions.29
employees more productive, could go on to increase profits. Statistical articles are generally better at identifying QM’s
ii. Similar (although non-identical) outcome metrics are affected effects than non-statistical papers.
by QM across the public, private and voluntary sectors. The 3. There is often a gap in time, or ‘lag’, between the
similarity of these metrics across the different sectors means implementation of a QM programme and its effects on
that it is appropriate to examine QM’s effect on them by outcomes.
cutting across the different sectors. 4. Authors tend to focus on reporting cases in which QM
iii. Often, a given article or book examines the effect that a wide programmes have been successful. Hence, the literature may
range of QM practices have on specific outcomes.28 Hence, well exhibit some bias in favour of successful cases of QM
the literature does not lend itself to being broken down by implementation.
different types of QM system, but does lend itself to being
broken down by QM’s effects on outcomes. The 1982 UK Parliament White Paper entitled ‘Standards, Quality
and International Competitiveness’ noted that “success in world
2.2 QM definition and preliminary discussion markets increasingly depends on a supplier’s ability to satisfy
The literature review begins by adopting a working definition customers on… quality.” The White Paper concluded that if UK
of QM and caveats the analysis by highlighting the four main businesses implemented QM systems widely, this would increase
difficulties associated with discussions of QM. the UK’s international competitiveness and economic growth.

The literature review discusses how QM systems causally affect Linked to Hendricks and Singhal’s work, for “ISO 9001 and
the outcomes of private sector businesses, and of public and the bottom line,” Hannah (2011) conducted a review of the
voluntary sector organisations. literature examining how the attainment of ISO 9001 certification
affected stock prices against a benchmark index.35 The paper
In concluding the literature review, the body of evidence is notes that “over a 10-year period, ISO 9001-certified companies
brought together in two ways. Firstly, there is a discussion about outperformed the market by more than 100%.”
the extent to which the literature reviewed, when taken as a
whole, supports the White Paper’s conclusion. Secondly, it is Hannah’s comparison, while providing a strong indication that
noted that the main body of the literature review examines how ISO 9001 lends businesses substantial benefits in terms of impact
QM programmes affect different outcomes, drawing linkages on stock prices, does not prove the point conclusively. It could
in cases where a QM programme has a significant impact on be the case that higher-quality firms, which would have attained
several outcomes at once. Building on the discussion of these comparatively high stock prices anyway, are also those who were
linkages, under the framework provided by Deming’s (1982) Out more likely to attain ISO 9001 certification. Hannah (2009) also
of the Crisis, the second part of the conclusion ties together the finds that the share price differential of ISO 9001-certified firms
discussions on how QM affects different organisational outcomes. and non-certified firms grows over time. This suggests that ISO
It does this by placing the discussions in the context of Deming’s 9001 becomes more effective the more time it has had to become
pivotal ‘chain reaction’ realisation.30 This shows that as well as embedded – ie it becomes more effective with a lag.
having an effect on the individual outcomes of an organisation
taken separately, a QM programme is likely to act on the entire IMD International (2003a) examined a selection of QM failures in
organisation, improving all its outcomes in step with each other. the consumer goods manufacturing sector. These tended to have
a significant and persistent impact on businesses’ bottom lines,
2.3 Stock prices even after the failure was remedied. In June 2000, tainted Snow
The literature presents compelling evidence that QM Brand milk made 14,000 people unwell over a two-month period.
mechanisms, when implemented effectively, have exerted upward The real value of the company (stock price) fell by one-third in
pressure on stock prices. Corroborating this, we also found that two weeks. The effects proved persistent. After the scare, the
QM failures can exert downward pressure on stock price. new Snow Brand president predicted: “It will take several years
before we become what we were [prior to the scare].” Whereas
Across all sectors, Hendricks and Singhal’s (2001) statistical Hendricks and Singhal found that QM programme success could
research examined the effects of the successful implementation induce long-term stock price increases, IMD International found
of Total Quality Management (TQM) programmes on 608 the reverse side of the coin; a QM failure can induce a long-term
businesses’ long run stock prices in North America for the period stock price fall. The Hendricks and Singhal and IMD International
1983-94.31 The long run stock price of a listed company can be findings logically cohere with each other.
considered a proxy for the net present value of its discounted
future cash flows – ie its real value.32 The authors proxied In the shipping services sector, Farhoomand (2004) examined
successful implementation of TQM programmes by a company Eurasia International’s application of TQM. Eurasia managed
through its winning of quality awards.33 Hendricks and Singhal ships owned by third parties and used TQM to “create value
compared the stock prices of businesses which successfully for… stockholders”. Eurasia’s TQM programme involved
implemented TQM measures (under this framework) against substantial management restructuring. Organisation-wide quality
similar businesses which did not.34 performance standards and a new triple monitoring system were
implemented. Within 10 years, Eurasia’s efforts were yielding
Hendricks and Singhal (2001) contains two main findings. First, “good financial results,” and benefitting stockholders.
during the post-implementation period, TQM implementation
was linked with increased long run stock price relative to 2.4 Customer and user retention and satisfaction, and employee
matched control businesses. The variable of interest was the and volunteer satisfaction
mean buy-and-hold abnormal returns (BHAR) long run stock The literature provides evidence that QM mechanisms, if correctly
price for the sampled TQM-implementing businesses (ie award instituted, exert upward pressure on customer and service user
winners). The BHAR is “the difference between the … [stock retention and employee satisfaction.
price] returns of the sample business [which implemented a
TQM programme] and its benchmark control business [which Farhoomand’s (2004) examination of TQM as applied by Eurasia
did not].” When sample businesses and controls were matched International, found that the company’s efforts induced “high
by industry only, the mean BHAR was 37.8% higher for the levels of customer retention and employee satisfaction.” Staff
sample businesses than for the matched businesses. When they turnover fell from 44% in 1994 to 1% in 2004.36 The case study
were matched by industry, business size and BM ratio, the mean provides strong, but not statistically conclusive, evidence that
BHAR difference was 44.7%. Second, during the implementation Eurasia’s TQM programme caused these tangible benefits.
period, successful TQM implementation was not found to be
linked to a stock price increase relative to matched control In the Australian manufacturing sector, Oliver and Qu (1999)
businesses. Ultimately, the authors concluded that successful examined the effects of QM systems that had been implemented
TQM programme implementation “does lead to improved long by firms certified under the AS/NZS 9000 standard. For the period
run financial performance,” but these results only materialise with 1992-96, they found that customer complaints had fallen for
a lag. Hendricks and Singhal’s (2001) use of advanced statistical 66.6% of the businesses which had introduced a QM system.
methods (comprehensively tested) mean that we can be confident This was partially due to QM reducing the reworking or scrapping
that TQM’s causal effects have been identified. of goods for 69.2% of businesses implementing it. Overall, the
introduction of QM systems decreased customer complaints
and increased customer satisfaction. Making the reasonable

assumption that an existing customer is less likely to defect the user retention in the UK voluntary sector.40 The Centre’s
happier he or she is with the company’s product, Oliver and Qu report identified three mechanisms whereby the successful
(1999) suggests that winning AS/NZS 9000 certification also helps implementation of QM programmes improved volunteer and
businesses increase customer retention.37 employee satisfaction and service-user retention.41 PQASSO
was often found to have had a particularly marked impact.42
In the financial services sector, Reichheld and Sasser (1990) found The report concluded that:
that QM systems improved customer retention rates. They pointed i. QM increased opportunities for stakeholders to “work
to MBNA America (a credit card company) that undertook a together... to address issues of common concern,” fostering a
quality improvement drive for the period 1982-1990. By 1990, willingness to challenge ingrained practices. In particular, by
MBNA America’s customer defection rate had fallen to 5% versus increasing employees’ and volunteers’ ability to work together
a 10% industry average. Their case study-based paper does not to address common concerns, PQASSO increased workplace
rigorously prove that QM systems improve customer retention satisfaction.
rates, but it does provide convincing evidence to support the ii. QM systems improved service development and provision,
argument. but identifying causation proved difficult. Echoing others, one
organisation commented that “we now offer better services
Osseo-Asare et al (2007) examined how eight TQM practices [and] membership has increased by 50%, which we attribute
affected “academic quality improvement” in UK higher to… the PQASSO process.” Via improvements in service
education, using cross-sectional data drawn from 42 UK Higher provision, QM put upward pressure on service-user retention.
Educational Institutions (HEI). To the extent that TQM programmes iii. QM certification increased organisations’ legitimacy
improve the quality of academic outcomes, they will – it was with stakeholders (eg service users, fundraisers and local
assumed – have increased student satisfaction. All other things authorities). One respondent noted that PQASSO certification
being equal, this will have decreased the drop-out rate, increasing “has given us external credibility.” Bespoke QM mechanisms
student retention. Principally, Osseo-Asare et al found: were also commented on as having had a similar effect.
1. 27 out of 42 HEIs... thought their QM practices were “highly By increasing organisations’ perceived legitimacy, the
efficient” in the management of resources for achieving institution of QM mechanisms should exert upward pressure
academic quality improvement objectives. on customer and service-user retention, and employee and
2. 19 of the 42 HEIs reported that “using relevant and reliable volunteer satisfaction.
information” proved “‘highly’ or ‘very highly’ effective” in
improving academic quality outcomes. 2.5 Costs
3. 16 of the HEIs responded that “efforts to empower staff” were The literature identifies two ways in which the application of
“‘highly’ or ‘very highly’ effective” in improving academic QM mechanisms improves cost efficiency. They restructure
quality outcomes. organisations’ cost base, which feeds through into higher profits
4. 13 reported that “efforts to meet and exceed stakeholder for the private sector. They also reduce costs per unit of a good
needs” proved “‘highly’ or ‘very highly’ effective” in or service produced. The improvement of cost-efficiency by QM
improving academic quality outcomes. mechanisms is closely linked to profits, an issue which will be
explored here and in the next sub-section. There is some evidence
Osseo-Asare et al (2007) found evidence that UK HEI respondents that QM mechanisms reduce costs more effectively in the private
believe that TQM practices have improved academic quality. sector than in the public sector. Finally, because public sector
As a consequence, TQM procedures can be expected to have institutions do not have profits per se, costs are treated as their
increased student satisfaction and decreased student attrition.38 headline financial indicator. As such, QM’s effects on public
sector costs are discussed both in this sub-section and in the
Staying with the public sector, the Health Foundation (2006) and following sub-section, which focuses on financial performance
the Dr Foster Hospital Guide (2009) shift the focus to QM’s effects and profits.
on patient satisfaction in the NHS. Both found that patient health
and mortality monitoring mechanisms improved NHS care quality Across the private sector, Levine and Toffel (2010) used the
– the supposition being that this improved care quality went on results of a 1,000-firm Californian panel data study to identify
to increase patient satisfaction.39 The Health Foundation found the relationship between QM and “per worker accident costs,”
that “patients… want information about service quality so they by examining the effects of adopting ISO 9001 on this metric.43
can make informed choices” about where to seek healthcare. The Levine and Toffel’s results came from a rigorous application of
clinical monitoring mechanisms attain this information, which statistical methods.44 They attained two principal findings: Firstly,
patients then have access to. By providing information about at the time of adopting the ISO 9001 standard, businesses which
service quality, these mechanisms improve patient satisfaction. had adopted ISO 9001 had lower per worker injury costs than
The Dr Foster Hospital Guide found that “measuring and comparable firms which had not adopted the standard. In its
monitoring death rates has… driven improvements” in the NHS. own right, this finding does not indicate that ISO 9001 adoption
For example, in the case of Mid Staffordshire Hospital, the Guide caused reductions in worker accident costs, only that firms which
maintained that improved monitoring systems decreased the chose to adopt ISO 9001 were observed to have lower worker
“mortality ratio [from] more than 27% above average [to] 7% accident costs already. However, Levine and Toffel’s second
below average… in just two years.” By decreasing mortality ratios, finding does suggest that firms which adopted ISO 9001 were
clinical monitoring mechanisms will have improved patient more likely than comparable firms which had not adopted the
satisfaction in the NHS. standard to report no worker injuries or lower per worker injury
costs in the years following adoption. Overall, Levine and Toffel
In the voluntary sector, the Centre for Voluntary Action Research concluded that there was “limited support for [the hypothesis]
at Aston Business School used case studies to identify how that ISO 9001 adoption lowers [worker] injury rates and costs.”45
QM impacted volunteer and employee satisfaction and service But, if there is sufficient structural similarity between the UK and

Californian economies, it is reasonable to assume that at least Despite the wide applicability of Beecroft’s (2000) argument,
Levine and Toffel’s (2010) caveated results hold for UK businesses. Scharitzer and Kokrunka (2000) argue that the nature of outcomes
in the public sector (as opposed to those in the private sector)
Womack, Jones and Roos (1990) emphasise that if Lean QM makes quantifying the effects of QM in that sector comparatively
programmes are to successfully reduce costs, managers and challenging. Their observations apply to all types of outcomes, not
employees must be actively focussed on controlling costs simply Beecroft’s cost-based outcomes. Scharitzer and Kokrunka
in accordance with Lean procedures at every stage of the (2000) noted that public sector organisations do not produce
productive process. Their discussion is derived from an analysis the same unequivocal outputs as private businesses; namely
of automobile manufacturing, but can be applied more generally. profits or stock prices. Because public sector organisations
Lean programmes aim to reduce costs through, primarily: (i) often quantify outcomes using more subjective survey-based
removing wasted steps in the production process; (ii) reducing the measures, quantifying the effects of QM on their outputs is more
costs of those steps; and (iii) introducing a flow between those challenging. Also, different public sector organisations employ
steps and across the business as a whole. different metrics for quantifying outcomes, hence the effects of
QM programmes are not directly comparable across public sector
For Lean to be successful, Womack, Jones and Roos (1990) organisations.
emphasise that two principles must be upheld. Firstly, within
each department, efforts must be directed toward adding value Despite the concerns of Scharitzer and Kokrunka, several authors
to the final product. They note that, in some poorly organised have found that QM programmes can decrease public sector
companies, “much activity is unfocussed… [and effort is wasted organisations’ costs, thereby increasing financial efficiency.
working] on products that never get the green light.” They argue Cohen and Brand (1993) suggest that QM practices can be
that in companies which have implemented Lean effectively, applied in the public sector to attain efficiency gains. The authors
managers tend to hold the view that “if you aren’t working argued that QM systems have improved service quality and
directly on a product actually heading for the market, you aren’t productivity, and reduced waste in the US public sector.
adding value.” Womack, Jones and Roos (1990) maintain that
employees must be focussed on adding value directly to the Osborne and Gaebler’s (1992) case studies found that QM
saleable product if Lean is to be successful in reducing costs. enables public sector organisations to compete against private
businesses. They found that pro-competition reforms increased
Secondly, Womack, Jones and Roos (1990) maintain that there public sector productivity for US municipal trash collectors.47
must be a commitment to introducing synergies between Applying Osborne and Gaebler’s logic to the UK public sector,
all of the business’s processes and departments. There must the pro-competition NHS quasi-market reforms would have
be a melding together of the business’s finance, personnel been expected to improve cost-efficiency throughout the NHS.48
management, supply chain and product chain activities. Lean Despite the quasi-market reforms’ limitations “lower transaction
programmes will be more successful to the extent that these costs, and increased service provision for lower costs (ie
different aspects of the business are well coordinated with each increased efficiency)” were found to have resulted from the quasi-
other. Insofar as these facets of a business are not in harmony, the market.49
costs of inter-departmental mis-coordination can rise. Such costs
occur when one department is late in producing an output which Mani (1995) examined TQM programme implementation by
another department requires, meaning that work slows down or the US Internal Revenue Service. The programme improved
stops. They can also occur when one department completes a outcomes because it was implemented consistently over a long
piece of work that another department does not require, leading period. He concluded that public sector output gains will only be
to wasted work. maintained if TQM is instituted consistently across public sector
organisations. Assuming that the UK and US public sectors are
A business’s ability to uphold these principles is obviously structurally similar, the above findings could be taken to also
dependent on its managerial and employee culture. Building on apply to UK public sector organisations.
this, in the ‘organisational culture’ subsection of the literature
review, Womack, Jones and Roos (1990) is again discussed, The Scottish Executive (2006) found that the implementation of
focussing on how a business’s culture affects its ability to Lean QM mechanisms promoted a “greater focus on prevention
implement Lean programmes effectively. rather than correction of errors” in the Scottish public sector,
supporting Beecroft (2000).50
Beecroft (2000) noted that businesses incur two types of system
costs and that effective QM programmes can restructure both of 2.6 Financial performance and profits
these: “Prevention costs” are “planned costs incurred to ensure The literature presents evidence suggesting that QM systems put
that errors are not made at any of the various stages during upward pressure on the financial performance of public, private
the delivery process of [a] product or service. Appraisal costs” and voluntary sector organisations. Specifically, they increase the
are the “costs of verifying, checking or evaluating a product or profits of private sector organisations and decrease the costs of
service… during the delivery process.”46 In the private, public public sector organisations. The literature also finds evidence of
and voluntary sectors, Beecroft (2000) noted that “by spending linkages between QM’s effects on outcomes such as employee
more money on prevention, appraisal [costs] can be reduced.” satisfaction, customer retention and costs (on the one hand) and
So, reallocating resources toward prevention means that a profits or financial performance (on the other). Specifically, the
well-instituted QM programme can restructure and reduce a literature suggests that QM programmes improve non-financial
business’s costs. Second, this cost reallocation – by decreasing outcomes, and these improvements go on to improve headline
the number of low-quality products and services which reach the financial indicators (such as profits).
market – means QM programmes can decrease product recalls,
reputational damage and returns.

Returning to a paper which was discussed earlier, Reichheld Figure A: Percentage impact of winning an EFQM award on key
and Sasser (1990) found a strong link between QM’s effect on financial metrics55
customer retention and on profits. They note that “companies
can boost profits by almost 100% by retaining just 5% more
of their customers.” They found that the decrease in MBNA’s
customer-defection rate which resulted from its 1982-1990 QM
programme, caused its profits to increase 16-fold.51 The authors
also found that “reducing defections by just 5% generated 85%
more profits in one bank’s branch system.”
Continuing on from the discussions in previous subsections, when

QM systems lower private sector businesses’ costs, all other things
being equal, they increase their profits. Beecroft (2000) predicted
that, when a QM programme induces a shift from appraisal to
prevention costs, this reduces the overall costs associated with
the QM programme. All else being equal, this will also increase
business profits. Similarly, Levine and Toffel’s (2010) finding that
the adoption of ISO 9001 decreases per worker accident costs,
means that ISO 9001 is also likely to boost profits.52 In the automobile manufacturing sector, Cole and Flynn
(2009) examined the linkages between QM systems’ effects on
Oliver and Qu’s (1999) study of the Australian manufacturing product reputation, revenues and market share. Examining US
sector found that 70% of 134 surveyed businesses anticipated and Japanese auto-manufactures they found that, when QM
increased profitability through reductions in the costs associated procedures induced a reputation for high quality, this improved
with rework and scrap, through better QM. Linking back to brand equity and market share. Recognising an explicit link with
customer retention and satisfaction, 75% of the surveyed financial performance, Cole and Flynn noted that increased
businesses also hoped to increase profits by reducing customer market share induces higher revenues because: 1) the probability
complaints and attrition through improved QM systems. Collins that a customer will purchase from the manufacturer increases;
and Nussey’s (1994) analysis of a Science and Engineering Policy 2) a higher-quality car has a higher resale value, and 3) the
Studies Unit (SEPSU) study found that the implementation of ISO reputation for quality makes it easier to sell an entry-level car and
9001 could also provide a boost to profits. then move the customer up the value-chain.
Hannah (2011) shifts the focus of the discussion by reviewing The authors found a linked chain of improvements: QM increases
the literature comparing the return on assets (RoA) of “paired the reputation for quality, which increases market share, which
organistaions, which were initially similar in terms of size, sector, improves financial outcomes. Cole and Flynn (2009) also
profitability, etc,” but where one of the pair adopted ISO 9001 noted that there was often a delay between an automobile
and the other did not.53 Hannah finds that the RoA of the adopter manufacturer successfully instituting a QM programme and it’s
began increasing (relative to that of the non-adopter) two years achieving a reputation for high quality that supported its market
before certification occurred. The RoA differential continues to share. This was particularly true when competing against other
increase even after adoption. Because Hannah’s review examined automobile manufacturers that had already attained a reputation
‘paired’ businesses, his results indicate that ISO 9001 certification for quality. This suggests a lag between the implementation of a
does cause increased RoA. Hannah’s results indicate that the QM programme and it becoming effective in terms of increasing
RoA differential of matched ISO 9001-certified and non-certified market share.
businesses in the industrial machinery industry increases over
time. This suggests that ISO 9001 becomes more effective the QM also affects the financial performance of public sector
longer it is in place – ie it becomes more effective with a lag. organisations and similar linkages between QM, financial
performance and other metrics apply. For instance, the
Like Hannah (2011), CQE (2005) examined how attaining a QM aforementioned Scottish Executive report used case study
certificate or award under the European Foundation of Quality evidence to analyse how Lean QM affected Scottish public sector
Management (EFQM) Model framework affects a business’s organisations.56 Lean was originally applied to manufacturing
financial outcomes.54 CQE compared the financial results of by Toyota with five core principles: “specify the value desired;
businesses which won the award against those of similar, or identify the value stream… challenge all of the wasted steps;
‘matched’, businesses which had not won the award. Echoing make the product flow continuously; introduce pull between all
Hannah’s results, CQE finds that “award-winning companies steps; the time and information needed to serve the customer
experience higher increases in sales, capital expenditure [as a [should] continuously fall.” The Scottish Executive’s definition of
share of] assets, capital expenditure [as a share of] sales, asset Lean combines these principles with Rapid Improvement Events
growth and reductions in costs [as a share of] sales.” which make “small, quickly introduced changes.”
The Executive’s report found that Lean had improved public sector
These findings suggest that winning an EFQM Model award financial outcomes, to the extent that the case study respondents
improves financial performance. The following table summarises correctly identified causal effects. Implementing Lean produced
CQE’s main results, indicating that winning an EFQM Model quantifiable outcomes, some of which were as follows:
improves key financial indicators. The figure below details 1. “Processing times were reduced by two-thirds in one local
the average percentage differences between the changes in government department.”
performance measures for winners and for non-winners three 2. There was “improvement in patient flow time of 48%” for
years after winning the EFQM Model award. another department.

3. There was a “reduction in staffing and costs [causing a] £31m The following TQM practices were directly related to the three
budget saving in 10 months” for yet another department. business outcomes:
14. Better supplier quality management caused improved
The reductions in processing and patient flow times which inventory management performance.
occurred as a direct result of departments’ applications of Lean 15. Better product design caused improved quality performance.
are then linked to financial performance. For instance, increasing 16. Better process management caused improved quality
patient flow times implies a decrease in the cost per patient performance (5% significance).
treated, improving financial performance.57
The following relationships between the three outcomes were
This subsection finishes by reviewing a seminal paper by Kaynak observed:
(2003). More than any other, this paper rigorously demonstrates 17. Inventory management performance caused improved quality
how different TQM practices have interlinked and latticed impacts performance.
on a variety of outcomes. Kaynak quantifies how TQM affects 18. Quality performance caused improved financial and market
these outcomes, and then how the changes which TQM induces performance.
feeds into improved financial and market performance.
Across all sectors, Kaynak built a quantitative structural Kaynak (2003) found, therefore, strong real-world evidence that
model investigating seven TQM practices and their effects on implementing TQM practices improves three financial and non-
three business outcomes, namely “inventory management financial business outcomes across all sectors. He also found
performance”, “quality performance”, and “financial and market quantitative evidence of the chain linking TQM implementation to
performance”. The seven TQM practices whose effects on the non-financial business outcomes, and then estimated how these
three outcomes investigated were: “management leadership”, fed through into financial outcomes. Note that Kaynak found
“training”, “employee relations”, “quality and data reporting”, linkages between QM’s effect on metrics relating to costs (such as
“supplier quality management”, “product/service design”, and supplier quality management and improved process management)
“process management.” Kaynak’s data source was a cross- and the final effect on financial performance. Kaynak’s (2003)
sectional study of US businesses from 48 states. advanced research and statistical methods engender confidence
that the relationships established are causal.
Kaynak investigated the relationships between these different
TQM practices. Relationships 1) to 13) below suggest that Deming’s pivotal insight was that QM programmes can bring
several TQM practices had no direct effect on the three business about a “chain reaction” such that one QM programme can affect
outcomes. Results 14) to 18) show, however, that these particular several business outcomes, both directly and indirectly.60
TQM practices affected the three outcomes indirectly, via their This is discussed in the conclusion. For now, one should note that
impacts on other TQM practices.58 Results 14) to 18) show which Kaynak’s analysis echoes this crucial insight by Deming.
TQM practices directly affected the outcomes, and how the
outcomes affected each other. All relationships were found to be 2.7 Organisational culture
significant at the 1% level, unless otherwise stated.59 Kaynak’s Several papers find evidence that QM programmes have affected
study provides rigorous quantitative evidence of how different the culture of private and public sector organisations. These QM-
TQM mechanisms interrelate and affect businesses’ financial instigated cultural changes represent an improvement because
outcomes. It is a valuable contribution to the literature and so is they refocus attention on customer requirements and boost
explained in full. The TQM practices in 1) to 13) below affected financial performance. Taking a step back from how QM affects
each other, but did not directly affect the three business outcomes institutional culture, one paper discusses what organisational
considered: cultural conditions are required for the successful implementation
1. Better management leadership caused improved training. of QM programmes.
2. Better management leadership caused improved employee
relations. In support of Levine and Toffel’s (2010) discussion, across all
3. Better management leadership caused improved supplier sectors, Collins and Nussey (1994) found that gaining ISO
quality management. 9001 certification increased profits via its effects on company
4. Better management leadership caused improved product culture. In particular, gaining the certificate promoted “a greater
design. awareness of quality issues and internal and external cultural
5. Better training improved employee relations. changes.”
6. Better training improved quality data and reporting.
7. Improved employee relations caused improved quality data The aforementioned Scottish Executive (2006) report into Lean
and reporting. found that it engendered “culture changes” in Scottish public
8. Quality data and reporting caused improved supplier quality sector organisations. These cultural changes induced “focus
management. on customer requirements” and a “better understanding of
9. Quality data and reporting improved product design (10% the needs of the customer.” This renewed focus on customers’
significance). concerns agrees with what some authors hold to be one of
10. Quality data and reporting caused improved process Lean’s principal aims.61 The Executive’s report noted that Lean
management. implementation directly improved both organisational culture and
11. Supplier QM caused improved product design (5% (the aforementioned) financial performance in the Scottish public
significance). sector. As well as these direct effects, Lean also had an indirect
12. Supplier QM caused improved process management (5% effect: by improving culture, it improved financial performance.
significance).
13. Product design caused improved process management. Across the manufacturing and services sectors, Gallear and
Ghobadian (2004) analysed which elements of business culture

were “necessary conditions” for the successful implementation Tying into cost reduction, the loyalty culture encouraged
of TQM practices.62 Their objective was “to discern the employees to act preemptively, rather than simply responding to
channels that facilitate organisational culture change in the problems after they occurred. This kept production costs down by
context of TQM… and… establish the relative importance of encouraging employees to arrest the development of costly errors
these channels.” Postal questionnaires were completed by 47 before they impacted notably on the production process.
businesses, describing what elements of their business culture
were “necessary conditions” for the successful implementation 2.8 Conclusions from the literature review
of TQM practices and culture. Respondent firms then attributed a The literature reviewed examined individual organisations or
score to the importance of each of these “necessary conditions.”63 groups of organisations within sectors. This yielded a body of
evidence suggesting that the successful implementation of QM
The table below summarises their findings. Notice that active and procedures, and winning QM awards and certification, improves
visible commitment of senior management, teamwork and the outcomes for organisations in the public, private and voluntary
dedication of employees throughout the organisation are asserted sectors. QM was found to improve outcomes in the following
to be the key preconditions of successful TQM implementation. areas: (i) stock prices; (ii) customer and user retention and
The importance of these factors to successful QM programmes is satisfaction, and employee and volunteer satisfaction; (iii) costs;
emphasised elsewhere in the literature.64 (iv) financial performance and profits; and (v) organisational
culture. Furthering Cebr’s first research objective, the literature
Figure B: Business culture requirements for the successful review has demonstrated that the effective implementation
implementation of TQM practices65 of QM programmes creates more productive and successful
organisations.
Throughout this review, we have endeavoured to establish

linkages between QM’s immediate effects on multiple outcomes..
Any one QM programme or award can directly affect a number
of different outcomes for an organisation. Furthermore, it might
also have indirect effects. For example, a QM programme could
improve employee satisfaction and this, by making employees
more productive, could go on to increase profits. In particular,
the literature revealed a large number of links between QM’s
effect on financial performance and profits, and its effects on
other outcomes. For example, one paper, Reichheld and Sasser
(1990), found that QM improved customer retention and that this
had the indirect effect of improving profits. The Scottish Executive
report found that Lean implementation improved public sector
organisations’ financial performance and culture, directly and
contemporaneously.
The UK Parliament White Paper (1982), ‘Standards, Quality

Finally, Womack, Jones and Roos (1990) examined evidence and International Competitiveness’, concluded that the
from the case of Toyota in the post-war 1940s suggesting that, implementation of QM systems by UK businesses could: (i)
in the context of Lean production, a culture of employee loyalty improve the UK’s international competitiveness; and (ii) boost its
to a business is often a key driver of its success. They argue that rate of economic growth. The literature review presented evidence
cultural factors can help minimise the costs of the different steps indicating that the implementation of QM systems and winning
of the productive process. QM certification and awards improved business profitability,
cost-efficiency and customer satisfaction and retention. To the
After significant employment disputes, Toyota reached a labour extent that any one business’s QM strategy improved its customer
relations agreement with its unionised employees which had satisfaction and retention, when the customers were foreign
three principal components: (i) a lifetime employment guarantee; businesses or consumers, it will have improved that business’s
(ii) pay which was steeply graded by seniority and tenure; and international competitiveness. Aggregated to the level of the
(iii) the use of recreational and housing facilities. The settlement UK economy, the literature review’s findings (which relate to
meant that workers “became members of the Toyota community, individual businesses and sectors) suggest that QM thus improves
with a full set of rights.” This engendered employee loyalty to the the UK’s international competitiveness.
company and employees being “active in promoting the interests
of the company, by initiating improvements rather than merely By increasing cost-efficiency and profits, the literature suggests
responding to problems.” that QM programmes can improve individual business and
individual public and voluntary sector organisation productivity.
This enhanced culture of employee loyalty to Toyota had benefits Aggregated to the level of the UK economy, this suggests that QM
which tied in with the aims of a Lean production process. By mechanisms can boost the rate of economic growth. Overall,
staying at the business for an extended period, workers were able although the literature review did not examine the effects of QM
to build up “enhanced skills [and a great deal of] knowledge and on the UK macroeconomy directly, its findings indicate that the
experience.” The company was able to tap into this employee widespread implementation of QM procedures by UK public,
knowledge and skills base to gradually improve its processes, private and voluntary sector organisations can: (i) improve the
restructuring costly steps in the production process, and UK’s international competitiveness; and (ii) boost its rate of
introducing greater continuity between those steps. economic growth. This furthers Cebr’s second research objective,

examining how QM programmes, taken in aggregate, affect Figure F: The ‘chain reaction’ of QM impacts67
headline UK economic indicators.
A key theme throughout the literature review has been one of

linkages: any given QM programme can affect multiple outcomes
at once, either directly or indirectly via its impact on other
outcomes. Building on the discussion of linkages, there follows a
final discussion that furthers this report’s first research objective
– demonstrating how QM systems and techniques create more
productive and successful organisations.
In what is arguably the seminal work of the QM literature, Out

of the Crisis (1982), Deming builds on this theme. He noted that
a well-constituted QM programme can bring about a “chain
reaction,” linking the initial programme to improvements in a
variety of organisational outcomes which feed into improved
financial performance.
Deming reasoned that a successful QM programme will typically

have the following chain reaction structure and he identified
the indirect chain of causation of a QM programme on business
outcomes as being particularly important:
i. A QM programme will make productive processes more
efficient, decreasing the costs associated with rework,
mistakes and delays. The costs of each unit produced will fall
as the efficiency with which inputs are used increases. Here,
Deming has identified that the direct impact of QM often Deming’s discussion ties together the literature by demonstrating
constitutes a reduction in costs. that, as well as having an effect on the individual outcomes of
ii. As a consequence of lower costs, all other things being an organisation, a QM programme is likely to act on the entire
equal, profit margins improve. Here, Deming argues that QM organisation. Both directly and indirectly, QM programmes
programmes often raise profits indirectly, via their effect on improve a variety of business outcomes and so have a holistic
costs. effect on the entire organisation.
iii. Deming also noted that QM programmes tend to have a direct
and positive impact on the quality of the goods and services References
produced, increasing customer satisfaction. 28. For
example, articles often claim to be examining the effects
iv. This indirect impact on customer satisfaction drives up market of Total Quality Management (TQM) when they seem to be
share and customer retention, which, all other things being examining the effects of QM in a more general sense. This
equal, will also improve profits. may be the case with Hendricks and Singhal (2001) and
v. QM’s indirect impacts on costs, market share and customer Farhoomand (2004). Other articles openly examine the effects
retention were found to increase profits. All other things of a selection of failures in different types of QM programmes
being equal, a more robust company balance sheet lowers on one single outcome metric – stock price. See IMD
the probability that the company will need to lay off staff. International (2003a). Other articles examined the effects of
Hence, by indirectly improving job security, QM can improve QM, defining QM generally. See Centre for Voluntary Action
employee satisfaction.66 Research at Aston Business School, entitled ‘The Adoption
vi. Deming also reasons that, by increasing product quality, QM and Use of Quality Systems in the Voluntary Sector - Final
improves employee satisfaction by giving workers increased Report’.
“pride of workmanship.” 29. Ironically, this difficulty can be due to the effective
vii. Finally, Deming notes that by improving productive efficiency, implementation of QM programmes. For example, an
QM decreases the effort a worker must exert to produce a effectively implemented TQM programme should blend
unit of output. This improves workplace satisfaction as well as seamlessly with all aspects of an organisation’s structure and
costs, if lower worker effort is associated with time savings. productive processes. This seamless blending, which occurs
when the TQM programme has been well conceived and well
Deming’s chain reaction (described in points i to vii above) is implemented, makes it difficult to distinguish the programme’s
summarised in the flow diagram below. effects from those of the underlying organisational structure.
30. S ee the conclusion of the literature review, sub-section 2.8,
for a full explanation of Deming’s ‘chain reaction’.
31. TQM is an integrated management approach, aimed at
improving the quality of a business’s outputs by improving
oversight mechanisms, management structures, employee
incentivisation, etc. See Ahire (1997). The precise features of a
TQM programme are largely case specific. Stringham (2004)
notes that TQM “tends to be an eclectic and sometimes
disconnected mix of quality management and organisational
change ideas.”

32. For a listed company, the value of all its shares is its market 45. They used three statistical methods: 1) They collapsed the
value. Because the real value of a company is the value of panel dataset into cross-sectional data so that they could run
the profit-generating potential of all its assets (eg machinery, a Probit regression to predict the probability that an employer
employee knowledge, future profitability, etc), the stock price experienced no injuries after the match. They did this for 471
should reflect these assets’ earning potential. matched pairs of businesses. See Table 7 of Levine and Toffel
33. The paper assumes that each business’s TQM programme was (2010). 2) They used Negative Binomial regression to examine
implemented successfully one year before it won the award. the causes of the number of worker injuries that matched firms
The five years after the TQM programme was implemented reported over the sample period. See Table 6 of Levine and
successfully is called the ‘post-implementation period’. The Toffel (2010). 3) They used normal OLS regression to examine
five years before is called the ‘implementation period’. the causes of worker injury costs over the sample period.
34. Businesses were deemed comparable – or ‘matched’ – if 46. These quality management system costs are part of a larger
they were sufficiently similar in terms of industry, size, and/or cost structure capturing the Costs of Quality (CoQ).
book-to-market (BM) ratio. A business’s book-to-market (BM) 47. P ro-competition reforms are a mechanism whereby, having
ratio is the ratio of the value of all its assets to its market value. identified service users’ and taxpayers’ requirements for cost-
35. Hannah (2011), ‘ISO 9001 and the bottom line’, IRCA. efficient public services, the state institutes a structural change
36. Farhoomand, 2004, Exhibit 3. procedure to deliver those aims. Thus pro-competition reforms
37. While there was no statistical evidence that the adhere to this report’s working definition of QM.
implementation of the quality management programmes 48. U nder the NHS quasi-market, those NHS organisations that
caused the improved outcomes, inferring that a causal deliver health services to patients (eg hospitals) purchase
relationship existed is intuitively appealing. them from NHS healthcare services’ providers using their
38. The paper was not based on rigorous statistics and only found state-allocated budgets. Because hospitals can purchase from
evidence that TQM has improved educational outcomes more than one provider, they buy from those which provide
insofar as respondents correctly identified causal relationships. the best services at the lowest cost. This drives up quality
39. These monitoring mechanisms adhere to this report’s working while improving the cost-efficiency of healthcare service
definition of QM as they are designed to “understand delivery.
precisely what customers – ie patients – want” and were 49. C ivitas, 2010, The impact of the NHS market: An overview of
implemented widely throughout NHS hospitals. The the literature
mechanisms also aided in the “effective design of [those] 50. The Scottish Executive (2006), Evaluation of the Lean
processes” which improve care quality. Approach to Business Management and Its Use in the Public
40. See Centre for Voluntary Action Research (2004), The Sector
Adoption and Use of Quality Systems in the Voluntary Sector: 51. M BNA originally stood for Maryland Bank National
Final Report Association. The bank’s name is now simply MBNA.
41. Causality was not demonstrated statistically in the report, 52. The SEPSU study used four data sources: an analysis of
but respondents provided convincing evidence of causal survey data, data provided by the British Quality Foundation,
relationships. Voluntary sector outcomes are generally correspondences and interviews. SEPSU emphasised that their
harder to quantify than private sector outcomes, because results are “based on a careful analysis of data.”
they usually rely on subjective metrics such as customer 53. R oA is a measure of the financial return which a company
and employee satisfaction. Private sector outcomes can be can expect from the assets it controls. Hannah (2006) finds
quantified using more objective measures, such as profits that winning ISO 9001 certification increases companies’ RoA
and revenues. Voluntary sector outcomes were quantified in figures, implying winning certification helps them to improve
the Centre’s report using performance measures that vary by the efficiency with which they use their assets.
institution and QM programme. 54. C entre for Quality Excellence (CQE), University of Leicester,
42. See the introductory section of this report for a description of 2005, ‘Organisational Excellence Strategies & improved
PQASSO. financial performance’
43. “Per worker accident costs” are those costs which the 55. E xtract of Figure 2 of CQE (2005)
business experience as a result of employees having accidents 56. S cottish Executive (2006), Evaluation of the Lean Approach to
at work. These costs consist primarily of compensation costs, Business Management and Its Use in the Public Sector
insurance costs and legal costs. 57. As discussed above, costs are not always considered a
44. They used propensity score matching, difference-in-difference headline financial indicator in the same sense as profits.
estimation and cross-sectional data. Propensity score However, since public sector institutions do not have profits
matching means that the outcomes (eg profitability, worker per se, costs are discussed.
injury costs, etc) for treated and untreated businesses may 58. E g management leadership affects inventory management
be directly compared, provided that the businesses had the performance via its effect on supplier quality management,
same probability of being treated (ie of adopting the ISO 9001 and quality and data reporting affects quality performance via
standard), conditional on their exogenous control variables. its effect on process management.
Table 3 of Levine and Toffel (2010) gives the Probit regression, 59. In broad terms, significance at the 1% level means that the
predicting a business’s probability of ISO 9001 adoption, probability of accepting a hypothesis that is, in fact, untrue, is
conditional on its exogenous controls. A full explanation of very low.
the difference-in-difference estimator is quite involved. For a 60. See Deming (1982), Out of the crisis, MIT Press, Chapter 1
nice introduction to it, see Wooldridge (2009) pp. 450-455. 61. See
the introductory section of this report.
However, we note that cross-sectional data biases commonly 62. G allear and Ghobadian (2004), ‘An empirical investigation
arise from unobservable (time-invariant) heterogeneity, while of the channels that facilitate a total quality culture’, Total
time-series data biases commonly arise from unobservable Quality Management, 15(8)
time-variant heterogeneity. 63. G allear and Ghobadian’s (2004) questionnaire used a scale

where “5=very important [and] 1=not important at all.” See
Kaynak (2003)
65. This is Figure 3 of Gallear and Ghobadian (2004).
66. As they are implemented, QM programmes can sometimes be
associated with layoffs. This point refers to the job satisfaction
of staff who were not made redundant as the QM programme
was being implemented.
67. See Chapter 1 of Deming (1982).

3 CASE STUDIES: REPORTED EFFECTS OF QUALITY
MANAGEMENT ON BUSINESS OUTCOMES
3.1 Structure of the case studies Estimates for three types of QM RoI are formulated:
Cebr conducted case studies with 18 private, public and 1.
voluntary sector organisations to determine the extent to which
QM mechanisms improved their outcomes in terms of cost 2.
restructuring and rebalancing, employee satisfaction, revenues
and customer retention. The return on investment (RoI) of private 3.
sector QM programmes is also estimated in cases where sufficient Depending on the data provided, different RoIs are estimated
data was provided by respondents and could, where necessary, be for each private sector case study. RoI estimates are expressed as
supplemented by information about the interviewed organisations ratios in the form X:1. A value for X of greater than one is taken
in the public domain. The investigation accords with the report’s as indicative that the QM programme was worthwhile. In all cases
first aim of examining how far the effective implementation of QM studied where it was possible to calculated RoIs, the estimates
techniques creates more productive and successful organisations. of X are greater than one. This implies that QM is beneficial
throughout the private sector for all three types of RoI.
The case studies are grouped into eight sectors.68 This structure
flows from the content of the literature review. In other words, In some instances, a case study respondent requested that his
the literature review contains broad predictions as to how QM or her own name and/or his or her organisation’s name not be
mechanisms affect the outcomes of organisations in different disclosed. In such instances, Cebr has anonymised the case study
sectors. Hence, the adoption of this structure means that the in accordance with the respondent’s wishes.
findings which each of the case studies yielded are readily
comparable with the literature’s sectoral predictions. 3.2 Manufacturing sector case studies
3.2.1 Case study 1
A comparison between the responses and our findings from the COMPANY: SUNSEEKER INTERNATIONAL
literature is included within each case study.69 Furthermore, this RESPONDENT: SIMON HANNAM, OPERATIONS MANAGER
structure allows Cebr to examine how far the case study responses PRINCIPAL PRODUCT LINES: YACHTS, MOTOR YACHTS AND
for each sector are coherent with the literature’s predictions. This SPORTS CRUISERS
more general analysis is undertaken in a conclusion at the end of This case study examines how the QM programme of a UK
each sectoral subsection.70 manufacturer affected its revenues, costs and customer-retention
rates since 2009. The UK-based manufacturing business has
This section’s grouped-sector structure means that the responses 2,300 employees and an associated global dealership network in
given by each case study respondent can be readily compared 64 countries. The UK business had a 2011 Financial Year turnover
to those yielded by other respondents in the same sector. This of £280m to which this case study pertains.
enabled Cebr to estimate how far the responses given by each
case study respondent were representative of their sector’s case Sunseeker International’s QM programme is named In Process
study responses taken as a whole. As a consequence, it is possible Control (IPC) and was introduced in early 2009. Its main organ
to determine how far general conclusions, as to the impact of QM is a QM team, whose job it is to ensure that finished products
on organisations’ outcomes, can be drawn for each sector on the meet three standards of quality: (i) regulatory standards; (ii)
basis of the case studies. This issue is discussed at the end of each internal company quality standards; and (iii) customers’ quality
subsection. expectations.
Estimating the RoI of private sector organisations’ QM The IPC programme includes technical process control aspects
programmes succinctly capture the net benefit each business drawn from the Kaizen ‘Plan, Do, Check, Act’ and ‘Lean
is believed to have derived from its programme. The RoI data Manufacturing’ QM frameworks. The management philosophy of
reported are estimates which have been inferred from the data the ‘Zero Defect’ framework is incorporated, with a heavy focus
provided by each respondent.71 RoI estimates are only formulated on product aesthetics, as would be expected in the manufacture
in cases where the respondent has provided sufficient information of such luxury items as yachts. The programme is currently used
to do so. Hence, RoI estimates exist for six of the 14 case studies in half of the company’s product lines, with incorporation into
which discuss the QM programmes of private sector institutions. additional product lines being viewed by the company as key to
future success. Senior management monitors IPC’s results via a
‘quality score card’ system and, as of 2012, will be financially
rewarded for QM successes.

The Operations Manager reported that the current cost of IPC is employees in 2011 and the programme has been fully integrated
2% of revenues. The expectation was, however, that most of IPC’s into all its manufacturing processes. It manufactures convector, or
benefits would be realised in the future, specifically: ‘wet system’, heaters and non-convector, or ‘dry system’ heaters
i. Costs are expected to be £4.5m lower in three years’ time which it sells to retailers. The business services the heaters it
than could have been expected without the IPC programme. manufactures, once they have been sold on by retailers.
ii. Annual revenues, three years from today, are expected to be
between 3% and 5% higher than in the absence of IPC. The business’s QM programme, which began in the early 1990s
iii. Annual profits are expected to be between 5% and 7% higher. and has been fully integrated into Smith’s Environmental’s
manufacturing processes for both types of heater, is called
Building on the data the respondent provided for the costs of SPS.75 The SPS programme includes technical process control
the IPC programme and its expected impacts on revenues and aspects drawn from the ‘Zero Defect Programme’, ‘Total Quality
costs three years from today, the Profit RoI of the programme is Management’ and ‘Continuous Improvement’ QM systems.
estimated for three years in the future. In 2014/15, the Profit RoI Under the SPS programme, the components of each heater
is expected to be approximately 3:1. This estimate suggests that, are electronically tested and sent back to the shop floor for
for private sector manufacturers QM systems can drive profit repair if they do not pass the tests. No heater is sold to retailers
increases which more than cover their implementation costs. unless its components pass all relevant tests – this is the Zero
Defect Programme element. From a Continuous Improvement
The company expects IPC to have a positive impact on customer- perspective, all tested units have their test results logged, allowing
retention rates, with the percentage of returning customers (those the business to pinpoint systemic errors in the manufacturing
who buy on more than one occasion) expected to be 5% higher process. Logging also results in ‘total traceability’ for all heaters
in three years’ time. This would improve profitability because, in once they have been sold on to (and by) retailers, making
Sunseeker International’s experience, returning customers tend servicing them less costly.
to purchase higher-value chain products, wanting to buy into the
‘lifestyle choice’ image which Sunseeker’s products represent. The Quality Manager reported that SPS yielded significant
Cole and Flynn (2009) identified a similar effect in the US benefits in 2011 and that these benefits are expected to persist
automobile market. They noted that effective QM programmes and increase in the future. Specifically:
increased the likelihood that any one customer who becomes a i. The programme has decreased the number of hours required
repeat customer moves up the product value-chain. to produce a given heater, reducing labour costs per unit.76
ii. It has decreased the probability that a unit will develop faults
The respondent also predicted that the IPC programme would after having been sold on to (or by) retailers. This has reduced
cause increased revenues by increasing customer retention. This is servicing costs.
consistent with a finding of Reichheld and Sasser (1990) attained iii. The programme requires that the quality manager inspects
in the financial services sector. They found that effectively the manufacturing floor on a daily basis, flagging up
implemented QM programmes increase customer retention and problems before units reach the assembly or testing stages.
that this supports revenues. The respondent also believed that These inspections were estimated to have saved the business
Sunseeker’s QM programme had lowered costs, increasing the £10,000 to £15,000 in 2011.
margin on each unit sold. The IPC programme includes process iv. The Quality Manager expected that these cost-based findings
control aspects draw from Lean. The Scottish Executive’s (2006) will become more pronounced going forward as employees
report found evidence that an application of Lean systems in the absorb the cost-saving culture.
Scottish public sector had lowered costs there. It is suggested that v. Had the programme not existed, the expectation is that
the Lean elements of the IPC programme contributed to the per- customer numbers would have been 50% lower than they
unit cost reductions observed as a result of the programme.73 actually were in 2011.
Where it has already been implemented, the IPC programme Points i to iv demonstrate the respondent’s belief that the SPS
has substantially rebalanced costs away from ‘appraisal costs’, in programme has yielded notable cost reductions. The literature
which product quality is evaluated during or after the production coheres with this finding, in which there is a large body of
process, toward ‘prevention costs’, in which processes are evidence suggesting that QM programmes lower costs. In the
evaluated and designed to ensure that defective units are not manufacturing sector, Oliver and Qu (1999) found evidence that
produced in the first place. This rebalancing was predicted by most businesses believe that QM systems can be an effective cost-
Beecroft (2000) for all sectors. The respondent gave an example of reduction tool. Similarly, Hannah (2011) finds that manufacturers
cost rebalancing – one product line has already seen a decline in who were awarded ISO 9001 certification saw costs decrease
post-production per-unit test times of 200 hours. These reductions relative to businesses who were otherwise similar but which
are substantial enough to enable Sunseeker to reduce its cost had not been certified. Point iv is also corroborated by the
base in the future.74 Beecroft (2000) also predicted that cost literature. Across all sectors, Collins and Nussey (1994) found
rebalancing would often lead to a reduction in costs. that attainment of ISO 9000 certification altered organisation’s
business cultures, and that these cultural changes reduced costs
3.2.2 Case study 2 and drove increases in profits. Point v also ties in well with the
COMPANY: SMITH’S ENVIRONMENTAL PRODUCTS LTD literature. Rechheld and Sasser (1990) find that well-implemented
RESPONDENT: RON BROWN, QUALITY MANAGER QM programmes increased customer retention in the financial
PRINCIPAL PRODUCT LINES: ‘WET SYSTEM’ AND ‘DRY services sector and Farhoomand (2004) found a similar outcome
SYSTEM’ HEATERS in shipping services.
This case study discusses how the QM programme of a UK
manufacturer has affected its revenues, costs and customer- Point v implies that revenues would have been 50% lower than
retention rates since 1990. The business had approximately 60 they actually were in 2011, had the programme not existed.

This inference requires the assumption that customers are iii. Employee satisfaction has increased due to improved
homogenous in aggregate.77 Provided this assumption holds, the communication between employees and managers, leading
revenue inference (made by Cebr) is justified. to more effective workplace problem solving and conflict
resolution.
Across the entire business, the SPS programme has rebalanced
costs away from ‘appraisal costs’ and toward ‘prevention costs’.78 Point i is coherent with one of the literature’s most consistent
The respondent reported that the programme helped to rectify findings: that QM programmes in general, and Lean programmes
potential manufacturing problems before they impacted the in particular, push down the costs of each unit of a good or
manufacturing process significantly. He predicted that this cost service produced. The findings of the Scottish Executive’s (2006)
rebalancing effect would persist in the future. Dovetailing with report also suggests that Lean pushes down organisation’s costs,
the literature, Beecroft (2000) reasoned that this cost rebalancing indicating that the respondent’s opinion is coherent with events
would occur whenever a business successfully implements a QM in other organisations. Beecroft (2000) attains a similar finding for
system and that, via cost rebalancing, overall costs are also likely all types of QM programme, again suggesting that point i above is
to be reduced. This insight suggests that the cost rebalancing coherent with the experiences of other businesses.
which the respondent reported as contributing to cost reductions,
stemmed from his company’s QM programme. Point iii is also consistent with the literature. Farhoomand (2004)
found evidence that, by contributing to increased workplace
3.2.3 Case study 3 satisfaction, one business’s QM programme decreased staff
COMPANY TYPE: INTERNATIONAL PACKAGING turnover dramatically. That paper also linked a QM programme’s
MANUFACTURING FIRM, UK UNIT effect on employee satisfaction to its effect on costs, noting that
RESPONDENT: QUALITY MANAGER (UK OPERATIONS) increases in employee satisfaction reduce the costs associated
PRINCIPAL PRODUCT LINES: DESIGN, DEVELOPMENT, with low motivation and high rates of staff turnover. Hence,
PRODUCTION AND DECORATION OF PACKAGING FOR Farhoomand (2004) suggests that part of the reduction in costs
BEVERAGES, DAIRY PRODUCTS, DELICATESSEN PRODUCTS, that the respondent observed in the operations department, as a
BUTTER AND MARGARINE, WATER, BABY AND DRINKING consequence of the Lean programme, may have been due to the
BOTTLES, CHEMICALS, COSMETICS AND PHARMACEUTICALS programme’s effect on employee satisfaction.
This case study examines how the pilot Lean QM programme
of the UK arm of a packaging manufacturer has affected its 3.2.4 Conclusion to the manufacturing sector case studies
revenues, costs and customer-retention rates going forward. The The manufacturing sector case studies are broadly coherent with
UK arm of this packaging manufacturer had a 2011 turnover each other and with the literature.
of £24m and has 230 employees. The manufacturer is a
multinational business which operates predominantly in the EEA The case studies suggested that QM programmes had reduced
and Switzerland. costs for all three businesses studied. All other things being
equal, this supported their profitability. Two of the three
The pilot aspect of the Lean programme, which was implemented respondents reported that their businesses’ QM systems had
in the operations department, has been in place for a increased revenues and customer-retention rates, and had been
considerable period of time and its outcomes were discussed.79 associated with a change in their companies’ cost structures
The respondent noted that the pilot programme was sufficiently in favour of ‘prevention costs’. Furthermore, two of the three
successful to cause the manufacturer to roll-out the Lean respondents noted that their businesses had incentive structures
programme across all departments in the UK arm of the business in place which encouraged senior management’s commitment
in mid-2011. to the QM programme. There was also significant evidence that
QM mechanisms would become more effective in the future,
There are two elements to the Lean programme. Firstly, the indicating that the systems become effective with a lag.
business uses Lean methods to increase the efficiency of
productive processes, so that a desired level and quality of The consistency between the different case studies drawn from
output can be maintained with fewer inputs. Secondly, the Lean this particular sector indicates a higher probability that their
processes are continually reviewed to increase their impact on findings are typical of the sector as a whole.80 All the above
the efficiency of the business’s manufacturing processes. The points also cohere with the findings of literature. This suggests that
ultimate aim of the Lean programme is to reduce per-unit costs the manufacturing sector case study findings and the literature’s
and reallocate staff within the business so that they become more findings accurately represent the effect of QM mechanisms in the
productive, lowering staff costs per unit produced. manufacturing sector.
The programme is overseen by a steering committee and senior There was only limited evidence that the QM programmes
management who track quality metrics such as customer had increased employees’ workplace satisfaction. This was the
complaints. The executive team is financially rewarded if the only notable point of departure between the literature and the
business meets quality targets. manufacturing sector case studies. Given that the literature
predicts that QM mechanisms often increase workplace
The pilot programme has already achieved the following results in satisfaction, this finding suggests that the manufacturing
the operations department: businesses studied above might not be typical of most
i. Machine uptime has increased by between 5% and 7%, as manufacturers or that they simply had not analysed this in the
has machine efficiency, reducing per-unit costs. context of their QM systems.
ii. Assuming that per-unit costs depend on machine efficiency,
this suggests that the programme has decreased marginal costs
per unit in the operations department.

3.3 Defence engineering sector case studies were found to increase customer and employee satisfaction,
3.3.1 Case study 4 suggesting that points ii and iii hold true widely, and that BAE
COMPANY: BAE SYSTEMS MARITIME – SUBMARINES UNIT System’s responses were not an isolated case. Farhoomand
RESPONDENT: IAN MITCHELL, HEAD OF QUALITY (2004) found that well-implemented QM systems improved
PRINCIPAL PRODUCT LINES: ASTUTE CLASS SUBMARINE, employee satisfaction in the shipping services sector by increasing
VANGUARD CLASS SUBMARINE, UPHOLDER CLASS employee engagement. Oliver and Qu (1999) found that when
SUBMARINE AND LANDING PLATFORM DOCK manufacturers introduced the AS/NZS 9000 standard, customer
This case study focuses on how the QM programme of the BAE satisfaction rose as complaints fell significantly.
Systems Maritime – Submarines Unit has affected its revenues,
costs and customer-retention rates, and its expected affects The implementation of the ‘Deployment of Business Quality
going forward. BAE Systems is a multinational aerospace and Strategy’ programme has been associated with a comparative
defence firm with customers in over 100 countries and global increase in ‘prevention costs’ and a comparative decline in
sales of £22.4bn in 2010. Its UK sales were £6.7bn in 2010. The ‘appraisal costs’ – just as is predicted by Beecroft (2000).
Submarines Unit, based wholly in the UK, has 5,000 employees By stopping problems before they affect the product delivery
and annual sales in the hundreds of millions. process, the Unit has reduced appraisal costs. The Unit’s products
must undergo extensive post-production testing, as a matter of
In 2009, the Submarines Unit began the ‘Deployment of Business regulatory necessity, so the relative decline of appraisal costs
Quality Strategy’ QM programme, based on the Crosby QM compared to prevention costs has only been partial. The Beecroft
Maturity Model in which a business can progress through five (2000) paper predicts that such cost structure changes often
stages of maturity over six management categories.81 As the facilitate a reduction in overall costs. This indicates that the
Submarines Unit matures, its business objectives are gradually changes to the cost structure which the respondent identified
updated to continue driving development, a manifestation of could have caused, at least in part, the reduction in the measured
the ‘direction and purpose’ philosophy. In 2011, the business costs of quality failure (see point i).
quality objectives were: (i) the deployment of skills management
processes to evaluate employee competence; (ii) taking 3.3.2 Case study 5
ownership of quality; and (iii) improving the cost of quality failure COMPANY: SELEX GALILEO
measure. The QM programme has already proven effective but RESPONDENT: STEVEN BLAKER, HEAD OF OPERATIONS AND
would only continue to be so if senior management continued IN-SERVICE ASSURANCE
to actively support it. This opinion, held by the respondent, PRINCIPAL PRODUCT LINES:
is widely supported in the literature. Crosby’s seminal work, DEFENCE ELECTRONICS INCLUDING ACOUSTIC SYSTEMS,
Quality is Free (1979), maintains that managers must be actively ADVANCED SENSORS, ADVANCED TARGETING, BORDER
committed to QM programmes if they are to have a realistic SURVEILLANCE SOLUTIONS, COMMS AND DATA LINK,
chance of success. Swiss (1992) notes that a lack of consistent ELECTRONIC WARFARE, ELECTRO-OPTICS, LASER, MISSION
managerial commitment is a key risk factor that could make QM SYSTEM AVIONICS, NAVIGATION AND DEFENCE SYSTEMS,
programmes ineffective. The programme has affected all areas RADAR, SIMULATORS AND UNMANNED AIR SYSTEMS
of the Submarines Unit and the executive team is financially This case study focuses on how the UK arm of Selex Galileo’s
rewarded when business quality objectives are met. Tying in again QM programme has affected its revenues, costs and customer-
with Crosby and Swiss, this incentive structure could promote retention rates. The UK arm had a 2010 turnover of £900m and
management’s commitment to the programme. had 4,100 employees. Selex Galileo is a defence electronics
engineering firm which reinvests 15% of its revenues into R&D.
The ‘Deployment of Business Quality Strategy’ programme The respondent confirmed that senior managers at Selex Galileo
incorporates elements of Deming’s ‘Plan, Do, Check, Act’ QM track quality performance metrics, and that the executive team is
cycle and ‘Quality Circles’. ‘Plan, Do, Check, Act’ informs financially rewarded for meeting quality targets. This incentivises
employees’ personal objectives which are subject to regular senior management to actively support the QM programme,
review. The Quality Circle aspect promotes people orientated tying in with Gallear and Ghobadian’s (2004) finding that
improvement, having set up 36 quality integrated work teams to managerial commitment is a core determinant of successful QM
review quality performance against each of the three business implementation.
quality objectives using quantitative, problem-solving tools.
The QM programme has yielded significant results, and is In order to guarantee the performance of its QM systems, Selex
expected to continue doing so. It has: Galileo requires all its quality professionals to hold, or at least be
i. Reduced the Unit’s measured costs of quality failure by 30% working toward, a Chartered Quality Institute qualification.
over 2010 and 2011
ii. Increased customer confidence in the Submarines Unit. In July 2010, the UK arm of the business began implementing
iii. Increased employee satisfaction via its ‘Quality Circles’ the ‘Alignment of Domain Specific Assurance Engineering to the
aspect, by increasing employee engagement. These findings Engineering and Product Lifecycle Phases’ QM mechanism. The
come from the Unit’s internal surveys. programme’s total stand-alone cost was a negligible proportion
of revenue.82 The programme’s aim is to use quality assurance
The planned introduction of new cost-of-failure measures, engineers’ valuable skills more efficiently, to improve contract
focussing on deep levels of granularity, will capture future gains delivery and decrease defect escape rates.
caused by the programme which the current measures are unable
to detect. Previously, quality engineers had been assigned to specific
projects or products for the duration of their lifecycles, requiring
The literature did not focus on the defence engineering sector. them to deliver assurance over many lifecycle phases. Each phase
However, in sectors outside defence engineering, QM systems required different skills, so each quality engineer required a

large number of different skill sets, resulting in an inefficient and In agreement with Farhoomand (2004), the programme was
under-specialised use of their time. The programme reallocated reported to have improved employee satisfaction.84
quality engineers to the particular lifecycle phases of a given
project or product, increasing their degree of specialisation and The respondent inferred that if increased employee satisfaction
increasing time efficiency. By aligning the quality assurance had decreased employee turnover rates, it would have also gone
engineers to specific lifecycle phases, the programme improved on to increase revenues.
the identification of the root causes of quality deficiencies. The
programme utilised ‘Business Process Reengineering’, in the form 3.3.3 Conclusion to the defence engineering sector case studies
of a repeating cycle in which a process is identified, reviewed The defence engineering sector case studies are somewhat
and redesigned to improve outcomes.83 The ‘Continuous coherent with each other, and with the literature. Points of
Improvement’ aspect of the programme consistently increases the departure between the findings of the two case studies are often
efficiency and quality of productive processes by making more due to the special contracting agreements of one of the businesses
efficient use of quality engineers at each stage of a project’s or studied. One of the two defence engineering businesses has one
product’s lifecycle. Continuous Improvement relies on employees large principal client, meaning that its QM systems do not affect
making incremental improvements to quality. customer retention.85 This confounding factor means that, on the
basis of the two case studies, it is not possible to draw general
The programme has already affected outcomes throughout the conclusions about the impact of QM on defence engineering
business and is expected to do so going forward. Specifically: businesses’ outcomes.
i. It has reduced current failure costs by 5%. This is roughly
equivalent to a reduction in current failure costs of £600,000. The case studies suggested that QM programmes had reduced
ii. As the programme instils a quality culture in the business, costs for both businesses. All other things being equal, this would
then three years from today failure costs are expected to be have increased profits. In agreement with the literature, both
20% lower than they would otherwise be if the programme businesses reported that their QM programmes had increased
were not in place. This is equivalent to a decline in failure employee satisfaction and had rebalanced costs in favour of
costs of £2m, to £3m. ‘prevention costs’ and away from ‘appraisal costs’. Again, in
iii. It has raised customer-retention rates by 3%. agreement with the literature, both noted that management
iv. Three years from today, customer-retention rates are expected commitment was a key determinant in the QM programme’s
to be 5% higher than they would otherwise be if the success.
programme were not in place.
There are some points of departure between the case study
Even though most of Selex Galileo’s QM programme’s benefits are responses for the defence engineering sector. Only one of the
expected in the future, its current Cost RoI estimates are impressive. businesses, Selex Galileo, reported that its QM system had
When comparing the costs of the QM programme to its impact become more effective over time. The second business did
on failure costs, the current Cost RoI is estimated at approximately not identify this effect, representing a point of departure from
13:1. This indicates that, in the defence engineering sector, a QM a finding which holds quite consistently in the literature. The
programme can reduce business costs enough to cover the expense second business did not report that its QM programme had
of its implementation several times over. increased revenues or customer retention. Although this does not
agree with the literature or the other case study in the defence
Points i and ii indicate that Selex Galileo’s QM programme will engineering sector, very little can be read into these findings. The
become more effective in terms of its cost-reduction effects as difficulty in drawing an inference from the findings is due to one
time goes forward – ie it has its most significant effects with a of the business’s comparatively unique contracting arrangements.
lag. This finding was apparent in the literature, especially in
the manufacturing sector. Cole and Flynn (2009) found that 3.4 Engineering and construction sector case study
there if often a delay between a manufacturer’s instituting a QM 3.4.1 Case study 6
mechanism, and that mechanism improving its market share. COMPANY: COSTAIN GROUP
Hannah (2011) found that ISO 9001-certification became more RESPONDENT: BUSINESS IMPROVEMENT DIRECTOR
effective, in terms of increasing RoA and stock price, over time. PRINCIPAL PRODUCTS AND SERVICES:
Papers, such as Reichheld and Sasser (1990), indicated that the “CONSULTANCY, CONSTRUCTION AND OPERATIONAL
improvements in customer retention, which the respondent MAINTENANCE FOR:
indicated had occurred due to Selex Galileo’s QM programme, i. INFRASTRUCTURE (HIGHWAYS, RAIL AND AIRPORTS)
have occurred widely. Notice that points iii and iv imply that the ii. ENVIRONMENT (WATER, WASTE, MARINE AND
business’s QM programme affects customer retention with a lag, EDUCATION)
echoing the findings of Hannah (2011) and Reichheld and Sasser iii. ENERGY & PROCESS (NUCLEAR, POWER, AND
(1990) when they are taken together. HYDROCARBONS AND CHEMICALS)”
There is only one case study pertaining to the engineering and
Tying in with Beecroft (2000), the programme induced a shift construction sector. This case study examines how Costain
in the company’s cost structure: ‘appraisal costs’ were reduced Group’s QM programme has affected its revenues, costs and
at the same time as ‘prevention costs’ rose throughout Selex customer-retention rates. Costain Group is a UK-centred
Galileo’s UK arm. By enabling quality engineers to specialise in engineering and construction firm which had a 2010 turnover of
particular product or project lifecycle phases, the programme £1,022m and 3,800 UK employees at the end of 2011. Project
stops problems before they get too far along the delivery process. and sector managers’ are rewarded for meeting performance
The reassignment of quality engineers’ roles constituted a relative targets.
increase in prevention costs and facilitated a relative reduction in
appraisal costs. The business’s QM programme, which began in 2008, involves

continually evolving Project Performance Assessments commercial law firm affected revenues, costs and customer-
(PPAs) which are used to formulate implementable Business retention rates since September 2010. The firm has 120 UK
Improvement Plans (BIPs). PPAs allow Costain to track project employees and had a 2011 UK turnover of £14.5m.
performance against five enablers – strategy, leadership, The company’s QM programme, which was implemented in
partnership and resources, processes and people – each September 2010, centred on consistently producing the following
containing a set of quantifiable criteria. Projects undergo PPA for all clients:
reviews six weeks after commencement and regularly thereafter. • Engagement Letters: these are the terms of engagement with
Reviews facilitate BIPs which improve project efficiency.86 a specific client and details the relevant fee structure, specific
Project performance against the enablers is monitored by senior services the business will provide, and an assessment of the
management. relevant legal issues.
• Records of Instruction: these are catalogues of all the
The QM programme’s design and implementation costs in activities, advice and direction that the firm issued while
2008 were a “negligible” proportion of the annual revenues. working on behalf of a specific client.
The programme uses three QM processes. The ‘Plan, Do,
Check, Act’ cycle evaluates how well a project has attained its The programme has affected all of the business’s legal services.
enabler criteria. Of secondary importance were: ‘Continuous The business monitors how the quality of its services affects
Improvement’ and ‘Lean as applied to processes’.87 The PPA- and client-retention rates and clients’ willingness not to dispute fees.
BIP-based QM programme has had the following effects:88 There is a semi-formal link between quality outcomes and the
i. Business costs have fallen. There is a strong correlation pay of partners and senior management. The pay of partners and
between the PPA score a project achieves during the review senior management increases with the firm’s profits. Insofar as
six weeks after its commencement and its “betterment.”89 service quality increases overall profits, this feeds through into the
This PPA serves as an early-warning system for high project pay of senior managers and partners.
costs, helping Costain to implement effective BIP measures;
lowering costs. The current cost of the QM programme is “negligible”, being
ii. 80% of the company’s work is repeat business and the well under 1% of revenues. This is because the programme was
QM programme “has been a contributing factor in keeping designed and implemented internally without absorbing excessive
customer-retention rates from falling in a tight market.” resources and has simply been embedded into day-to-day
processes.
Point i suggests that Costain’s experience is typical of the
literature. The literature identifies Lean and Continuous The Chief Executive reported that the programme had already
Improvement as mechanisms which effectively reduce costs. resulted in annual revenue increases of 1%, and modest annual
Lean reduces costs by removing wasted steps in the production cost savings of less than 1%. These savings come mainly from the
process and introducing synergies between steps; Continuous programme’s effect on insurance premiums, which are kept lower
Improvement empowers workers to gradually improve productive because customer disputes over the company’s fees are obviated.
processes and, therefore, lower costs. Resultantly, the inclusion of Furthermore:
these concepts in Costain’s PPA- and BIP-based QM programme i. Similar outcomes are expected to be sustained in future years.
may have been key drivers of the programmes ability to reduce ii. The programme increased customer-retention rates by 1%.
costs (identified in point i).
Assuming that the cost of the QM programme was 0.5% of
Point ii agrees with the literature’s contention that, all other revenue, this implies an estimated Revenue RoI of 2:1.91
things being equal, a business’s successfully instituted quality This demonstrates that, in the legal services sector, a QM
management programme can improve, or at least maintain, programme can increase revenues more than sufficiently to cover
customer-retention rates.90 the expense of its implementation.
The business’s costs structure has been altered. Throughout the Point i represents a point of departure from the thrust of the
UK arm of the business, the share of costs which are ‘appraisal literature’s findings. The fact that similar, as opposed to more
costs’ has fallen relative to those which are ‘prevention costs’. pronounced, outcomes are expected in future years implies that
This was predicted by Beecroft (2000). This change in cost- the business’s QM system realised its full potential soon after
shares occurred because the QM programme’s week six PPA being implemented. This does not accord with those papers in
reviews and attendant BIP measures increased prevention costs the literature which found that the impact of QM systems on
across Costain Group, while allowing the business to scale back costs and revenues often becomes more pronounced the longer
appraisal measures. This cost rebalancing is expected to persist they have been in place.92 Point i suggests that QM systems may
going forward. impact legal services businesses more rapidly than they impact
organisations in other sectors.93
3.5 Legal services sector case studies
3.5.1 Case study 7 The Chief Executive reasoned that the programme has helped to
COMPANY TYPE: COMMERCIAL LAW FIRM establish a well-structured and planned relationship with each
RESPONDENT: CHIEF EXECUTIVE client from the outset and that this gave clients peace of mind,
SERVICE LINES: CORPORATE AND COMMERCIAL LAW, thereby increasing customer-retention rates. On point ii, in a
INTELLECTUAL PROPERTY LAW, LITIGATION & DISPUTE manner analogous to engendering well-structured and planned
RESOLUTION, GROUP ACTION LITIGATION, INSURANCE relationships with clients, papers in the literature tend to find that
LITIGATION, EMPLOYMENT LAW, INSOLVENCY & QM programmes, by increasing product or service quality, increase
RESTRUCTURING, PROPERTY LAW AND PRIVATE CLIENT LAW customer-retention rates. Such papers include: Hendricks and
This case study examines how the QM programme of a UK Singhal (2001), Farhoomand (2004), and Cole and Flynn (2009).

The programme has rebalanced costs away from ‘appraisal database, allowing them to determine which type of cases would
costs’ and more toward ‘prevention costs’.94 By establishing a be the best to take on in terms of decreasing ‘defects – ie the
well-structured and planned relationship with the client from probability of losing a case.
the outset, and hence reducing fee disputation, the programme
rebalanced the business’s cost structure.95 Using the software had the following effects:
i. It reduced the labour costs by speeding up repetitive tasks.
The company reported that the programme had decreased ii. It reduced overheads. Overheads were lower in 2010 than
administrative employee satisfaction slightly, but that it increased in 2009, and 2011 overheads (when they are calculated) are
the satisfaction levels of legal staff. expected to be lower than 2010 overheads.
iii. It increased revenues. In 2008, the Chamber’s Administrator
Case study 8 estimated that revenues were £750,000 higher than they
TWO COMPANY TYPES: would have been without the software. For context, 2008 total
1) DEFENCE BARRISTERS’ CHAMBERS revenues were £8.5m. The corresponding figure for 2011 was
2) ADMINISTRATIVE COMPANY TO THE DEFENCE £400,000-£500,000, when total revenues were £6.4m.
BARRISTERS’ CHAMBERS iv. It increased client retention. In 2008, the chambers’ client-
RESPONDENT: CHAMBERS ADMINISTRATOR FOR THE retention rate was estimated to have been 10%-15% higher
DEFENCE BARRISTERS’ CHAMBERS, WHO IS FORMALLY AN than it would have been without the software.97 By 2011, the
EMPLOYEE OF THE ADMINISTRATIVE COMPANY client-retention rate was estimated to have only been 3%-5%
PRINCIPAL SERVICE LINES: higher than it would have been without the software.
1) “DEFENCE ADVOCACY… INCLUDING FRAUD,
TERRORISM, MURDER AND GENERAL CRIME” Building on the Revenue RoI result of the previous case study, this
2) ADMINISTRATION OF THE DEFENCE BARRISTERS’ case study estimates an extremely impressive Revenue RoI result
CHAMBERS for a legal services business. In 2007, the one-off installation
This case study examines how the QM programme of an and annual technical support costs of the software-based QM
administrative company which supports a defence barristers’ programme were compared to the revenues which the respondent
chambers has affected the chambers’ outcomes. The estimated it had generated that year. The 2007 Revenue RoI
administrative company is the sole administrative support was estimated to have been 12:1. This Revenue RoI finding
provider for the chambers and does not provide administrative (especially when considered alongside the analogous result in the
support for any other business. The administrative company previous case study) indicates that, in the legal service sector, QM
and the chambers are formally two separate businesses, but the programmes can increase revenues significantly. It seems they are
administrative company is de facto the administrative arm of very likely to increase revenues more than enough to cover the
the chambers. The chambers is an association of 62 separate costs of their implementation.
barristers, and experienced rising revenues as of 2007 to a peak
of £8.2m in 2010. In 2011, turnover was only £6.4m due to a cut Points i and ii tie in well with the literature, which provides a
in the legal aid budget. The administrative company receives its body of evidence indicating that QM systems decrease costs.
income exclusively from the chambers and has nine staff. Senior Crosby’s Quality is Free suggests that the Zero Defect Programme
administrative company employees and clerks are indirectly element of the QM system can be expected to reduce quality
financially rewarded when the company’s QM systems improve failure costs. Other papers, such as Reichheld and Sasser (1990),
the chambers’ outcomes because their remuneration is based accord with point iii by suggesting that QM systems can drive up
on increasing the chambers’ turnover. The senior management revenues.
of the administrative company and the chambers track quality
performance.96 Point iv conflicts with the literature’s general finding that QM
systems often have their most dramatic impacts with a time lag.
The QM programme of the administrative company has improved For instance, Hendricks and Singhal (2001) and Cole and Flynn
outcomes at the chambers. In 2007, the administrative company (2009) suggest that QM programmes become more effective over
upgraded its specialist legal diary, data management and billing time. The discrepancy between the 2008 and 2011 customer-
software to the most advanced available version. The software retention rate impacts, which were reported by the respondent,
had a £35,000 one-off installation cost and has a £28,000 annual may have come about because the most easily achievable
technical support fee. The use of specialist software accords with software-based gains were exhausted comparatively early on in
this report’s working definition of QM, which defines QM as “an the software’s life.98
organisation-wide approach to… consistently delivering accurate
solutions within budget, and on time.” The specialist software Note that point iv accords with a response given by the first legal
affects the entirety of both organisations and increases the services sector case study, suggesting that QM procedures make
accuracy of the solutions that the chambers reaches by improving their impacts relatively quickly for legal services firms. Taken
data management. together, these two case studies suggest that QM mechanisms
impact legal services firms’ outcomes more rapidly than the
The software used elements of ‘Continuous Improvement’ and literature predicts. When compared to other cases studies,
the ‘Zero Defect Programme’. Continuous Improvement stems including those relating to the business services sector, these two
from the software making many aspects of daily work easier at case studies suggest that QM systems impact legal services firms
the chambers. It has increased the speed and ease with which more rapidly than organisations from other sectors.
barristers and administrative company staff can complete
repetitive tasks, such as preparing accounts. The Zero Defect The software-based QM system decreased ‘appraisal costs’
Programme came about because the software enabled barristers relative to ‘prevention costs’, agreeing with the predictions of
to extract information on all the chambers’ cases from a central Beecroft (2000). This is because installing and maintaining the

software allowed the chambers to resolve problems before they This case study discusses how the QM programme, called the
affected the service delivery process, reducing appraisal costs. ‘Project Management Process’ (PMP) of the UK-arm of a legal
The use of the software constitutes a prevention cost per se, services and legal IT services provider has affected its revenues,
furthering these changes in the cost structure. costs and customer-retention rates. PMP was instituted in 2006
and has been incrementally improved ever since. The UK arm
After some initial time spent getting use to the advanced software, of the business stores data on behalf of its clients, who are
the respondent reported that the software upgrade improved mainly law firms, and had approximately 50 employees and
employee satisfaction. This accords with findings in the literature a turnover of £12m in 2011. The executive team is indirectly
reached by Farhoomand (2004) and the Centre for Voluntary financially rewarded for meeting quality objectives. Insofar as
Action Research at Aston Business School (2004). meeting quality targets increases profits, these increased profits
feed through into the pay of the executive team. This case study
3.5.2 Conclusion to the legal services sector case studies pertains to QM and outcomes for the UK arm of the company.
The legal services sector case studies exhibited a high degree of
coherency with each other, but displayed one interesting point of The PMP is an end-to-end QM process. It requires sales teams
departure from the literature. This point of departure suggests that to complete project initiation forms, which are cross-checked
QM programmes become effective for legal services businesses before being passed on to the most suitable project team. Teams
more rapidly than for other types of businesses implementing must use detailed intranet data milestones to maximise project
QM. The case study evidence suggests that these rapid impacts management effectiveness. That project teams are highly trained
apply only to the legal services sector (and possibly the business and have a fixed operational structure to ensure a standardised,
services sector, see subsection 3.6). The evidence does not suggest high-quality set of procedures underlies all project delivery.
that QM programmes impact all services sector businesses
comparatively rapidly, relative to non-services sector companies. The PMP is a costly but worthwhile programme. The respondent
estimated that the cost of maintaining the PMP was 10% of
The case study findings indicate that QM systems had reduced revenues in 2011. The respondent reported that the PMP had
costs and improved customer retention and revenues for both affected all service lines positively and has enabled the business
companies. They also imply that QM procedures have pushed to consistently meet its QM objectives, specifically:
up profits – although increases in profits were not explicitly i. The programme has decreased the number of hours required
reported by the respondents.99 Both respondents explained that for an employee to complete a task, reducing labour costs.
their business’s QM system had (on balance) improved employee This effect came through decreasing duplicated work.
satisfaction and caused an increase in ‘prevention costs’ relative ii. PMP reduced overall costs by about 5% in 2011, and is
to ‘appraisal costs’. expected to cause costs to decrease further each year going
forward.
Both respondents reported that there were incentives in place to iii. PMP has improved customer retention. Had the programme
encourage management to actively support the QM programmes, not existed, customer numbers were expected to have been
or that there were mechanisms in place which facilitated 33% lower than they actually were in 2011.
management’s oversight of the programmes’ effectiveness. These iv. As an inference of the customer-retention effects, the
responses anticipate the literature, which notes that managerial programme was estimated to have increased revenues by 33%
commitment is important to a QM programme’s success. in 2011, relative to a counterfactual where the programme
On all of the above points, the case studies agree with each other was not in place.101
and the literature to a large extent. The high degree of agreement
between the case study findings indicates that they could be The respondent provided estimates of his business’s QM
typical of other businesses in the legal services sector. programme’s costs as a percentage of revenues and the
programme’s impact on revenues. The implied Revenue RoI of the
Both legal services sector case study respondents indicated PMP was approximately 3:1. This suggests that QM programmes
that their businesses’ QM systems had become effective can drive up revenues considerably in the business services sector.
rapidly – ie there was not a significant delay between a system’s Furthermore, this Revenue RoI estimate suggests that business
implementation and its maximum impact on outcomes. The services sector QM programmes more than cover their costs.
literature focussing on QM in the services sector predicted the
opposite. The agreement between both case study findings on this The first two points demonstrate that the business’s QM
issue, and their conflict with the literature’s findings, indicates that programme has decreased costs. These responses are typical of
legal services businesses may not be typical of other services. This the literature, across all sectors. For example, Levine and Toffel
discrepancy only applies to the speed with which QM systems (2010) found that QM programmes could decrease costs in the
become effective in different sectors. private sector. The Scottish Executive (2006) and Cohen and
Brand (1995) also found that QM mechanisms drive down costs.
3.6 Business services sector case studies Furthermore, point ii ties in with a key theme of the literature:
3.6.1 Case study 9 quality management systems often have significant impacts years
COMPANY TYPE: BUSINESS AND IT SERVICES PROVIDER100 after they are first instituted. See Hendricks and Singhal (2001)
RESPONDENT: GENERAL MANAGER (UK OPERATIONS) and Hannah (2011). Point iii is also corroborated by Oliver and
PRINCIPAL SERVICE LINES: E-DISCOVERY AND Qu (1999) and Reichheld and Sasser (1990), which indicate
INVESTIGATIONS, MANAGED REVIEW, DOCUMENT that QM systems can improve customer retention. Reichheld
PRIORITISATION, CHAPTER 11 BANKRUPTCY AND and Sasser (1990) also supports point iv, and provides a linkage
CORPORATE RESTRUCTURING, CHAPTER 7 BANKRUPTCY, between points iii and iv. The paper finds that QM systems can
BANKRUPTCY CREDITOR SOLUTIONS AND CLASS ACTION increase revenues and/or profits via their effects on customer
SOLUTIONS retention.

The respondent reported that the ratio of ‘prevention costs’ to iii. PMD Healthcare has increased its quality focus for those
‘appraisal costs’ was 1:4 in 2008, and that the PMP was the processes that have not been delegated to ISO 9001-certified
main driver in altering the ratio to 3:2 by 2011. The cost ratio is businesses within OMSG.
expected to hold steady at 3:2 going forward. These observed iv. Reworks and complaints have been reduced because the
alterations to the costs structure were predicted by Beecroft ISO9001-based QM mechanism has improved internal
(2000). The response indicates that this effect is expected to checking procedures.
become more pronounced in the future, agreeing with those v. The QM system has put upward pressure on client retention.
papers which found that QM systems become more effective the Some 80% of the business’s revenue is currently sourced from
more time they have had to become entrenched. repeat clients.104
vi. All these results are persistent. The Commercial Manager
PMP has improved employee satisfaction. By giving clear noted that if the QM programme were discontinued, initial
guidance on performance expectations, the programme has made cost rises would be limited because of the long-term effect the
employees surer of “where they’re at”. This decreased employee programme had had on the business’s culture.
turnover and so reduced the costs associated with hiring and
training employees. By decreasing the employee turnover rate, the The literature often finds that a QM programme’s implementation
PMP enabled clients to develop stronger relationships with the can increase stakeholder confidence in the organisation, suggesting
business’s UK employees, which increased revenues. point i holds true generally. The Centre for Voluntary Action
Research at Aston Business School (2004) and Farhoomand
The firm is a NASDAQ-listed company. The respondent expected (2004) both find evidence in favour of this proposition. Point iii
that the business’s global QM operations had increased its stock accords with those papers which find that the implementation
price, but did not quantify the magnitude of this effect. of QM systems can engender a cultural change, promoting a
greater emphasis on quality throughout the organisation.105 Point
This is not an isolated case of QM systems driving up a business’s vi suggests that the effects of the business’s QM programme are
stock price. Such events are widely reported in the literature. persistent – ie even if the programme were cancelled, it would take
See Hendricks and Singhal (2001), Hannah (2011) and some time for business costs to rise substantially. This persistence
Farhoomand (2004). finding chimes with, although does not directly support, the
literature’s findings, which suggests that QM programmes have their
3.6.2 Case study 10 main effects with a lag after their institution. Whereas the literature
COMPANY: PMD HEALTHCARE MARKETING SERVICES finds that a QM system gradually becomes more effective the
(AN ORBITAL MARKETING SERVICES COMPANY) longer it has been in place, point vi suggests that PMD Healthcare’s
RESPONDENT: MARK KELLY, COMMERCIAL MANAGER QM programme’s effects take longer to die away the longer the
PRINCIPAL PRODUCT AND SERVICE LINES: programme has been in place.
MARKETING SERVICES TO THE PHARMACEUTICAL SECTOR
AIDS PHARMACEUTICAL FIRMS IN COMMUNICATING The mechanism has rebalanced costs away from ‘appraisal costs’
EFFECTIVELY WITH THEIR CUSTOMERS BY PROVIDING and more toward ‘prevention costs’ throughout PMD Healthcare.
SERVICES IN THE FOLLOWING AREAS: DATA, MAILING, The bulk of this rebalancing occurred from 2007 to mid-2010.
RESPONSE HANDLING, FULFILMENT AND STORAGE Improved internal checking procedures constitute an increased
This case study examines how the ISO 9001-based QM focus on prevention in their own right. By stopping quality
mechanism of PMD Healthcare Marketing Services, which failures before they progress along the service provision process,
provides marketing services to the pharmaceutical sector, has the business has been able to reduce appraisal costs.
affected its outcomes. In 2011, the business had a turnover of These findings agree with cost rebalancing predictions made by
£500,000 and the equivalent of five full-time members of staff. Beecroft (2000).
It is a member of the Orbital Marketing Services Group (OMSG)
and shares staff with other companies in the group. OMSG The respondent reported that the QM mechanism had improved
had a turnover of £25m in 2011. PMD Healthcare employees employee satisfaction by increasing employee engagement and
and executives received indirect rewards for meeting quality- engendering a quality ethos. Consequently, employee turnover
related objectives because if a particular project or year attained rates had decreased, as had hiring and training costs.
particularly good results, remuneration increased across the These findings are consistent with the literature.106
business.
3.6.3 Case study 11
This case study examines the effects of PMD Healthcare’s move COMPANY: AN INFORMATION TECHNOLOGY SERVICES
to replace several of its stand-alone processes, with processes PROVIDER
resourced from two ISO 9001-certified firms within the OMSG RESPONDENT: HEAD OF QUALITY
structure.102 This move began in 2007, because PMD Healthcare PRINCIPAL SERVICES: INFORMATION TECHNOLOGY
does not hold ISO 9001 certification in its own right. This QM CONSULTANCY, DELIVERY AND SUPPORT SERVICES
programme has had the following outcomes:103 This case study discusses how the QM procedure, called the
i. By guaranteeing that externally-resourced processes will attain Industrialisation Project (IP), of an IT services provider has
ISO 9001 standards, PMD Healthcare’s employees and clients affected its outcomes. In 2011, the multinational company had
are more confident of the business’s commitment to quality. a turnover of €1.1bn and 13,500 employees. It exists on three
ii. A quality culture has been instilled at PMD Healthcare levels – business units, country- or sector-level divisions, and
because the quality culture of the two ISO9001-compliant general management – all of which have been affected by the
firms has partially integrated into its culture. The respondent IP. The company has two quality policy objectives: (i) increasing
reported that this has led to incremental year-on-year savings, customer satisfaction and (ii) improving financial performance.
but did not quantify the magnitude of those savings. Executive remuneration increases in the company’s financial

performance, so their remuneration is increasing through QM On the points below, the case study findings cohere with each
success, insofar as it improves financial performance. other and with the literature. The case studies suggested that, for
all three businesses studied, the QM programmes had reduced
The IP ran from 2008 to the end of 2011. It affected all of costs and increased client retention. There was also significant
the company’s service lines roughly equally and had three evidence that revenues, profits and employee satisfaction had
components: been increased by the programmes. For all three businesses,
i. It created a new set of quality tools, thereby bringing its executive remuneration increases as the company’s overall
existing tools in line with industry-wide best practice. performance improves. The company’s overall performance
This root-and-branch reform caused a move from improves the more effective its QM programme is. These
‘Waterfall’107 systems management to ‘Iterative Lifecycle’108 incentive structures acknowledge the literature’s argument that
processes. The move brought managers and clients closer to a senior management must actively support QM mechanisms
project’s development over its lifecycle. if they are to be successful. The respondents indicated that
ii. Quality methods and tools were updated, making automated their QM programmes had rebalance costs – or had at least
QM tools easily available to project teams on the company’s rebalanced organisation focus – away from ‘appraisal’ and toward
internal network. These automated tools included code ‘prevention’.
quality checkers, virtual collaborative workplaces and quality
checkers. Respondents in the business services sector only reported weak
iii. It took over the metrics-based quality oversight function of the evidence of a significant delay between their company’s QM
pre-existing quality department. Monthly internal quantitative system implementation and the system having a substantial
metrics tracked project delivery, milestone attainment, impact on company outcomes. The agreement between all three
revenues and costs. Projects missing profitability or man-hour case studies on this issue, and their conflict with the literature’s
allocation targets were investigated, and remedial measures findings, indicates that business services companies may not
were instituted as necessary. be typical of other businesses. The case studies provide weak
evidence that QM programmes become effective for business
The Industrialisation Project had a number of successes:109 services sector companies more rapidly than for companies in
i. The company’s QM mechanisms were seen to meet industry other sectors.112
best practice. Monthly metrics enabled the company to
identify underperforming projects within four days of the One of the respondent businesses was a listed company which
start of a month, facilitating rapid corrective measures where indicated that its QM programme had increased its share
required. price, agreeing with the literature. Because neither of the other
ii. These improvements increased client retention, helping the respondent businesses were listed companies, the generality
company to meet clients’ quality expectations. of this finding could not be estimated on the basis of the case
iii. Increased client retention put upward pressure on revenues. studies.
iv. Improved quality methods and tools reduced costs. An up-to-
date, corporate, standardised set of processes and automated 3.7 Transport and telecommunications sector case studies
tools decreased the employee effort required to deliver a 3.7.1 Case study 12
project or service. INSTITUTION: LONDON OVERGROUND RAIL OPERATIONS
v. The reduction in effort costs improved employee satisfaction. LTD (LOROL)
vi. These effects are expected to persist going forward. RESPONDENT: HEAD OF SAFETY, QUALITY AND
ENVIRONMENT
Points ii to v are corroborated by papers in the literature. PRINCIPAL SERVICES: MANAGING LONDON OVERGROUND
These papers have already been discussed. Point vi ties in with ON BEHALF OF TRANSPORT FOR LONDON
the literature, although is not directly supported by it. Hendricks OBJECTIVES:
and Singhal (2001), Hannah (2011) and Cole and Flynn (2009) all i) To deliver a high-quality, safe service for Transport for
predict that QM systems impact headline financial metrics several London’s (TfL) London Overground (LO) rail services.
years after they have been instituted. Point vi indicates that the ii) To develop the London Overground brand and expand the
QM programme’s effects will persist going forward, but does not network under Transport for London’s guidance.
directly address how long they took to become effective.
This case study discusses how LOROL’s attainment of ISO 9001
IP has been rolled out to all the company’s national divisions.110 certification and its pre-existing quality culture and practices
By providing a degree of company-wide homogeneity it has have affected its outcomes.113 LOROL, London Overground (LO)
“facilitated the integration of acquisitions,” leading to synergies and TfL exist in a tripartite structure. LO, as an institution, can
which have put upward pressure on revenues and profits. be thought of as London’s overground rail network and a brand
owned by TfL. In November 2007, LOROL, a “private sector firm
By increasing the frequency of quality oversight, the IP induced with a public service ethos,” won a seven-year concession to
a shift of focus “from corrective action to preventative action.”111 operate LO’s rail track, station infrastructure and rolling stock on
This adjustment of focus ties in with Beecroft (2000), but is not behalf of TfL. LOROL is incentivised to run LO according to TfL’s
directly supported by the paper. Beecroft (2000) predicts that QM punctuality, quality and safety standards via a system of financial
programmes can bring about an explicit change in businesses’ penalties imposed if targets are missed.114 Attaining ISO9001
costs, as opposed to simply a change of focus – which may or certification in the three areas of the train depot, planning and
may not coincide with analogous change in the costs structure. control was a condition of LOROL being awarded the concession
3.6.4 Conclusion to the business services sector case studies by TfL. LOROL’s senior management tracks quality metrics with
The business services sector case studies are broadly coherent enthusiasm due to the concession agreement’s strong quality
with each other and with the literature. emphasis.

For context, in November 2007 LOROL provided 90,000 3.7.2 Case study 13
passenger journeys daily with 500 staff. It presently provides COMPANY: TELEFONICA SA, TELEFONICA EUROPE,
370,000 passenger journeys daily, with 1,200 staff. The journey TELEFONICA UK (TRADING AS O2)
to staff ratio has increased from 180:1 to 308:1 over the period. RESPONDENT: DAVID ROGERS, HEAD OF QUALITY FOR
LOROL’s annual revenue is now over £100m, and it also TELEFONICA EUROPE AND TELEFONICA UK
administers 40% more stations than it did in November 2007. PRINCIPAL SERVICE LINES: TELECOMMUNICATIONS,
LOROL expanded the scope of ISO9001 certification beyond INTERNET AND INTEGRATED ICT SOLUTIONS
that required by TfL’s concession to include four additional areas. This case study discusses how QM programmes have affected
LOROL then conducted gap analyses before implementing ISO revenues, costs and employee satisfaction at Telefonica
9001 across the seven areas. ISO 9001 was attained for the train Europe and its subsidiary, Telefonica UK. The main focus is
depot in 2010 and for the other six areas in 2011. Going forward, on the ongoing network improvement programme and ISO
ISO 9001 will be expanded into stations, trains and finance. 9001 certification. In 2010, Telefonica Europe had 57 million
ISO 9001 was implemented with limited costs because it fitted customers, 30,000 employees and €15.26bn in revenues.
well with LOROL’s pre-existing quality culture and practices. Telefonica UK had 11,000 employees in 2009 and revenues of
£2.97bn. The respondent was the head of quality for Telefonica
Attaining ISO 9001 certification delivered the following results: Europe and Telefonica UK, and he reported having an in-depth
i. Quality improved, modestly reducing TfL’s financial penalties knowledge of the QM mechanism employed by those businesses.
imposed on LOROL. Improvements in quality were due He was also a fellow and quality professional of the CQI.
predominantly to LOROL’s pre-existing quality systems. The QM across Telefonica has the following general features.
impacts of ISO 9001 (over and above those of LOROL’s pre- Telefonica Europe uses the ISO 9001 framework to promote
existing programmes) were modest. continuous improvement in country unit subsidiaries,
ii. The future intended rollout of ISO9001 into stations, trains empowering them to pursue their own QM programmes. ISO
and finance is expected to further reduce costs, although the 9001 forms the crucial basis of most of Telefonica Europe and
effect may be quite weak. its subsidiaries’, QM certification and methods. Telefonica
iii. As ISO 9001 becomes more entrenched and expands in UK would not be allowed to keep its Ofcom trading licence
scope going forward, it is expected to exert modest downward unless it maintained its ISO 9001 certification. In many cases,
pressure on LOROL’s costs per customer served. it is impossible to bid for corporate contracts without ISO
iv. The strictures of meeting the concession requirements, 9001. Having ISO 9001 has enabled Telefonica Europe and its
including attaining ISO 9001, caused LOROL to focus on subsidiaries to bid for €3.4bn worth of contracts. All Telefonica
stopping errors before they occurred, rebalancing costs away Europe employees’ and managers’ remuneration packages are
from ‘appraisal costs’ toward ‘prevention costs’. Improving partially contingent upon meeting quality objectives. In 2010,
timetabling and anti-graffiti measures constituted increased Telefonica SA and its regional and national subsidiaries had a
prevention costs, and decreased the appraisal costs associated budget of €4.3bn to spend on R&D, innovation and network
with improving those areas after errors had occurred. improvement.115
Points iii and iv are corroborated in the literature. Although the Telefonica UK’s 2009 ongoing network quality drive has attained
literature did not discuss the transport and telecommunications several achievements of particular interest:
sector specifically, this indicates that LOROL’s case study findings i. In 2009, Telefonica UK ascertained that its network had an
are typical of the experiences of other businesses. Corroborating unacceptably-high drop call rate. It used a portion of the 2010
point iii, Hannah’s (2006) study on the effects of ISO 9001 Telefonica SA €4.3bn improvement and R&D budget to rectify
indicates that the certificate exerts more impact on businesses’ this. Since 2009, quality has improved significantly, reducing
headline financial results the longer it has been in place. Point iv the drop call rate. The Telefonica UK network is now ranked
finds support in Beecroft (2000). first for network quality by Ofcom.116
ii. The ‘Continuous Improvement’ aspect of the programme sets
According to industry surveys, LOROL’s customer satisfaction gradually rising, achievable quality targets. This increased
scores have risen substantially over the past four years, mainly employee morale.117
due to the company’s pre-existing quality culture and practices.
The academic literature suggests that this finding is by no means The Head of Quality reported that Telefonica Europe’s QM
uncommon: Reichheld and Sasser (1990), Farhoomand (2004) programmes, including network improvement, R&D and
and the Health Foundation (2006) all find that QM systems advertising, had achieved the following:
improve customer satisfaction. i. Customer-retention rates were 2% higher in 2010 than they
would have been had the programmes not been in place.
ii. Assuming that customers are homogenous in aggregate, this
suggests that revenues were 2% higher in 2010 than they
would have been had the programmes not been in place.
Based on the revenue data provided, and assuming that
customers are homogenous in aggregate, this suggests that in
2010 Telefonica Europe’s revenues would have been £305m
lower than they actually were.
iii. Customer-retention rates are expected to have increased
three years from today, especially in the corporate and SME
markets, implying that a significant part of QM mechanisms
have their effects on outcomes (customer retention, in this
case) after a lag of several years.

iv. The network improvement programme caused an alteration campaigning. The whole 180-member LMA network achieved a
of Telefonica Europe’s cost structure, such that ‘appraisal 2011 turnover of just over £26.7m, and serves 250,000 people
costs’ declined relative to ‘prevention costs’. By focussing on annually.
prevention, and so stopping costly problems before they get
too far along the service delivery process, these programmes Mind’s QM initiative is named the ‘Quality Review Process’
decreased appraisal costs, and the costs associated with (QRP) which runs on a continuous four-year cycle, the most
rework and duplicate work. recent of which will end in June 2012. The QRP is based on the
v. Telefonica Europe’s QM mechanisms improved employees’ PQASSO quality process.118 Under the QRP, each LMA assessed
understanding of their roles, responsibilities and objectives, its performance against 12 standardised measures.119 Then two
thereby increasing their workplace satisfaction. independent reviewers verified each LMAs self-assessment by
spending at least one day on site, and conducting a desktop
Points i to v were all corroborated by the papers in the literature, review. The QRP is based on the PQASSO process, attributing
which have already been discussed. Although the literature did each LMA a score of Level 1, 2 or 3. Level 1 requires meeting
not focus on the transport and telecommunications sector, it basic legal and health and safety benchmarks; Level 2 requires
suggests that these responses are typical of many businesses and achieving a high standard of strategic planning; and Level 3
not just peculiar to Telefonica Europe. requires that the LMA has a leader within Mind’s LMA network.
3.7.3 Conclusion to the transport and telecommunications The Quality Manager reported that, in 2011, £350,000 was spent
sector case studies on QM by the LMAs, approximately 1.4% of their collective
The case studies in this section were broadly in agreement with turnover. The QRP has yielded the following results:
each other and with the literature, suggesting that the findings i. It has identified members of the LMA network which had
reported by these businesses are typical of other companies in the not achieved the Level 1 minimum necessary standard. The
transport and telecommunications sector. process encouraged these underperforming members to work
to attain the Level 1 standard, and those that consistently
Both reported that their QM programme had exerted at least some failed to meet the Level 1 standard were disaffiliated. These
downward pressure on costs and rebalanced cost structures in disaffiliations increased the average service provision and
favour of “prevention.” Both had remuneration schemes or quality governance quality standards of the remaining LMAs in the
metrics in place which promoted management’s commitment to network.
the QM programme. Having such schemes and metrics in place ii. It fostered a culture of continuous improvement wherein
follows from the literature, which suggests that management’s LMAs self-motivate to progress up the Levels.
active commitment is important to a QM programme’s success. iii. It encouraged LMAs to increase user involvement and
The findings imply that the QM mechanisms supported profits in inclusivity, thereby putting upward pressure on user-retention
both companies. rates.120
iv. By improving governance standards, the QRP has increased
There were some points of departure between the companies’ the average turnover of each LMA over the current cycle. The
findings. One of them reported that its QM system had become QRP is expected to continue increasing the average turnover
effective with a lag and had exerted upward pressure on customer of each LMA over the next three years.
retention, just as the literature predicts. The respondent from the
other company, LOROL, did not identify these effects. However, Points ii, iii and iv suggest that Mind’s experiences are typical of
he noted that LOROL’s gaining ISO 9001 followed easily on from those other organisations which were discussed in the literature.
its pre-existing quality procedures owing to similarities between Of particular interest is point iv, which notes that the QRP’s effect
them. Any similarities between ISO 9001 and the pre-existing on governance standards has improved financial performance.
procedures may have obscured ISO 9001’s impact on customer Several authors note that the impact a QM programme has on
retention and obscured the length of time it took to become financial performance is dependent on management’s
effective. commitment to the programme. Such authors include Deming,
in Out of the Crisis, and Gallear and Ghobadian (2004), whose
3.8 Voluntary sector case studies survey of businesses finds that management’s leadership and
3.8.1 Case study 14 vision are key preconditions of successful QM implementation.
INSTITUTION: MIND Building on these authors, point iv suggests that, in the case of
RESPONDENT: PERRY MARSHALL, QUALITY MANAGER Mind, the QM system itself improved governance. To the extent
PRINCIPAL SERVICES: COUNSELLING, RESIDENTIAL that this improvement increased management’s commitment to
HOUSING AND SUPPORT, ADVOCACY AND LEGAL ADVICE, the QRP, this will have made the QRP more effective.
SOCIAL GROUPS AND CAMPAIGNING
Mind is a UK mental health charity, comprised of a national The Quality Manager reported that the QRP has increased
central organisation and a network of over 180 affiliated Local volunteer satisfaction by offering them better support and training.
Mind Associations (LMAs) in England and Wales. This case The respondent reasoned that this had caused volunteers to
study discusses how Mind’s QM programme affected the LMAs’ raise revenues more effectively, and so was partially responsible
turnover, volunteer satisfaction and quality of service provision for increasing LMA turnover. Discussing the voluntary sector,
since 2008. Each LMA is an autonomous affiliate of Mind, the Centre for Voluntary Action Research at Aston Business
responsible for its own fundraising and services provision. School (2004) noted that effective QM programmes can increase
Affiliation ensures each LMA meets Mind’s service provision volunteer satisfaction.
and governance quality standards. Each LMA provides some or
all of the following services: counselling, residential housing The LMAs devote significant effort toward implementing both
and support, advocacy and legal advice, social groups and appraisal and prevention mechanisms and, as predicted by

Beecroft (2000), the QRP has caused some rebalancing away The QM programme attained clear and impressive quantitative
from ‘appraisal costs’ and toward ‘prevention costs’ across the outcomes:
LMAs. However, this cost rebalancing has been only modest. The i. The cost per service user counselled was reduced by 42%
quality manager predicted that cost rebalancing would become between 2006 and 2010 in money terms. Taking into account
more pronounced going forward, as more LMAs progress up inflation, the charity had achieved a 48.4% reduction in
through the three Levels and rebalance their costs as part of that costs per user counselled. Hence, the aim of satisfying twice
process. as many service users per staff member after the programme
had been implemented, relative to before the programme had
3.8.2 Case study 15 been implemented, had been achieved in real terms.
INSTITUTION: A DEBT COUNSELLING CHARITY ii. The internet portal for data entry and automated ‘decision
RESPONDENT: CHIEF FINANCIAL OFFICER logic’-based debt advice attracted service users of a new
PRINCIPAL SERVICES: DEBT COUNSELLING, DEBT demographic, increasing revenues. Some 21,790 over-
SOLUTIONS indebted individuals had taken up debt management plans
MISSION: To provide independent debt advice to over-indebted through the online system by January 2012, representing
UK families and individuals. approximately 20% of the charity’s ‘active’ client base.123
iii. In 2011, internet-based debt counselling yielded £6.7m of
This case study discusses how the QM programme of a UK revenue, representing approximately 20% of revenue. The
debt solutions charity affected its turnover, efficiency, employee overwhelming majority of this would have been forgone had
satisfaction and service quality since 2006. It had 866 full-time internet-based debt counselling not been provided, because
equivalent employees at the end of 2011 and revenues of £30.8m service users would have gone elsewhere.124 This echoes a
in that year.121 The executive team is not financially rewarded for key finding of the literature: successfully implemented QM
meeting quality-related targets. programmes can drive up the number of service users and
revenues. The literature which focuses on the voluntary sector
As of 2006, the charity began implementing a QM programme specifically supports this point.125
aimed at enabling the charity to satisfy twice as many service iv. The QM programme will increase the ‘active’ client base by
users per staff member after the programme had been 10,000 to 15,000 persons per year and a “large proportion”
implemented, relative to before the programme had been of that increase will result from the internet portal specifically.
implemented. The programme has five principal elements: This point is in accord with those papers which found that
1. An internet portal was provided, allowing potential service QM programmes become more effective the more time they
users to input their debt data online. The internet portal was have had to bed in. For example, Hannah (2011) indicates
combined with a computerised ‘decision logic’ system which that the longer the ISO 9001 certificate had been in place, the
would give service users debt advice based on their data more it improved financial performance. Analogously, point
inputs. iv finds that the QM programme increases the ‘active’ client
2. The service user data input facility and the decision logic base more, the longer it has been in place.
system were applied to the charity’s telephone system.
3. Decision logic checks were introduced into counselling Finally, the programme increased employee satisfaction
sessions, increasing the consistency of counsellors’ decisions. throughout the charity and this, in turn, reduced employee
4. The telephone system was updated, allowing service users turnover rates and, therefore, costs.126 This is consistent with
to talk with a debt counsellor over the phone as soon as they articles focussing on the voluntary sector, and other sectors,
had put in the necessary data. which find that quality management systems improve employee
5. Management oversight mechanisms were updated. A monthly satisfaction.
management pack summarises data and commentary on
the performance of the charity’s main functions, allowing 3.8.3 Conclusion to the voluntary sector case studies
management to track the effects of the QM programme and There were several interesting differences between the case study
drive forward changes. findings of the two charities. There were also points on which
they agreed but conflicted with the literature, suggesting that the
All elements of the programme were part of an organisation-wide literature’s predictions do not always hold in the voluntary sector.
approach to deliver useful and correct counselling solutions to In accordance with the literature’s predictions, both respondents
service users. The programme’s aim was also to increase the speed reported that their organisations QM system had increased
of counselling while reducing its costs, without compromising on service user retention (or driven up service user numbers) and
service quality. These points indicate that the constituent parts of had increased revenues, and employee and volunteer satisfaction.
the programme fit with this report’s working definition of QM. Only one organisation reported that its QM programme had
Elements 1, 2 and 4 had the following qualitative results, lowered its costs.
respectively:
i. This saved charity employees time because they no One organisation reported that its QM programme had become
longer had to collect service user data over the phone or effective with a lag. The other, Mind, reported a weaker version
during counselling sessions, and by reducing the need for of this finding. Mind reported that its QM system became more
counselling sessions.122 effective at rebalancing costs toward ‘prevention’, the higher the
ii. The result was that telephone workers would be able to level an LMA reached. This implies a lag in Mind’s programme’s
gather service users’ data, saving the time of highly skilled impact on cost structures because of the time required for an LMA
counsellors. to progress up the levels. Notice this lagged effect only applies to
iii. This saved time by enabling service users to provide data the costs structure.
and complete their counselling, sometimes within an hour,
comparing well with the pre-QM timeframe of several weeks.

In conflict with the literature, Mind reported that cost rebalancing their objectives reviewed at the middle of the year.
was relatively modest. The other organisation did not report any
shift for ‘appraisal’ to ‘prevention’ costs due to its programme. The programme is a QM system implemented by the HR
The case study respondents agree that their organisations’ respective department. It affects all of the borough’s staff and is, therefore,
QM programmes had little or no impact on costs structure, organisation-wide. By increasing workplace efficiency, it aims
conflicting with the literature’s expectation that a QM programme to decrease the cost of providing services to borough residents
will rebalance cost structures. This suggests that the literature’s while maintaining service quality. The respondent noted that
prediction that a QM programme will rebalance the cost structure in a key motivation underlying the system’s implementation is
favour of ‘prevention’ does not hold in the voluntary sector. cuts to public sector budgets. As such, the programme satisfies
By the same token, neither organisation gave a strong indication the report’s working definition of QM: “an organisation-wide
that management had been explicitly incentivised to further the QM approach to… consistently delivering accurate solutions within
programme. The literature suggests that management’s commitment budget.”
to a QM programme is essential to its success. The lack of
incentivisation in both organisations could suggest that the voluntary Noteworthy cost-reductions and efficiency gains have been
sector incentivises its managers’ commitment to QM programmes achieved:
less avidly than other sectors. This could be because management’s i. Metric iii has improved from 55% in the second quarter of
promotion of any given QM programmes is less important to its 2011 to 74% in the first quarter of 2012.
success in the voluntary sector than the literature expects. ii. Over the last two quarters, HR department data processing
time, for the QM and ‘corporate plan’ indicators, has
3.9 Public sector case studies decreased by approximately 95%. Across the council, the
3.9.1 Case study 16 time required to produce quarterly performance reports has
INSTITUTION: AN OUTER LONDON BOROUGH fallen by 60% to 80%.
RESPONDENT: CORPORATE PERFORMANCE MANAGER iii. Council staff have come to view the quantitative metrics as
THREE MAIN STRATEGIC PRIORITIES: being trustworthy, engendering a cultural change which has
i. “Providing better services with less money” – ie improving improved the council’s ability to provide services efficiently.
efficiency.
ii. “Sharing opportunities, sharing responsibilities” – ie working These three points indicate that the programme has decreased
alongside the local community and clearly communicating the borough’s costs. The literature suggests that these findings are
the council’s responsibilities. typical of QM programmes’ effects on public sector organisations.
iii. “A successful London suburb” – ie making the borough an Cohen and Brand’s (1993) findings are coherent with points i, ii
enjoyable place to live and work, which is well regarded and iii. Osseo-Asare et al (2007) and the Scottish Executive (2006)
throughout London. also find evidence that QM programmes reduce costs in UK
public sector organisations.128
This case study focuses on how the QM mechanism of an
outer London borough, which was instituted in April 2010, has Improving metric iii has enabled the council to identify and better
impacted its “providing better services with less money” strategic manage staff who are persistently absent, decreasing staffing
objective. The QM system is part of the council’s “performance costs per unit of service provided. Improving the metric has also
management framework” and was implemented by its human removed persistently absent employees from the payroll, again
resources (HR) department. The borough was in the top 10% of improving cost efficiency. This effect is expected to become
London authorities for its overall cost versus performance position more pronounced as the council gets closer to attaining its goal
in the second quarter of the 2010-11 financial year. The borough of a 100% success rate for this metric. The QM system’s ability
had a total net income of £620m in that financial year, and 3,200 to identify and remove persistently absent employees from the
employees on its direct payroll in 2011. The council measures payroll increases over time. This chimes with the literature’s
quality outcomes against 70 quantifiable ‘corporate plan’ prediction that QM mechanisms become more effective over
indicators, which are reviewed quarterly by a scrutiny committee time, or have their effects with a lag. Hannah (2011) and
and the council’s senior management and political leadership. Hendricks and Singhal (2001) focus on QM’s lagged effect on
This ensures the senior management is able to drive continued financial performance.
quality attainment.
The ‘corporate plan’ indicators, which are a means of managing
The ‘corporate plan’ indicators aid management’s ability to quality, had facilitated a cost structure shift which reduced
oversee the QM programme and drive forward improvements. ‘appraisal costs’ versus ‘prevention costs’ throughout the
By ensuring that management remains committed to driving the council. This was predicted by Beecroft (2000). Implementing
programme forward, the ‘corporate plan’ indicators respond to the indicators constitutes increasing prevention costs and led
the literature’s concern that QM efforts will only prove effective if to a decrease in appraisal costs by improving early intervention
they enjoy management’s active support. See Deming, Out of the measures. This maintained service quality as budgets have been
Crisis, and Swiss (1992).127 tightened. Alterations to council services provision also furthered
changes to the council’s costs structure. For example, the
The QM system uses quantifiable indicators measuring: (i) council’s pre-emptive provision of mobility-enhancing products
overall absence per staff member over the year; (ii) overall to the elderly reduces the probability that an elderly person will
absence per staff member over the quarter; (iii) the percentage fall. This helps elderly council residents remain healthy while
of managers submitting a monthly absence log for all avoiding costly stays in hospital. This is analogous to decreasing
employees under their jurisdiction; (iv) the percentage of staff the appraisal costs associated with caring for the elderly.
who have objectives set at the start of the year; and (v) the
percentage of staff who have the extent to which they have met

3.9.2 Case study 17 The Head of Performance and Management Information
INSTITUTION: CABINET OFFICE cautioned that early successes tend to derive from “low-hanging
RESPONDENT: HEAD OF PERFORMANCE AND MANAGEMENT fruit” and that where systemic reform is not achieved, gains can
INFORMATION be front-loaded. It is not yet possible to identify cases wherein
SERVICE LINES: IMPROVING THE EFFICIENCY OF CIVIL particular CS departments have not achieved systemic reform,
SERVICE DEPARTMENTS causing front-loaded gains. Such cases, if they are found to
This case study examines how a principal organ of the UK have occurred, would conflict with the literature’s finding that
Cabinet Office (CO), the Efficiency and Reform Group (ERG), QM programmes have more of an impact the longer they have
has impacted spending efficiency across the UK Civil Service been in place.131 If this were the case, the outcomes of the
(CS). In 2011, the CO had c.1,500 employees, and the CS had an ERG programme would not entirely accord with the literature’s
expenditure on pay and pensions of around £110bn and around findings.
430,000 employees. The ERG came into existence in May 2010.
The respondent reported the CO had rebalanced costs away from
In 2011, the ERG’s QM mechanism was the measurement of “appraisal costs” and towards “prevention costs” procedures
cash savings across the portfolio of CO programmes, aiming to across the CS in 2011. This response agrees with the expectations
assist all CS departments in spending their funds as efficiently as of the literature. By enabling the CS departments to catch
possible. By improving CS departmental efficiency the mechanism problems up front at the planning stage, the CO stops costly
assists them in reducing their spending, helping to tackle the problems before they affect service delivery. Hence, less was
structural deficit and maintain service quality. The programme spent on appraisal after (or as) services were being delivered by
facilitates CS spending reforms while promoting economic CS departments. The respondent predicted this effect would hold
growth. The main CS work areas affected are: centralising going forward.
procurement; marketing and media; streamlining the CS; major
projects; government IT and government property management. The ERG’s programme improved employee welfare throughout
The most senior managers monitoring the work are the Permanent the CS by helping civil servants to operate more efficiently,
Secretary and the Minister for the Cabinet Office. The programme decreasing the effort they needed to exert to get a given level
will continue throughout this Parliament. of output. It is reasonable to infer that this improved employee
workplace satisfaction, agreeing with the literature’s expectations
The ERG programme derives “strong quality metrics” for use as to the effect of QM mechanisms.
across all work areas. Each area has a trajectory of savings which
it is expected to meet. The savings reported by the different 3.9.3 Conclusion to the public sector case studies
delivery areas are audited and subjected to monthly review. This The public sector organisations’ case study findings are in
external review and audit process encourages the units to meet almost complete agreement with each other and cohere with
their trajectories and to report their progress accurately. the literature’s predictions. This suggests that these case study
Under the mechanism, the CO supports CS departments in responses are representative of the experiences of other public
embedding the following management philosophies into sector institutions.
their daily operations where appropriate: Six Sigma, Lean and
Continuous Improvement mechanisms. For example, the CO Both respondents found that the QM programmes had lowered
has worked with HMRC on integrating Continuous Improvement costs and facilitated a change in cost structures toward
mechanisms into their tax collection activities to reduce costs and ‘prevention’ costs. Both indicated that managerial commitment
improve quality of tax collection. was important to the success of the organisation’s QM programme
and that the programme became more effective with a lag. Only
The Head of Performance and Management Information reported one organisation confirmed that the programme had increased
that: workplace satisfaction.
i. The programme had supported CS departments in making
£3.75bn of savings in 2011, a 3.4% efficiency gain and 3.10 Quality excellence body case study
beating the £3.2bn aspiration. 3.10.1 Case study 18
ii. The Cabinet Office hopes CS departments will benefit by at INSTITUTION TYPE: QUALITY EXCELLENCE BODY
least £3.75bn in 2012, and beyond. RESPONDENT: CHIEF EXECUTIVE
iii. In 2011, the programme had reduced unnecessary MISSION OF THE QUALITY EXCELLENCE BODY:
consultancy hire by CS departments, saving £870m. The excellence body assists businesses in improving outcomes
iv. The ERG’s rigorous quantitative oversight has encouraged and performance across all their departments, and product or
the Major Projects Authority (MPA) to increase project service delivery lines. The body aims to help businesses improve
management efficiency.129 customer and client satisfaction; efficiency; employee motivation;
teamwork practices and overall strategy.
Points i to iv are typical of those elements of the literature which
suggest that public sector organisations can lower their costs Expanding from the single organisation focus of the previous
through effectively implementing QM programmes.130 However, case studies, the final case study discusses the QM findings
these points have a broader scope than the papers. While the experienced by a large number of businesses. This case study
papers examined how QM can reduce costs in the cases of focuses on how Lean, as applied to processes, has affected
individual public sector organisations, points i to iv indicate outcomes for business services firms in a particular region of the
that the CO’s ERG programme had reduced costs for the many UK according to the Chief Executive of an excellence body. The
separate public sector organisations in the CS. Chief Executive has knowledge of the effects of Lean, as applied
to processes, on these businesses’ outcomes and agreed to share
it.

Although it is not the focus of the discussion, the excellence body a cloud computing platform from their current platform.
is described to contextualise the discussion. The body had a 2011 Overall, QM programmes can probably reduce costs for all
turnover of £1.9m and had 10 employees on average that year. organisations – however, for some organisations, a move to
For the year ending March 2011, the body had worked with 830 cloud computing might actually raise costs.
organisations. The institution is most active in the UK, from where
it sources some 95% of its revenues, and 73% of its customers are These RoI results are impressive and suggest that businesses can
from the focus region of the UK where the body’s predominant expect to achieve cost savings which significantly outweigh the
focus lies. costs of QM implementation, if they choose to implement Lean
programmes.
The respondent explained that, in 2011, 75% of business services
firms in the excellence body’s focus region, who were also The respondent indicated that employee satisfaction
working with the excellence body, were instituting or using Lean had improved because of the waste reduction which the
applied to process efficiency. These methods increase service implementation of Lean programmes caused. This response,
delivery efficiency by removing wasted steps or needless inputs which applies to the many businesses that the respondent was
at the various stages of the service delivery process.132 He also discussing in general terms, is also supported by the literature.
explained that, in the focus region, a business services firm This suggests that the businesses which the respondent was
will typically identify a need to increase cost efficiency due to discussing were not atypical of businesses in general.138
“external pressure” – such as customers demanding lower prices
– or “internal pressure” – such as board members demanding The Chief Executive reported that the implementation of the Lean
efficiency gains. The business will then focus on streamlining its programmes applied to process efficiency had not caused a cost
processes by implementing Lean. In the post-2008 economic rebalancing away from “appraisal costs” and towards “prevention
climate, business services firms in the focus region have often costs” for business services firms in the focus region. This does not
implemented Lean in response to foreign “external pressure.” agree with a key prediction of the literature (see Beecroft 2000).
In 2011, the Chief Executive estimated that across all business He added that such a cost rebalancing had occurred, although,
services firms in the focus region, an average of approximately instead of being caused by the implementation of Lean processes,
1% of revenues was spent on QM systems. Furthermore, he it had been caused by the stresses of the post-2008 economic
estimated that 0.05% of revenues were spent on Lean as applied climate.
to processes.132
References
In the focus region, for 830 business services firms working 68. These eight sectors are: manufacturing, defence engineering,
alongside the excellence body, the implementation of Lean as engineering and construction, legal services, business services,
applied to processes was found to have yielded substantial Return transport and telecommunications, the voluntary sector
on Investment (RoI) benefits: and the public sector. There is also an additional case study
i. For the 830 business services firms, over the last seven years, provided by a quality excellence body.
there has been an average RoI of 19:1. One firm made a 69. In some cases, the findings of a particular case study may
£18,000 external investment and achieved £900,000 worth of not follow the general theme of the literature. This does not
cost savings, a Cost RoI of 50:1.134 indicate any error on the part of the respondent; it simply
ii. Three years from now, as general trend, this RoI effect is indicates that his or her organisation is not typical of the
expected to become more pronounced.135 This is because literature as a whole. The points of divergence between the
many firms have only recently begun implementing the case studies and literature review, where they do occur,
process, so there are still many comparatively easy efficiency simply suggest that some of the organisations which provided
gains to be achieved. case studies were not typical of those which had been
iii. These increased RoI benefits will only be realised if business investigated by the authors of the papers in the literature
managers remain committed to the implementation of Lean review. Cebr simply examines how far the case studies are
programmes.136 coherent with the literature, rather than attempting to arbitrate
iv. The RoI benefits which these 830 business services firms between them.
have enjoyed are comparable to those arising from other 70. O nly those sector subsections containing more than one case
business improvement techniques, such as cloud computing. study have concluding sections at the end.
The implementation of cloud computing can reduce costs 71. F or all case studies, except case study 18, the inferred RoI
significantly. However, the RoI benefits of cloud computing estimates were not provided by the respondents; they were
can be variable, with some institutions experiencing estimated by Cebr. Every effort has been made to ensure the
significant cost reductions while others experience more accuracy of the RoI calculations.
modest gains.137 The same is true of QM: some businesses 72. This estimate assumes the annual costs of the IPC programme
reported very significant RoI cost reduction gains as a result are constant.
of implementing QM programmes, others reported less 73. The respondent did not identify which process control aspects
pronounced RoI benefits. In one important regard, which of the IPC programme were responsible for the reductions in
follows, the evidence suggests that implementing QM per-unit costs.
procedures benefits organisations more consistently than 74. This reduction in post-production per-unit test times was only
moving to a cloud computing platform. All the organisations given in terms of a percentage decline in production costs by
in this report (which provided relevant data) indicated that the respondent.
implementing a QM programme reduced business costs by 75. The respondent did not disclose what SPS stood for.
more than the cost of instituting their QM system. However, 76. The respondent did not quantify this reduction in hours.
13% of respondents in Schwartz (2011) did not expect to 77. C onsumer homogeneity is a standard economic assumption.
achieve a net reduction in costs if they were to move to It implies that, in aggregate: (i) each consumer (who chooses

to buy from Smith’s Environmental) spends the same amount 96. F or instance, they track ‘Bar Mark’ performance. The
as other consumers on the company’s products; and (ii) each independently administered and audited Bar Mark is a quality
consumer would have been equally likely to stop purchasing performance metric which is designed to track management
from Smith’s Environmental if product quality had been low in quality performance in chambers. It is divided into six areas
2011. and is evaluated on a monthly, quarterly and/or annual basis.
78. ‘Prevention costs’ are planned costs to ensure that errors are 97. The positive effect on customer retention rates agrees with the
not made at any stage of the delivery process of a product or literature. See Reichheld and Sasser (1990).
service. ‘Appraisal costs’ are the costs of checking/verifying 98. This effect is called ‘diminishing returns’.
a product or service at the various stages during its delivery 99. B oth legal services respondents indicated that their
process. businesses’ QM programmes has decreased costs and/
79. The respondent did not reveal how long the pilot aspect of the or increased revenues. It follows logically that their QM
programme has been in place for. programmes increased business profits.
80. This statement follows from statistical theory. Namely: for any 100. The company provides IT services mainly to legal services
one variable, the lower the in-sample variance, the greater firms.
the probability that that variable’s in-sample mean is close to 101. This inference relies on the standard economic assumption
its population mean. See: Wooldridge (2002), Introductory that customers are homogenous in aggregate. See subsection
Econometrics: A Modern Approach (2nd Edition). 3.2.2 (case study 2) for a discussion of this assumption.
81. Crosby (1979), Quality is Free, McGraw Hill. 102. ISO 9001 requires: (i) strong managerial quality leadership;
82. The respondent quoted that the total stand-alone cost of (ii) that quality is actively pursued by the workforce; (iii)
the initiative was 0.005% of average annual revenue for quality decisions that are data-based; (iv) that quality
November 2006 to November 2011. systems are regularly audited; (v) that quality systems are
83. For further detail, see Davenport and Short (Summer 1990), tailored to customer requirements and (vi) that the business
‘The New Industrial Engineering: Information Technology and has robust procedures for rectifying errors. Attaining and
Business Process Redesign’, Sloan Management Review, maintaining independently-verified ISO 9001 certification
p. 11–27. acts as a guarantee that a business’ processes have attained
84. The respondent did not reveal whether this finding was a a high degree of quality. See ISO 9001:2008 Quality
result of an employee survey by Selex Galileo or some other Management System – Requirements. http://www.iso.org/
method of analysis. iso/catalogue_detail?csnumber=46486
85. Owing to confidentiality requirements, the report cannot 103. B y and large, the respondent did not reveal quantitative
disclose more about the business or its principal client. estimates of the impacts of PMD Healthcare’s QM system.
86. The BIPs typically focus on project improvement in the areas 104. Points
iv and v are consistent with the literature.
of: leadership, vision, strategy, staff competency, supply chain 105. See Collins and Nussey (1994).
relations and communicating to employees. 106. The respondent did not quantify these effects.
87. The respondent did not explain how these processes played 107. The ‘Waterfall’ system is an iterative software development
into QM. One can reason that the continual cycle of PPA process. The software travels sequentially through the
and BIP gradually improves processes, and that cycle helps phases of requirements, design, implementation, verification
to weed out inefficient steps in service or product delivery. and maintenance. There is minimal feedback between the
These are ‘Continuous Improvement’ and ‘Lean as applied to different process steps. See: Benington (1983), ‘Production
processes’, respectively. of Large Computer Programmes’, IEEE Annals of the History
88. The respondent was unable to quantify these effects. of Computing (IEEE Educational Activities Department) 5(4),
89. Betterment is a project’s final margin less its tender margin. pp 350–361.
90. See Reichheld and Sasser (1990) and (on the closely-related 108. The ‘Iterative Lifecycle’ process is a software development
metric of market share) Cole and Flynn (2009). process involving a high degree of feedback between its
91. The respondent did not disclose the exact cost of his different stages. Once a piece of software has undergone an
business’s QM programme, only indicating that it was well initial iteration of being designed, produced and tested, its
under 1% of revenues. design may be altered in light of the test results. This process
92. See Hannah (2011) and Hendricks and Singhal (2001). may be repeated several times. See: Dr. Cockburn (2008),
93. Based on the case study evidence, these rapid impacts ‘Using Both Incremental and Iterative Development’, STSC
apply only to the legal services sector. Later case studies CrossTalk, 21(5), pp 27–30.
find some evidence that QM programmes impact outcomes 109. The respondent was unable to provide quantitative estimates
comparatively rapidly in the business services sector (see of the results listed below.
subsection 3.6). However, this evidence is weaker than for 110. The last was India, where it is currently being implemented.
legal services. As such, the case studies in subsections 3.5. 111. P reventative actions are those that ensure that errors are not
and 3.6 do not provide sufficient evidence to conclude that made at any stage of the delivery process of a product or
QM programmes have their impacts comparatively rapidly service. Corrective actions are those that verify a product or
across all service type businesses, relative to non-services service at the various stages during its delivery process.
businesses. 112. The business services sector case studies only provide
94. ‘Prevention costs’ are planned costs to ensure that errors are weak evidence that QM programmes improve outcomes
not made at any stage of the delivery process of a product or comparatively rapidly in that sector. By contrast, the legal
service. ‘Appraisal costs’ are the costs of checking/verifying services sector case studies (subsection 3.5) provide
a product or service at the various stages during its delivery strong evidence that QM programmes improve outcomes
process. comparatively rapidly for legal services firms. Because the
95. This result was predicted in the academic literature. evidence for business services firms is comparatively weak,
See Beecroft (2000). subsections 3.5 and 3.6 do not warrant the conclusion that

QM systems impact businesses’ outcomes comparatively 130. S ee Cohen and Brand (1993), Mani (1995) and the Scottish
rapidly across all service sector companies. Executive (2006)
112. ‘Prevention costs’ are planned costs to ensure that errors are 131. S ee Hendricks and Singhal (2001), Hannah (2011) and Cole
not made at any stage of the delivery process of a product or and Flynn (2009).
service. 132. S ee the Scottish Executive’s (2006) report on Lean in the
113. LOROL has also attained ISO 18001 and ISO 14001, Scottish public sector.
relating to safety management and environmental standards 133. H e caveated that these figures were not exact because
management, respectively. not all firms reveal their expenditures on either (i) Lean
114. For example, LOROL faces penalties for failing to meet programmes and/or (ii) other QM programmes.
targets for graffiti and gum removal, train punctuality, 134. The respondent did not identify any individual business
accurate train timetables, accurate information displays, by name. He did not disclose how these impressive RoI
customer satisfaction, and train and station cleanliness. achievements compared to businesses’ other value adding
115. Telefonica SA is the global parent company of Telefonica activities.
Europe and other regional Telefonica companies. 135. The respondent did not estimate what proportion of
116. Network quality is declining as problems such as drop call businesses would see this RoI effect become more
rates, jittery sound transmission, congestion and intermittent pronounced.
coverage become more pronounced. See Visualdata (2011), 136. This caveating point echoes a key theme of the literature,
‘TRAI Performance Indicators Quality of Service Report’ Q4 which has already been discussed.
2010 – Part 1. 137. S chwartz (2011), ‘Cloud computing can generate massive
117. This point agrees with predictions in the literature. See savings for agencies’ ,Federal Computer Week and Salam
Farhoomand (2004). (2012), ‘RoI (return on investment) from cloud computing’,
118. PQASSO is a self-assessment quality standard designed for CloudTweaks, http://www.cloudtweaks.com/2012/06/roi-
use in the voluntary sector. return-on-investment-from-cloud-computing/
119. The respondent did not list these 12 measures. However, 138. The respondent did not cite any survey evidence to support
given that QRP is based on PQASSO, it is reasonable to this result.
infer that these may be the same as 12 PQASSO measures:
planning, governance, leadership and management,
user-centred service, managing people, learning and
development, managing money, managing resources,
communications and promotion, working with others,
monitoring and evaluation, and attaining results.
120. The respondent did not know what the user retention rate
would have been had the QRP not been instituted. As such,
he did not quantify the extent to which the programme had
increased user retention.
121. The charity’s associated individual voluntary agreement debt
management and insolvency vehicle had additional revenues
of £2.2m in 2011.
122. The respondent did not quantify how much time Elements 1,
2 and 4 saved.
123. ‘Active’ service users are those who maintain regular
debt repayment under the charity’s debt management
programme.
124. The charity gets ‘fair share contribution’ revenue from the
credit industry by arranging debt management plans for over-
indebted households, allowing the credit industry to avoid
losses it would otherwise have incurred.
125. See Centre for Voluntary Action Research (2004), The
Adoption and Use of Quality Systems in the Voluntary
Sector: Final Report.
126. The respondent did not quantify this effect on employee
satisfaction.
127. Swiss (1992), ‘Adapting Total Quality Management (TQM)
to Government’, Public Administration Review, 54, pp. 356-
362.
128. Bear in mind that removing persistently absent employees
from the payroll is a means of improving financial
performance.
129. The CO runs the MPA which administers, reports on and
provides assurance for all projects or programmes which
require HM Treasury approval. The ERG has an oversight
role in quantifying the value of MPA’s projects and quality
improvement programmes.

4 SURVEY: REPORTED IMPACTS OF QUALITY
MANAGEMENT ON BUSINESS OUTCOMES
4.1 Survey introduction

CQI commissioned Opinium to survey 120 senior business On average, for firms that have successfully deployed quality
professionals across a range of sectors to assess the impacts programmes, costs are estimated to be 4.8% lower than they
of QM on business performance. The Opinium survey also would otherwise have been, suggesting that QM programmes can
examined how far businesses have measures in place to provide significant cost savings to businesses. Almost all survey
incentivise senior management to drive forward QM programmes respondents (93%) agreed that QM is a significant success driver
and how much businesses plan to invest in QM in the future. The in their industry, as shown in Figure 2 below.
survey was conducted in the final quarter of 2011. This section of
the report outlines the key findings of this survey139. In accordance Figure 2: Successful quality management is an important driver of
with the first objective of our study, this section attains results as business success in my industry – agreement with statement
to the impact of QM programmes on business outcomes. Overall, Source: Opinium Survey
the survey suggests that:
1. QM programmes can yield significant cost savings to
businesses.
2. Most businesses agree that QM is an important driver of
success that allows them to better retain customers and justify
price premiums on products.
This section of the report builds naturally on the literature review

and case study evidence. It was beyond the scope of this survey
to analyse all of the issues the literature review touched on. The
aim of the survey was to attain evidence relating to two of the
most important topics discussed in the literature review – namely,
QM’s effects on costs and on overall business success. At the Businesses believe that QM contributes strongly to customer
conclusion of this section, the survey’s principal findings are satisfaction and therefore retention, with about three-quarters of
compared with those of the literature review.140 The predictions those interviewed “completely agreeing” with this notion. This is
of the literature review are found to be supported by the survey illustrated in Figure 3 below.
evidence.
Figure 3: Good quality management contributes strongly to
4.2 Survey results and discussion customer satisfaction and therefore retention – agreement with
Figure 1 below shows the cost savings achieved by businesses as statement
a result of efforts to improve quality. Source: Opinium Survey
Figure 1: In your estimation, what magnitude of cost savings has

your business been able to achieve as a result of your efforts to
improve quality? Distribution of survey results
Source: Opinium Survey
Companies also perceive a strong association between

productivity and QM – over 80% of respondents agreeing with
this proposition, as shown in Figure 4 below. This suggests that,
for most businesses, QM can increase the amount of revenue
generated per employee within the firm.

Figure 4: My company’s quality management system allows Figure 6: I believe that the negative consequences to my company
for consistent improvement in processes, thereby improving from failure to attain quality management goals will be more
productivity – agreement with statement serious in the future than at present – agreement with statement
Source: Opinium Survey Source: Opinium Survey
Furthermore, most firms (83%) agreed that the achievement

of quality helps justify the price premium firms can charge on Despite widespread agreement on the economic benefits of QM
products, helping them to maximise profits, as Figure 5 illustrates. implementation, the majority of businesses did not have firm
plans to increase investment in QM going forward. Just 37%
Figure 5: I would find it difficult to justify the price I currently agreed with the statement “my company intends to increase
charge for my product if the consistency of product delivery were its investment in QM systems in the future compared with the
lower than at present – agreement with statement amount it invests today.” See Figure 7. Furthermore, only 31%
Source: Opinium Survey indicated that their executive team is financially rewarded for
successfully meeting quality-related objectives. This is illustrated
in Figure 8.
While, at first glance, these results may seem surprising, they

do not directly conflict with the literature reviews findings.
With regard to the data in Figure 7, the literature does not state
that businesses will perpetually increase their QM investment
going forward. Investing in QM is only one of a business’s
possible investment strategy options. Given that companies have
finite resources, increasing investment outside of QM, while
forgoing an expansion of QM investment, may be appropriate at
times.
Regarding the findings of Figure 8, the literature often reports that

Overall, therefore, the Opinium survey suggests that QM plays the effective implementation of QM programmes requires the
an important economic role – helping firms to retain customers, commitment of senior management. However, it does not state
justify price levels and improve productivity. Furthermore, the that financially rewarding the executive team for QM successes is
survey suggests that the perceived importance of achieving quality a precondition of attaining their commitment to QM programmes.
standards is growing – about two-thirds of respondents believed For example, a business culture in which there is a strong
that the consequences of not meeting quality goals would be emphasis on quality can, itself, be sufficient to garner senior
higher in the future than they are now, as Figure 6 illustrates. executives’ commitment to a QM programme.141
Over 70% of firms surveyed believed that realising productivity
improvements via their QM systems was a strategic imperative Linking back to the case studies (see section 4), respondents often
and over two-fifths (41%) of companies believed that pursuing reported that senior executives were financially rewarded for
operational efficiencies, possibly linked to quality, could provide overall business success. Respondents tended to reason that, even
a better way of achieving earnings growth than sales expansion in though these financial rewards were not directly linked to QM
the current economic climate. successes, they were sufficient to bring about senior executives’
commitment to successful QM programme implementation,
because QM success fed into successful business outcomes.
Hence, an incentive structure which rewards executives for
general business success can encourage their commitment to
specific QM success. This incentivisation channel, identified by
the case studies, was not investigated for Figure 8.

Figure 7: My company intends to increase its investment in References
quality management systems in the future compared with the 139. In the analysis which follows, survey respondents who
amount it invests today -– agreement with statement answered ‘don’t know’ to a question or refused to answer a
Source: Opinium Survey question have been omitted.
140. Toward the end of this section, some of the survey’s findings
are also discussed in the context of information provided by
the case studies (section 4).
141. See Gallear and Ghobadian (2004).
Figure 8: Distribution of survey responses, by question

Source: Opinium Survey
4.3 Conclusions on the survey findings

The survey data yield two principal findings:
1. QM programmes can result in significant business cost
savings. This finding was observed from the data in Figure 1.
2. QM is often perceived as being an important driver of success
that allows businesses to better retain customers and justify
price premiums on products. This finding is suggested by the
data in Figures 2 to 6.
These survey findings cohere with the findings in the literature.

The first finding is supported by Levine and Toffel (2010), Scottish
Executive (2006), Osborne and Gaebler (1992), and others which
found evidence that QM systems drive down costs for public and
private sector institutions. (See the literature review in section 3).
The second finding is more general and is supported by a large
number of papers from the literature review. Hendricks and
Singhal (2001), Hannah (2011) and Farhoomand (2004) all find
evidence that the implementation of QM programmes can push
up stock prices – a key measure of overall performance for many
businesses. Similarly, these papers: Reichheld and Sasser (1990),
Oliver and Qu (1999) and others found that QM systems can
improve overall financial performance and profits – another key
metric of business success.
Relating to the second principal finding above, several papers

from the literature review find that QM systems improve customer
or service user satisfaction and retention. This result held in the
private sector – see Farhoomand (2004), and Reichheld and
Sasser (1990). It also held in the public sector – see McAdam,
Reid and Saulters (2002) and the Health Foundation (2006).
Finally, it is also supported by those sections of the literature
which discuss the voluntary sector. For example, the Centre for
Voluntary Action Research at Aston Business School (2004) found
that QM procedures can improve service user satisfaction for
voluntary sector organisations.

CQI and CMI | The contribution of quality management to the UK economy <#>
5 MODEL: ESTIMATED IMPACTS OF QUALITY MANAGEMENT
ON HEADLINE UK ECONOMIC INDICATORS
5.1 Introduction to the model with reference to this report’s working definition of QM.
In accordance with this report’s second aim, this section provides
quantitative estimates of the extent to which more effective, The values of (i) to (iv), above, under the Counterfactuals are
intensive and longer-term use of QM systems and techniques can compared to their values under a Baseline Scenario which
be expected to affect headline UK macroeconomic indicators. reflects each sector’s intensity of QM implementation as it
To further this end, Cebr developed a bespoke economic model actually is in reality for each year of the study period. For now,
with the purpose of formulating estimates of the effects of QM note that comparing the values the four indicators take under
on: (i) GDP, (ii) employment, (iii) net Exchequer tax receipts (or Counterfactual One against their actual current values (under the
net benefit to the Exchequer)142 ; and (iv) sectoral production Baseline Scenario) provides estimates of how far QM programmes
technology.143 have already positively impacted on UK macroeconomic
indicators. Comparing the values the indicators take under
Having just described the model’s purpose, this subsection Counterfactual Two against the values they take in actuality,
goes on to explain the modelling framework and, thereafter, provides estimates of how much potential QM has to improve
discusses the quality of the data which the model uses as inputs. UK macroeconomic indicators if it were rolled out as fully as
We highlight that the data is likely to be a close reflection of possible.
economic reality and that, consequently, the model’s estimates
of the impacts of QM on UK macroeconomic indicators are also The modelling analysis and the associated counterfactual scenario
likely to be good approximations of the economic reality. The comparisons take place for each year of the 2009-13 study period
reasons why this modelling methodology, as opposed to any in order to estimate QM’s effects on headline UK macroeconomic
other tool of economic investigation, has been employed are then indicators in the recent past, present and near future.
discussed. The following subsection gives an in-depth description
of the modelling method and discusses how the model’s key The model’s estimates for 2011 are the main subject of the
inputs were derived. The model’s limitations are discussed in this discussion, because an analysis of this year gives the most up-to-
subsection and the following subsection. The model’s assumptions date estimates of QM’s impacts on the UK economy. To ground
are also discussed in the following subsection. the 2011 estimates in the recent past and near future, figures
detailing the model’s estimates for each year of the 2009-13
Cebr’s bespoke economic model comes toward the end of the study period are also presented. To provide additional context,
report because it builds on data provided by the literature review, estimates for a ‘typical’ year are also provided.
case studies and survey. It uses these data as inputs to formulate
estimates as to the impact of QM on the aforementioned UK The model’s first limitation is that the estimates it yields will only
headline macroeconomic indicators.144 Hence, the model does be as good as the inputs used to produce them. This limitation
not provide ‘real world’ evidence per se, rather an assessment of applies to all economic models which, like this model, estimate
what can be expected to be the impact of QM under certain sets the impacts which one variable has on other variables under
of assumptions and inputs. a certain set of assumptions and conditions. This limitation is
unavoidable. Consequently, four points are of note:
In lieu of being able to provide real world evidence in its own i. Because the model is reliant on inputs from the literature
right, the model utilises the real world evidence provided by the review, case studies and survey, the estimates of the effects
preceding sections in the following analytical framework. The of QM on headline UK economic indicators will only be
model employs the empirical evidence to estimate the values that accurate to the extent that inputs from the literature review,
the headline UK economic indicators – (i) GDP, (ii) employment, case studies and survey are reflective of reality.
(iii) net Exchequer tax receipts; and (iv) sectoral production ii. The inputs into the model were drawn from a comprehensive
technology – can be expected to take under two counterfactual examination of empirical evidence provided by the QM
scenarios. Intuitively, the first counterfactual scenario considers literature, 18 case studies, and a survey of 120 organisations.
a situation in which no public, private or voluntary sector This constitutes a large evidence base. It is, therefore, not
organisation had implemented any QM programme at all. unreasonable to assume that the estimates produced by the
Intuitively, the second counterfactual scenario captures a situation model are a close approximation of the economic reality.
in which all organisations have implemented QM as fully as iii. Cebr’s bespoke economic model makes use of the QM input
possible. These situations are called Counterfactuals One and data and publically available macroeconomic data on GDP,
Two, respectively. Discussions in the latter half of subsection 5.2 employment and taxation, which is provided by the Office for
explain how Counterfactuals One and Two are defined rigorously National Statistics (ONS). These official ONS statistics, when

used as data inputs, are likely to match well with reality. one year to the next, and annual changes in the prevalence of
iv. Where one accepts that the input data for Cebr’s bespoke QM in the UK economy are not captured comprehensively by
economic model are close estimates of economic reality, the available data. Hence, the (above) precondition of regression
the model’s estimates of the impacts of QM on UK analysis being able to produce comprehensive and accurate
macroeconomic indicators under both counterfactual estimates was not satisfied. The implication is that a regression
scenarios, are likely to be good matches with QM’s real analysis would have produced uncertain estimates of QM’s
impacts. The real impacts of QM under both counterfactual impact on the headline macroeconomic variables of interest.146
scenarios cannot be directly observed, which is why Cebr’s As such, Cebr chose not to employ regression analysis when
model estimates them. estimating how QM impacts the headline UK macroeconomic
indicators of interest. Given the available data, the use of
The two reasons why this modelling methodology, as opposed regression analysis would have been completely inappropriate.147
to some other analytical method, has been employed are now
discussed. The second reason that the chosen modelling methodology was
employed is that it has a solid grounding in economic theory.
Cebr believes that the use of this modelling methodology will (Regression analysis, being, at core, a purely statistical method
yield the most accurate possible estimates of QM’s impacts on of analysis, requires no such grounding.) The model produces
headline UK macroeconomic indicators. Points ii, iii and iv estimates of the impacts of QM by breaking the economy down
(above) explain why Cebr believes this modelling methodology into eight sectors. It then estimates the effect QM has on the
will yield estimates of QM’s impacts which are likely to be a good productive technology of each sector under both counterfactual
match with QM’s real impacts. scenarios.148 Via these estimated impacts on sectoral production
technology, QM’s effects on each sector’s contribution to UK
We would expect, therefore, that other methods would likely GDP, employment and net Exchequer tax receipts are estimated.
produce estimates that would have reflected reality less Aggregating across the sectors yields the headline UK economy-
accurately than the framework we employed. The only other wide estimates. The underlying theory, Cobb-Douglas production
widely-employed tool of empirical economic estimation, besides functions, is well established in the economic literature.149 At the
Cebr’s chosen economic modelling framework, is econometric sector level, Cobb-Douglas production functions account for how
regression analysis. Regressions are a workhorse estimation changes to productive technology affect outputs.150
method in empirical economics, and courses in regression
analysis are a staple of most British undergraduate economics Later, subsections 5.3, 5.5 and 5.6 estimate QM’s contribution to
courses. GDP, net Exchequer tax receipts and employment respectively.
At the beginning of each of these respective subsections, there is
Put simply, regression analysis works as follows. First, an a discussion explaining the mechanism by which QM is believed
economist will find a dataset containing data on a dependent to impact GDP, net Exchequer tax receipts and employment
variable and at least one independent variable which he or respectively.
she believes affects the dependent variable. To fix ideas with
an example, a dependent variable might be an hourly wage 5.2 The modelling method, assumptions and limitations
and an independent variable might be years of education. The This subsection provides a detailed explanation of how Cebr’s
dataset will contain observations for the hourly wage and years model was constructed using inputs provided by the evidence
of education of at least 40 individuals. The regression will then base produced as part of our study, namely the survey, literature
estimate how an individual’s hourly wage varies with his or review and in-depth case studies. We also describe how the
her years of education. In other words, the economist will use model formulates its estimates as to the impacts of QM on UK
regression analysis to estimate an individual’s expected hourly GDP, employment, and some of the benefits to the Exchequer.
wage (or some other dependent variable) conditional on the How the model estimates QM’s impact on sectoral production
individual’s years of education (or some other independent technology is also explained. The model’s assumptions and
variable). Like all other methods of empirical economic limitations are discussed throughout.
investigation, regression analysis cannot determine that the
independent variable (years of education, in this example) Cebr’s bespoke economic model divides the economy into eight
causally affects the dependent variable (hourly wage, in this sectors for each year of the study period; 2009-13. The sectors
example). At heart, regressions are a statistical methodology are: (i) manufacturing; (ii) financial, business, scientific and real
and there is no such thing as statistical causation. Hence, the estate services; (iii) transport; (iv) public administration; (v) health
economist must assume, based on literature or intuition, that a and social work; (vi) education; (vii) retail and wholesale; and
causal relationship between the independent and dependent (viii) other. The first seven sectors comprise over 80% of UK
variable exists before using a regression.145 annual GDP.
Had Cebr chosen to employ regression analysis in place of the In each sector, and in each year, there is level of efficiency
chosen model, we would have used regressions to estimate the implicit in that sector’s production technology. The degree of
values of the aforementioned headline macroeconomic indicators efficiency of a sector’s production technology reflects the ease
of interest (treating them as dependent variables), conditional with which it can convert inputs, labour and capital into goods
on the prevalence of QM in the UK economy (treating this as an and services. A sector with a low degree of efficiency in its
independent variable). In order to produce accurate estimates, sectoral production technology might only be able to produce
regression analysis requires a significant degree of variation in the one unit of good or service using one unit of capital and one
dependent and independent variables, and a comprehensive and unit of labour. This would imply that inputs cannot be converted
accurate observation of those variations. The overall prevalence into goods and services particularly easily in that sector. Another
of QM in the UK economy does not change dramatically from sector with a higher degree of efficiency in its sectoral production

technology might produce five units of goods or services using Under the Baseline scenario, for each year of the study period
the same inputs. This would imply that inputs can be converted each sector’s intensity of QM implementation is estimated.
into goods and services with greater ease in the second sector. These estimates are designed to reflect any given sector’s
Hence, the higher the degree of efficiency in a sector’s production intensity of QM implementation as it actually is in economic
technology the lower the costs it faces per unit of good or service reality. In all cases, the estimates of each sector’s intensity of
it produces. QM implementation are strictly between 0 and 1 because,
as is apparent from the literature, case studies and in-depth
The model assumes that the degree of efficiency of a sector’s interviews, all sectors have implemented QM to some extent
production technology is dependent on the intensity of QM but none have implemented it fully. A sector which has
implementation in that sector. The greater the intensity of QM implemented QM relatively intensively thus achieves a Baseline
implementation in any given sector, the higher the degree of Scenario QM implementation intensity score estimate which
efficiency of its production technology. is higher than that achieved by some other sector which has
implemented QM relatively unintensively. While the use of these
The model is predicated on the following causal assumption: QM implementation score estimates constitutes a limitation of
“The greater the intensity of QM implementation in any given the model, the significant amounts of data generated from the
sector, the higher the degree of efficiency of its production literature review, case studies and survey imply a high degree
technology.151 Following on from that, the higher the degree of confidence that each sector’s estimated intensity of QM
of efficiency of a sector’s production technology, the greater implementation accords closely with reality. It is necessary to
its contributions to economy-wide GDP, employment and use estimates because, once again, each sector’s intensity of QM
Exchequer net tax receipts.” Taking this assumption as a given is implementation cannot be directly observed. The estimation of
a precondition of enabling the model to estimate the impacts of QM implementation scores for the different sectors under the
QM on UK economy-wide (i) GDP; (ii) employment; and (iii) net Baseline Scenario is now explained.
benefit to the Exchequer. The truth of this assumption is supported
by three independent sources: the literature review, the survey of The QM implementation scores for (i) manufacturing, (ii)
120 organisations and 18 in-depth case study interviews. Because financial, business, scientific and real estate services, (iii)
these sources were independent, this coherency provides a transport, and (iv) public administration were inferred using
strong indication that causal assumption is correct. It is extremely data from in-depth interviews and the literature. During the
unlikely that three independent primary data sources would all in-depth interviews, several respondents discussed how far their
be incorrect in the same way. Hence, Cebr has confidence in the organisation’s QM implementation programmes have progressed,
model’s underlying causal assumption. relative to their final, long-term QM implementation goals.
Taking an average response for sectors (i) to (iv), enabled Cebr to
At the core of Cebr’s model is a mathematical description of estimate the intensity with which QM had been implemented in
the economy. However, there is no mathematical definition of each sector. These estimated degrees of QM intensity hold in the
causation. As such, assumptions about causation must be built Baseline Scenario. In some cases, the literature also discussed
into the model. This requirement is a feature of all mathematical how far QM had been implemented in these four sectors and
models of the economy; it is not peculiar to the model developed so was used to inform the respondents’ discussions. This added
by Cebr for the purpose of this study. The reliance on the above further robustness to Cebr’s estimates of the intensity of QM
causal assumption constitutes a necessary limitation of the implementation for each sector in the Baseline Scenario.153
model, but one which is common across all economic models.
Because three independent data sources all support the existence The health and social work sector intensity of QM
of the (above) chain of causation, Cebr believes the above implementation scores for the Baseline Scenario were inferred
causal assumption is correct.152 The purpose of Cebr’s bespoke from public sector data given by a survey of 120 organisations.
economic model is to estimate the magnitude of the impacts Three points are of note: (i) Survey respondents’ provided
of QM on UK economy-wide (i) GDP, (ii) employment and estimates of how important QM is to public sector institutions’
(iii) net benefit to the Exchequer, assuming that this key causal success; (ii) Healthcare and social work are provided
assumption is correct. All empirical methods of economic overwhelmingly by the public sector; and (iii) The greater the
estimation, both modelling and regression analysis, require the importance attached to QM uptake, the greater the incentive
use of a causal assumption because there is no such thing as for the public sector institution to implement QM programmes.
mathematical or statistical causation. The existence of a causal This degree of incentivisation was assumed to correlate with the
relationship is not something which any model or regression organisations’ actual QM uptake.154 Points (i), (ii) and (iii) imply
could possibly analyse. This limitation – the requirement that that the greater the incentive for public sector organisations to
a causal relationship is assumed – is not peculiar to Cebr’s implement QM, the more intensively healthcare and social work
economic model; it is a limitation of all empirical economic institutions will have implemented QM procedures under the
models and regression analyses. Baseline Scenario.
For each sector in each year of the study period the intensity of The literature discussed how far QM programmes had been
the sector’s QM implementation is estimated on a 0-1 scale. A implemented across the UK education sector. This enabled
score of 0 implies that the sector has not implemented any QM Cebr to estimate the intensity of QM implementation in the UK
at all, Counterfactual One. A score of 1 implies that the sector education sector under the Baseline Scenario.155
has implemented QM as fully as possible, Counterfactual Two.
The estimates attained are reflective of the actual intensity of each The literature also allowed Cebr to estimate the intensity of QM
sector’s QM implementation which exists in reality under the implementation score for the retail and wholesale sector. Doms
Baseline Scenario. (2003) gave measures of IT and total investment across c.17,000
businesses in the sector.156 Cebr assumed that a business’s

intensity of QM implementation correlated with the proportion no organisation in any sector has implemented any QM
of its revenues which it invested. Hence, the average degree programmes at all.158 As per this report’s working definition
of investment for a typical business in the retail and wholesale of QM, Counterfactual One is defined as a situation in which
sector, which Doms (2003) identified, enabled Cebr to estimate no organisation in any sector of the economy would have: (i)
the sector’s intensity of QM investment under the Baseline quantified elements of productive processes to drive continual
Scenario. improvements in quality; (ii) implemented procedures
systematically across the organisation to better meet customer
Together, these sectors: (i) manufacturing; (ii) financial, requirements; nor (iii) instituted systems to facilitate the planning
business, scientific and real estate services, transport; (iii) public of product lifecycles and delivery. As a consequence of not
administration; (iv) health; (v) social work; (vi) education; and (vii) implementing any QM, each sector’s degree of production
retail and wholesale – comprise over 80% of the economy. The technology efficiency is lower under Counterfactual One than
remaining sectors of the economy were aggregated into a single under the Baseline Scenario. Even under Counterfactual One,
new sector. This new aggregated sector’s QM intensity score each sector’s degree of production technology efficiency is still
under the Baseline Scenario was interpolated from available data positive because several factors, besides QM, allow a sector
on sectors (i) to (vii). to transform capital and labour inputs into goods and services.
Ultimately, for any fixed amount of labour and capital inputs,
Overall, Cebr is confident that these estimates accurately reflect each sector will produce fewer units of goods and services
how far QM has been implemented in each of the sectors of the under Counterfactual One than under the Baseline Scenario.
economy. We are confident that these estimates are an accurate Resultantly, each sector’s contribution to economy-wide GDP,
reflection of sectoral QM intensity under the Baseline Scenario for employment and net contribution to the Exchequer is lower under
four reasons: Counterfactual One than under the Baseline Scenario.
i. In cases where multiple independent sources were available
to estimate the intensity of QM implementation scores for Under Counterfactual Two, for each year of the study period,
one sector, the sources cohered closely with each other. It is each sector’s intensity of QM implementation is assumed to be
unlikely that these independent sources would all be incorrect one. The rigorous definition of Counterfactual Two, given below,
in the same way. captures a hypothetical scenario wherein all organisations in all
ii. No matter which primary data source was used, across all sectors have implemented QM as fully as possible.160 As per this
sectors the data inputs were coherent with each other in report’s definition of QM, Counterfactual Two is a situation where
that they all indicated that each sector had implemented all organisations in the economy would have quantified all the
QM to some degree. The absence of any aberrative data elements of their productive processes rigorously and applied
inputs (which might have shown that some sector had not these quantitative insights to drive continual improvements
implemented any QM at all) increases our confidence in all in quality. Each organisation would have implemented a
the data inputs and hence in the estimates of the intensity of systematic group of procedures to gain information on customer
QM implementation scores. requirements and meet those requirements. Finally, each would
iii. When Cebr inferred the QM scores from available data, our have procedures facilitating the rigorous, data-based planning of
inference methods agreed with established economic theory. product lifecycles and delivery. In short, under Counterfactual
iv. Cebr was able to attain direct estimates of QM Two, each organisation, in each sector, would be doing the
implementation for c.80% of the economy. The use of such maximum it possibly could to institute and act on effective QM
a large body of data, drawn from independent and mutually procedures which were informed by real-world quantitative
corroborative sources, means we have confidence in the inputs. As a consequence of implementing QM programmes
intensity of QM implementation score for the remaining as intensively as possible, each sector’s degree of production
c. 20% of the economy. technology efficiency is higher under Counterfactual Two
than under the Baseline Scenario. Resultantly, each sector’s
The degree of efficiency of each sector’s production technology contribution to economy-wide GDP, employment and net
is also derived for the Baseline scenario. These derivations reflect contribution to the Exchequer is greater than under the Baseline
each sector’s efficiency of production technology as it actually is Scenario.
in reality. Each sector’s degree of production technology efficiency
is derived as a function of that sector’s labour inputs, capital The following paragraphs describe the mechanism whereby
inputs and gross value added in a Cobb-Douglas framework. Cebr’s bespoke economic model formulated estimates for the
Since each sector’s labour inputs, capital inputs and gross value extent to which QM procedures, as they exist in reality, have
added are reported in ONS’s official statistics each year, Cebr has increased economy-wide GDP and employment and how much
a high degree of confidence in the derivations for each sector’s they have contributed to the Exchequer for each year from 2009
production technology efficiency.157 to 2013.
Under the Baseline Scenario, each sector’s contribution to For each sector and for each year of the 2009-13 study period,
employment, GDP and net contribution to the Exchequer is the literature, case studies and survey data have enabled Cebr to
inferred from ONS statistics. The inference is a simple summing estimate how a hypothetical move from the level of QM intensity
procedure and does not make the model’s results any less described in Counterfactual One, to the level of intensity which
credible. was estimated in the Baseline Scenario, would have increased
the sector’s production technology efficiency. For each sector,
Under Counterfactual One, for each year of the study period, based on the literature, case studies and survey data, Cebr
each sector’s intensity of QM implementation score is assumed estimated how this change in the level of QM intensity would
to be zero. The rigorous definition of Counterfactual One, have increased that sector’s contribution to the UK’s economy-
which is now given, reflects a hypothetical situation in which wide GDP, employment and net contribution to the Exchequer.

The hypothetical change in the level of QM intensity affects these The following subsections detail and discuss those estimated findings.
variables via its impact on the efficiency of the sector’s production
technology. 5.3 Estimated QM impacts on real annual GDP
This subsection details the model’s estimates as to how QM
For each sector, the model requires estimates of the impact of a contributes to UK annual GDP.161 As discussed earlier, the
hypothetical move from the level of QM intensity described in intensity of QM implementation throughout the economy is
Counterfactual One to the level of intensity which was estimated believed to impact GDP. It is believed that increasing the intensity
in the Baseline Scenario on the efficiency of sectoral production of QM implementation throughout the economy exerts (albeit
technology. The model’s results will deviate from reality to the indirectly) upward pressure on GDP.
extent that these input estimates deviate from reality, so the
necessity of such an estimate constitutes a limitation of the model. The increases in GDP which attain due to QM are ultimately
However, the case studies, literature review and survey provided driven by QM’s effect on the efficiency of productive technology.
an appreciable body of data from which these input estimates Increasing the intensity of QM implementation in a given sector
were drawn. A careful examination of this data means that Cebr is enables that sector to add more value in terms of the goods
confident that the input estimates reflect reality closely. As such, and services it produces. It also enables the sector to contribute
the necessary use of these input estimates is unlikely to invalidate more in terms of net taxes on products. Because the sum of
model’s estimates as to how QM impacts the headline economy- these metrics for all sectors is identical to economy-wide GDP,
wide indicators of interest. increasing the intensity of QM implementation throughout the
economy is believed to increase GDP.
For each sector and for each year of the 2009-13 study period,
there exist estimates as to how a hypothetical move from the In 2011, the model estimated the value of annual UK GDP
level of QM intensity described in Counterfactual One to the as being £1.347 trillion (in terms of real 2009 pounds) under
level of intensity which was estimated in the Baseline Scenario Counterfactual One, where no organisation had implemented
would have increased the production technology efficiency. any QM at all. Under the Baseline Scenario – which reflected the
Consequently, for each sector and for each year of the 2009-13 2011 economy as it actually was – annual UK GDP was £1.433
study period, there are estimates as to how this hypothetical move trillion. These estimates were calculated in the manner described
has increased each sector’s contribution to economy-wide GDP, in the preceding subsection.
employment and net contribution to the Exchequer.
As noted in the previous subsection, comparing annual
In any one year, aggregating together the eight sector-specific GDP under the Baseline Scenario to estimated GDP under
estimates will yield an overall estimate as to how much this Counterfactual One provides an estimate of how much QM
hypothetical move has contributed to economy-wide GDP, programmes, as they are actually constituted in the economy,
employment and net benefit to the Exchequer. These constitute have contributed to GDP. Hence, in 2011, the existence of
the model’s headline estimates of QM’s impacts. QM mechanisms as they existed that year, were estimated to
have contributed £86bn to the UK economy (in terms of real
The following paragraphs detail the mechanism by which the 2009 pounds). Otherwise put, if, in 2011, there had been no
model derived estimates for how far QM procedures, if (relative QM procedures anywhere in the UK economy at all, the model
to the Baseline Scenario) they were rolled out as fully as possible estimates that annual real GDP would have been 6.02% lower
in all sectors of the economy, would have increased economy- than it actually was that year.
wide GDP and employment. The limitations which applied to the
mechanism described above apply equally to this mechanism. As noted in the previous subsection, estimated annual real
GDP under Counterfactual Two and actual real GDP under the
We again estimated how a hypothetical move from the level of Baseline Scenario can be compared. Such a comparison provides
QM intensity which was estimated under the Baseline Scenario an estimate of how much more QM mechanisms could have
to the level of intensity under Counterfactual Two would have contributed to GDP had they been rolled out as fully as possible
increased the sector’s production technology efficiency. This was across the economy.
used to estimate QM’s GDP and employment impacts.
In 2011, estimated real GDP under Counterfactual Two was
Replicating the above aggregation procedure enables Cebr’s £1.481 trillion. Hence, a comparison of GDP under the Baseline
model to estimate the extent to which QM procedures, if (relative Scenario and estimated GDP under Counterfactual Two provides
to the Baseline Scenario) they were rolled out as fully as possible the estimate that, had QM mechanisms been rolled out as fully
across the UK economy, would have increased economy- as possible across all organisations in the economy, GDP would
wide GDP and employment, and how much they would have have been £48bn higher than it actually was. Otherwise put, if, in
contributed to the Exchequer for each year from 2009 to 2013. 2011 QM procedures had been implemented as fully as possible
everywhere in the UK economy, it is estimated that annual real
This subsection described how the model used the inputs GDP would have been 3.37% higher than it actually was. This
provided by the literature review, survey and in-depth case is the model’s estimate of how much more QM mechanisms
studies to formulate its estimates for the impacts of QM on UK could have contributed to the economy in 2011 had they been
economy-wide (i) GDP, (ii) employment, and (iii) net benefit implemented as fully as possible.
to the Exchequer. The model’s assumptions and limitations
were discussed throughout. The assumptions were found to be In order to contextualise the 2011 estimates, Figure 9 details the
reasonable and the limitations were not found to be a cause for model’s predictions of what UK real annual GDP would have
concern. In short, this sub-section described where the model’s been under each of the three different QM scenarios for each year
estimated findings come from. of the 2009-13 study period.162

Figure 9 also provides an average estimate: this captures what real GDP would have been under Counterfactual One than under
UK GDP is expected to have been under each of the three QM the Baseline Scenario for each year of the study period and for
scenarios in a typical year. Under the Baseline Scenario, typical a typical year. These data summarise the model’s estimates of
annual UK GDP was estimated to have been £1.428 trillion. how far QM mechanisms, as they exist in reality, have increased
The corresponding results for Counterfactuals One and Two are real annual UK GDP in percentage terms. Figure 10 also gives
£1.345 trillion and £1.473 trillion respectively. Following on the model’s percentage estimates of how much higher annual
from the discussion in the preceding subsections, comparing real GDP would have been under Counterfactual Two than under
GDP under the Baseline Scenario to estimated real GDP under the Baseline Scenario. These data are estimates as to how much
Counterfactual One provides a prediction of how much QM further QM mechanism, if they had been fully rolled out across
programmes contributed to the economy in a typical year of the the UK economy, could have raised real annual UK GDP in
study period. Hence, for the typical year of the study period, QM percentage terms.
was estimated to have contributed £83bn to GDP (in real 2009
pounds). This implies that, for the typical year of the study period,
5.83% of annual GDP was due to QM in the economy. Note that Figure 10: Percentage GDP effects of moving between the
this estimate pertains to an average year of the study period. The baseline QM scenario and the two counterfactual scenarios
earlier estimate, that QM programmes had contributed 6.02%
to real annual GDP, referred to the most recent completed year
of the study period; 2011. This difference exists because QM
programmes were estimated to have had a greater proportional
impact on 2011 real annual GDP than on GDP for an average
year of the 2009-2013 study period.163
Comparing estimated real GDP under Counterfactual Two to

real GDP under the Baseline Scenario provides an estimate of
how much more QM could have contributed to the economy in
a typical year, had QM mechanisms been rolled out fully across
the economy. This potential contribution was estimated at £46bn
of GDP. These estimates imply that, for the typical year of the
study period, annual GDP could have been 3.2% higher than it
actually was, had QM been rolled out as fully as possible across
the economy. Notes: C1 denotes how much lower real GDP would be
under Counterfactual One than under the baseline scenario in
Figure 9: Real UK annual GDP under different QM scenarios percentage terms. C2 denotes how much higher real GDP would
be under Counterfactual Two than under the baseline scenario in
percentage terms.
Figure 10 gives similar results to Figure 9. In each year, and

on average, the model estimates that, in percentage terms,
GDP is lower under Counterfactual One than under the
baseline scenario. This suggests that the implementation of QM
programmes, as they are actually constituted in the economy,
have exerted upward pressure on GDP. The model estimates that
real GDP is higher under Counterfactual Two than under the
Baseline Scenario. This suggests that further implementation of
QM has the potential to exert additional upward pressure on UK
GDP.
Notes: C1 denotes Counterfactual One. B denotes the baseline In percentage terms, the estimates provided by Figure 10 indicate
scenario. C2 denotes Counterfactual Two. Results are in terms of that the GDP differentials between Counterfactual One and the
trillions of real 2009 pounds. Baseline Scenario were larger than those between Counterfactual
Two and the Baseline Scenario. This implies that, although QM
Note that in each year, and on average, the model’s estimate has the potential to contribute significantly to real annual GDP
of real GDP is lower under Counterfactual One than under the if it were rolled out further, the majority of the GDP gains which
baseline scenario. This suggests that the implementation of QM arise from QM implementation have already been achieved.
has already exerted upward pressure on GDP. Similarly, in each
year and on average the model’s estimate of real GDP is higher 5.4 Estimated QM impacts on sectoral production technology
under Counterfactual Two than under the baseline scenario. This Following previous discussions, the intensity of QM
suggests that further implementation of QM has the potential to implementation in a given sector impacts the efficiency of that
exert additional upward pressure on UK GDP. sector’s production technology. The efficiency of a sector’s
production technology captures the ease with which it can
For 2011 and for a ‘typical year’, there has already been some transform capital and labour inputs into goods and services. It is
discussion of the estimated percentage differences in real annual believed that the higher the intensity of QM implementation in a
UK GDP under the different QM scenarios. Figure 10 details given sector, the higher the efficiency of that sector’s production
the model’s percentage estimates of how much lower annual technology. Thus, raising sectoral QM intensity increases the

number of units of goods and services which the sector can Consequently, in percentage terms, the model yields the
produce using a fixed amount of labour and capital inputs. prediction that a hypothetical move to Counterfactual One
As was discussed in previous subsections, the intensity of QM from the Baseline Scenario tends to decrease the manufacturing
implementation on sectoral production technology is what and services sectors’ levels of productive technology efficiency
enables QM to impact on GDP, employment and net benefit to noticeably more than those of the education and public
the Exchequer. administration sectors.
The intensity of QM implementation in a given sector varies as In percentage terms, the model’s estimates also indicate
the economy moves between the three QM scenarios.164 For that a hypothetical move to Counterfactual Two from the
each sector and in each year, the Baseline Scenario captures Baseline Scenario tends to increase the education and public
the intensity of QM implementation as it actually is. Hence, administration sectors’ levels of productive technology efficiency
this scenario also captures the efficiency of sectoral production noticeably more than those of the manufacturing and services
technology as it actually is. Counterfactual One describes an sectors.
economy in which no organisation in any sector has implemented
any QM at all. As such, under Counterfactual One, the efficiency 5.5 Estimated QM impacts on the Exchequer’s net tax receipts167
of each sector’s production technology is less than under the Based on the inputs drawn from the literature review, survey
Baseline Scenario. Counterfactual Two describes an economy and case studies, and the (previously discussed) assumptions
in which all organisations in all sectors have implemented QM about causality, the model predicts that that QM impacts the
as fully as possible. Under Counterfactual Two, the efficiency of Exchequer’s real annual net tax receipts from taxes imposed on
each sector’s production technology is greater than under the production and products. As the intensity of QM implementation
Baseline Scenario. in the economy increases, the levels of sectoral production
technology efficiency increase for all sectors. This causes each
Figures 11a through 11f detail the model’s percentage estimates of sector to produce more goods and services. Because these are
how much lower different sectors’ levels of productive technology taxed, this increases the Exchequer’s real annual net tax receipts
efficiency would have been under Counterfactual One than from taxes imposed on production and products. This is termed
under the Baseline Scenario.165 The model’s percentage estimates the “net benefit to the Exchequer.”
of how much higher the different sectors’ levels of productive
technology efficiency would have been under Counterfactual Returning again the most recent completed year; in 2011, these
Two than under the Baseline Scenario, are also given for each net tax receipts were £174.8bn under the baseline scenario.168
year of the study period.166 The findings given are not exhaustive, Because the intensity of QM implementation is lower under
but cover the manufacturing, services, education and public Counterfactual One than under the Baseline Scenario, it is
administration sectors. Figure 11f details the percentage estimates estimated that net tax takings would have been only £166.4bn
for a typical year. These reported findings typify all the model’s in 2011 under Counterfactual One. This estimate follows directly
estimates as to the impact of QM on different sectors’ levels of from the 2011 real annual GDP estimate under Counterfactual
productive technology efficiency. One. Moving from the Baseline Scenario to Counterfactual
One induces a real GDP decline as we move to an economy
It has already been explained how the different intensities of in which QM systems do not exist. This means that businesses
sectoral QM implementation, which pertain under the three produce fewer and/or less valuable products. As a consequence,
different QM scenarios, are estimated to impact sectoral levels of there are fewer products to tax and those which remain are
productive technology efficiency. The projected percentage effects less valuable, meaning each yields less tax revenue when it
on sectors’ productive technology efficiency, of moving between is taxed. Consequently, net tax takings decline. A comparison
the Baseline Scenario and the two Counterfactual scenarios of the Exchequer’s tax receipts under Counterfactual One and
(in Figures 11a to 11f below) are derived from these estimated the Baseline Scenario provides an estimate of how much QM
impacts. procedures, as they were actually instituted in the economy,
contributed to the Exchequer. In 2011, the model predicts
Based on literature, case study interviews and survey evidence, that QM procedures provided a net benefit of £8.4bn to the
the model assumes that QM programmes, as they are instituted Exchequer. The model’s results suggest that net tax receipts would
in reality, exert a relatively large upward effect on the productive have been 4.8% lower than they actually were in 2011, had
technology efficiency of the manufacturing and services sectors Counterfactual One attained.
under the Baseline Scenario. This is because, based on the
literature review, survey and case study evidence, the model In that same year, the model estimates that, had QM mechanisms
assumes that QM programmes have been implemented with a been instituted as fully as possible throughout the economy,
comparatively high degree of intensity in those sectors under the the Exchequer’s net tax receipts from taxes on production and
Baseline Scenario. products would have been £182.8bn. This is the situation which
would hold under Counterfactual Two. Comparing tax receipts
Based on the same body of evidence, the model assumes under the Baseline Scenario and Counterfactual Two provides
that QM programmes, as they are instituted in reality, exert the estimate that, if QM systems were instituted as widely as
a comparatively modest upward effect on the productive possible throughout the economy, the Exchequer’s net tax takings
technology efficiency of the education and public administration would have been £8bn higher than they actually were. Hence,
sectors under the Baseline Scenario. This is because the model the model estimated that net tax receipts would have been 4.6%
assumes that QM programmes have been implemented with a higher than they actually were in 2011, had Counterfactual Two
relatively slight degree of intensity in those sectors under the attained.
Baseline Scenario.

Figure 12 details estimates of what the Exchequer’s real net tax Figure 13: Percentage changes to annual net tax receipts from
receipts from taxes on production and products would have been taxes on products and production resulting from moves between
under each of the three different QM scenarios in the different the baseline QM scenario and the two counterfactual scenarios
years of the study period. This provides context to the headline
2011 estimates, as discussed above. To contextualise the 2011
estimates further, estimates of the Exchequer’s real annual net tax
takings from taxes imposed on production and products under
each of the three scenarios for a typical year are also given.
The estimates for a typical year suggest that under the Baseline
Scenario the Exchequer’s net tax receipts were £175.3bn. The
corresponding estimates for Counterfactuals One and Two are
£166.9bn and £183.4bn respectively. These estimates imply
that, in a typical year, QM mechanisms, as they actually exist in
the economy, contributed £8.4bn to the Exchequer. Otherwise
put, the model’s results suggest that net tax receipts would have
been 4.8% lower than they actually were in the typical year, had
Counterfactual One attained. Similarly, for a typical year, QM
mechanisms, had they been rolled out as fully as possible in all Notes: C1 denotes how much lower real net tax takings would
sectors of the economy, could be expected to have contributed an be under Counterfactual One than under the baseline scenario
additional £8.1bn to the Exchequer’s coffers. Hence, the model in percentage terms. C2 denotes how much higher real net tax
estimated that net tax receipts would have been 4.6% higher than receipts would be under Counterfactual Two than under the
they actually were in the typical year, had Counterfactual Two baseline scenario in percentage terms.
attained.
Figure 13 demonstrates that, in each year and on average, the
Figure 12: Real annual net tax receipts from taxes on production model estimates that, in percentage terms, the Exchequer’s net
and products under different QM scenarios tax receipts are lower under Counterfactual One than under the
Baseline Scenario. This suggests that the implementation of QM
programmes, as they are actually constituted in the economy,
have exerted upward pressure on the Exchequer’s net tax receipts.
The model estimates that real net tax receipts are higher under
Counterfactual Two than under the Baseline Scenario. This
suggests that further implementation of QM has the potential to
exert additional upward pressure on real net tax receipts.
In percentage terms, the estimates provided by Figure 13 indicate

that the real net tax receipt differentials between Counterfactual
One and the Baseline Scenario are approximately equal to
those between Counterfactual Two and the Baseline Scenario.
This implies that the potential which QM has to further increase
real net tax takings (if it were rolled out as fully as possible) is
Notes: C1 denotes Counterfactual One. B denotes the baseline approximately equal to those net tax gains which have already
scenario. C2 denotes Counterfactual Two. Results are in terms of come about as a result of QM’s actual implementation.
trillions of real 2009 pounds.
5.6 Estimated QM impacts on employment
In each year, and on average, the model’s estimate of real net tax Because increasing the intensity of a sector’s QM implementation
takings is less under Counterfactual One than under the Baseline goes on to increase its level of productive technology efficiency, it
Scenario. This suggests that QM has already contributed to the makes labour more productive. Labour becomes more productive
Exchequer’s net tax receipts arising from taxes on production in the sense that, as the level of productive technology efficiency
and products. In each year and on average the estimate of net increases, each unit of labour can produce a greater amount of
tax takings is greater under Counterfactual Two than under the goods and services. This means that, all other things being equal,
baseline scenario, implying that further implementation of QM a sector can expect to face lower labour costs per unit produced,
could exert additional upward pressure on net tax receipts. the more intensively it has implemented QM.169
Figure 13 details the model’s percentage estimates of how Increased labour efficiency incentivises organisations to
much lower the Exchequer’s annual net taxes on products and increase employment at the sector level. Because increasing
production would have been if Counterfactual One had attained, the intensity of QM implementation increases labour efficiency
rather than the Baseline Scenario. Percentage estimates of how across all sectors, it ultimately drives increases in economy-wide
much greater annual net tax takings would have been under employment.
Counterfactual Two than under the Baseline Scenario are also
given. (These percentage estimates have already been discussed
for 2011 and the typical year.)

The model’s estimates reveal two observations: Notes: C1 denotes Counterfactual One. B denotes the baseline
i. QM has already made a substantial contribution to economy scenario. C2 denotes Counterfactual Two. Results are in terms of
wide employment. trillions of real 2009 pounds.
ii. If QM were rolled out more fully than under the baseline
scenario, it could exert additional upward pressure on The model estimates that total employment is less under
employment. Counterfactual One than under the baseline scenario and less
under the baseline scenario than under Counterfactual Two.
In the most recent completed year, 2011, employment was 29.16 These results indicate that QM has already contributed to total
million under the Baseline Scenario. Under Counterfactual employment and that further roll-out of QM could push up
One, because labour is less productive, the model estimates that employment more. An increased intensity of QM implementation
employment would have stood at only 27.71 million. Comparing pushes up economy-wide employment because it makes labour
employment under both these scenarios produces the estimate more productive.
that QM programmes, as they were actually instituted in 2011,
caused employment to be 1.43 million higher than it would Figure 15 denotes the model’s percentage estimates of how much
otherwise have been. Otherwise put, in 2011, the model’s results lower employment would have been if Counterfactual One had
suggest that employment would have been 4.94% lower than it attained rather than the Baseline Scenario. Percentage estimates
actually was in 2011, if Counterfactual One had held. of how much higher employment would have been under
Counterfactual Two than under the baselines scenario are also
Also in 2011, the model estimates that employment would given. These estimates have already been discussed for 2011 and
have stood at a robust 29.62 million under Counterfactual Two. for a typical year.
A comparison of employment under the Baseline Scenario to
that which was estimated under Counterfactual Two provides Figure 15: Percentage employment effects of moving between the
the estimate that, had QM systems been rolled out as fully as baseline QM scenario and the two counterfactual scenarios
possible in 2011, employment would have been 455,000 higher
than it actually was. This suggests that employment would have
been 1.57% higher than it actually was, had the economy been
described by Counterfactual Two as opposed to the Baseline
Scenario in 2011.
Figure 14 details the model results. It provides the estimates of

employment under the Baseline Scenario and Counterfactuals
One and Two for all years of the study period to contextualise
the 2011 estimates which were discussed above. Furthermore,
estimates of employment under the three scenarios for a typical
year are also given. Under the Baseline Scenario, typical
employment was estimated to have been 29.03 million. The
corresponding results for Counterfactuals One and Two are 27.65
million and 29.56 million respectively. Notes: C1 denotes how much lower employment would be
under Counterfactual One than under the baseline scenario in
These estimates imply that, in a typical year, QM procedures, as percentage terms. C2 denotes how much higher employment
they actually exist, have made employment 1.38 million higher would be under Counterfactual Two than under the baseline
than it would otherwise have been. In other words, it is estimated scenario in percentage terms.
that employment, in a typical year, would have been 4.75% lower
than it actually was had QM programmes not been in existence In percentage terms, the estimates provided by Figure 15 indicate
at all throughout the UK economy. The estimates also imply that, that the employment differentials between Counterfactual One
in a typical year, QM procedures, if they were implemented as and the Baseline Scenario were larger than those between
fully as possible, would have increased employment by a further Counterfactual Two and the Baseline Scenario. This implies
526,000, or 1.81%. that, although QM has the potential to contribute significantly
to employment if it were rolled out further, the majority of the
Figure 14: Employment under different QM scenarios employment gains which arise from QM implementation have
already been achieved.
5.7 Model conclusion

From their initial implementation in the armaments industry
during WWI, QM procedures have diversified and grown more
advanced. They now play a pivotal role in all sectors of the UK
economy. Using evidence provided by the survey, literature
review and in-depth case study interviews as inputs, Cebr’s
bespoke economic model has estimated the quantitative impacts
that QM has had on the UK’s (i) real GDP, (ii) employment,
(iii) efficiency of sectoral production technology; and (iv) the
Exchequer’s net tax receipts.170 This furthered the report’s second
aim of estimating the quantitative impact of QM procedures on
UK headline economic variables.

The primary year of the analysis was 2011. This was chosen QM programmes, as they are currently instituted in the economy,
because it is the most recent completed year, so analysing it gave are already estimated to have pushed up GDP significantly. In
the most up-to-date estimates of QM’s impacts. To ground the 2011, it was estimated that QM procedures contributed £86
2011 estimates in the recent past and near future, figures detailing bn to GDP (in terms of real 2009 pounds). Alternatively, GDP
the model’s estimates for each year of the 2009-13 study period would have been 6.02% lower than it actually was in 2011,
were also given. To provide additional context, estimates for a had no QM procedures been in existence. The model estimated
typical year of the study period were also provided. that, if QM programmes had been rolled out as fully as possible
throughout the economy, in 2011 GDP might have been £46bn
The model derived two types of estimates: (in terms of real 2009 pounds) or 3.20% higher. These findings
i. Estimates of the impacts which QM mechanisms, as they are indicated that, while the further roll out of QM programmes could
currently instituted throughout the UK economy, have had benefit the economy substantially, the majority of the GDP gains
headline indicators. These estimates come from comparing the which could arise from QM implementation have already been
findings of the Baseline Scenario with those of Counterfactual achieved. These estimates were representative of the other years
One. of the study period and of the findings for a typical year of the
ii. Estimates of the impacts which QM mechanisms, if they were study period.
rolled out as fully as possible across the economy, could have
in terms of further increasing these headline indicators. These The model estimated that QM programmes, as they are currently
estimates come from comparing the findings of the Baseline instituted, have already contributed markedly to the Exchequer’s
Scenario with those of Counterfactual Two. net tax receipts. In 2011, QM procedures were estimated to
have contributed £8.4bn (in terms of real 2009 pounds) to the
Before the model’s estimates were presented, subsections 5.1 and Exchequer. This estimate implies that net tax receipts (from taxes
5.2 detailed how inputs from the survey, literature review and on products and production) would have been 4.8% lower than
in-depth case study interviews were used to derive the model’s they actually were in 2011 had no QM programmes been in
estimates. They also explained why the use of an economic model place in the UK. The model also formulated the estimate that, if
is the most appropriate methodology for accurately estimating QM programmes had been rolled out as fully as possible, in 2011
QM’s impacts on headline UK economic indicators. the Exchequer’s net tax takings might have been £8bn (in terms of
real 2009 pounds), or 4.6% higher than they actually were. These
In formulating the two (above) types of estimates, the model was modelling findings suggest that the potential which QM has to
subject to two principal limitations: further increase the Exchequer’s net tax takings is approximately
equal to the gains which have already come about as a result
The first was that its estimates were only as good as its inputs, of QM’s actual implementation. Again, these estimates were
which were drawn from the literature review, case studies and representative of the other years of the study period and of the
survey and publically-available ONS data. These sources yielded findings for a typical year of the study period.
a large quantity of high-quality input data which were thoroughly
examined by Cebr. Additionally, the three data sources were The estimates which Cebr’s bespoke economic model formulated
independent but provided inputs which were coherent with each indicate that QM programmes, as they are actually employed
other. Because there is only one way for a data source to be throughout the different sectors of the UK economy, have been a
exactly correct about the effects of QM, but (near) infinite ways substantial driver of employment. In 2011, it was estimated that
for it to be incorrect, the independence and coherence of the data QM procedures had caused UK economy-wide employment to
sources suggests that it is extremely unlikely that they yielded be 1.43 million higher than it would otherwise have been, ie the
data which are incorrect. As such, Cebr believes that the model’s model estimated that, in 2011, employment would have been
inputs are close estimates of economic reality. Hence, the model’s 4.94% lower than it actually was had QM systems not been in
estimates are likely to be good matches with QM’s real impacts.171 existence at all in any sector of the UK economy. The model also
attained the estimated finding that, if QM programmes had
Secondly, the model relies on the causal assumption that the been instituted as possible in all sectors of the economy, in 2011
greater the intensity of QM implementation in any given sector, employment would have been 455,000, or 1.57% higher than it
the higher the degree of efficiency of its production technology. actually was. These estimates suggest that further implementation
Furthermore, the model assumes that the higher the degree of of QM programmes throughout the UK economy could
efficiency of a sector’s production technology, the greater its increase employment significantly, however, the majority of the
contributions to economy-wide GDP, employment and Exchequer employment gains which could arise from the roll out of QM
net tax receipts. Cebr’s model is a mathematical description of programmes have already been achieved. Again, these estimates
the economy. However, there is no mathematical definition of were representative of the other years of the study period and of
causation. As such, assumptions about causation must be built the findings for a typical year of the study period.
into the model. The reliance on the above causal assumption is
not a serious limitation because the literature, survey responses As explained before, the model estimated QM’s impacts on
and in-depth interviews all support the existence of this chain of the three above economy-wide indicators by first estimating its
causation. (For instance, Kaynak (2003 and Deming (1982) both impacts on the levels of the efficiency of production technology
support this chain of causation. for different sectors. These first estimated impacts then fed
through to the three economy-wide indicators. The model’s
The model’s principal estimated findings pertain to QM’s impacts estimates suggest that, for all sectors and for all years of the study
on headline UK economy-wide indicators: GDP; employment; period, if there had been no QM in place, the efficiency of each
and the Exchequer’s net tax receipts. They were as follows: sector’s production technology would have been lower than it
actually was in the real economy. Under the model’s assumed
causal framework, this implies that the values of economy-wide

GDP, employment and Exchequer net tax takings would have 151. w here is a functional relationship. The sectoral production
been lower than they actually were. The estimated findings technology efficiency parameter, A, has the following
also indicate that, if QM had been implemented as fully as properties:
possible throughout the entirety of all sectors in the economy, 152. Arguments presented by Deming (1982) and Kaynak (2003)
the efficiency of each sector’s production technology would have support this assumption in the literature.
been higher than it was in reality. Under the model’s assumed 153. S ee: Cua, McKone and Schroeder (2001), ‘Relationships
causal framework, this implies that the values of economy-wide between implementation of TQM, JIT, and TPM and
GDP, employment and Exchequer net tax takings would have also manufacturing performance’, Journal of Operations
been higher than they were in reality. Management, 19, pp. 675–694 and Yusof and Aspinwall
(2001), ‘Case studies on the implementation of TQM in
Ultimately, based on solid inputs drawn from the case the UK automotive SMEs’, International Journal of Quality
studies, literature review and survey, and resting on justifiable Relations Management, 18(7)
assumptions, the model produced estimates suggesting that QM 154. This assumption agrees with standard economic theory.
procedures have improved headline UK economic indicators. The All other things being equal, the greater the incentive an
model’s estimates also suggest that further increasing the roll-out organisation has to implement a given procedure (QM
of QM mechanisms would push up these indicators even further. or otherwise), the more intensively it will implement
that procedure. See Varian (1999), Intermediate
References Microeconomics: A modern approach, Fifth edition,
142. For the model and the entirety of the report, the net Chapters 26, 27 and 30.
Exchequer tax receipts (or net benefit to the Exchequer) 155. S ee Osseo-Asare, Longbottom, and Chourides, (2007),
arising from QM implementation is defined as the sum of ‘Managerial leadership for total quality improvement in UK
taxes less subsidies on products and production, from all higher education’, The TQM Magazine, 19(6), pp.541-560
sectors, resulting from that implementation. The analysis 156. D oms, Jarmin and Klimek (2003), ‘IT Investment and Firm
excludes taxes on incomes. Performance in US Retail Trade’, FRBSF Working Paper
143. The model aims to estimate QM’s effects on macroeconomic 2003-19
variables. As such, it does not estimate the RoI of QM 157. The functional form of the derivation is as follows: , where
programmes for individual businesses. Estimates of the RoI A = sectoral production technology efficiency parameter;
of individual businesses’ QM programmes were derived in y = goods or services produced (which can be measured
section 4. That section used case study evidence to estimate as gross value added by proxy); K = capital inputs and
how an individual organisation’s QM programme had L = labour inputs. y, K and L all come from official ONS
affected its outcomes. statistics, meaning Cebr has a high degree of confidence in
144. Because the model is built on these inputs, it coheres the derivation of A. The formula is simply the Cobb-Douglas
with the literature review, survey and case studies by production function, , re-arranged.
construction. As such, the model’s estimates are not 158. An intuitive definition of Counterfactual One was given near
compared to the findings of the literature review, survey and the start of subsection 5.1.
case studies. 159. P rincipally, these several factors are: (i) the education,
145. Greene (2003), Econometric analysis, 5th edition. See drive and workplace skills of labour; (ii) the sophistication
Chapters 2-8 for an introductory discussion of regression of capital inputs; and (iii) the relationships between labour
analysis. and capital in any given business or non-private sector
146. Wooldridge (2002), Introductory Econometrics: A Modern organisation.
Approach. 2nd Edition. See Chapters 1-6. 160. An intuitive definition of Counterfactual Two was given near
147. Cebr economists had initially considered using a regression the start of subsection 5.1.
to estimate how QM impacts headline UK macroeconomic 161. All figures in this subsection are given in terms of real 2009
indicators. We soon realised that there would have been pounds. 2009 is the initial year of the model.
no benefit in even attempting to estimate these quantitative 162. All figures are in real 2009 pounds. 2009 is the base year of
impacts using a regression. Hence, regressions were not the model.
employed at any stage of the investigation. 163. C ebr’s economic model estimated how moving between
148. The productive technology of an organisation is the means the Baseline Scenario and Counterfactual One affected
by which it converts economic inputs (such as capital real annual GDP in percentage terms. These estimates are
and labour) into outputs (such as goods and services). different in each year because (i) the impact of the move
Productive technology is improved (or made more efficient) between scenarios on real annual GDP in any given year
as production processes are changed, in a manner such that is partially dependent on the rate of economic growth in
more outputs can be produced using the same quantity of that year, and (ii) the rate of economic growth differs in
inputs. each year. In years where the rate of economic growth is
149. Douglas, (1976), ‘The Cobb-Douglas Production Function comparatively high, the model was constructed such that
Once Again: Its History, Its Testing, and Some New Empirical moving to a scenario in which no QM exists anywhere in
Values’, Journal of Political Economy 84 (5) the economy has a greater impact on annual GDP than in
150. The Cobb-Douglas production function for any sector is: years where growth is comparatively low. The model was
y = goods or services produced (which can be measured as constructed in this manner to reflect the most consistent
gross value added by proxy); K = capital inputs; L = labour finding of the literature review, case studies and survey: QM
inputs; and A = the sectoral production technology efficiency programmes were a key driver of organisations’ growth.
parameter. Hence, in high growth years, when QM systems (and other
factors) are particularly important in driving rapid economic
growth, moving to Counterfactual One depresses annual

GDP by more than in low-growth years, when QM systems
(and other factors) are comparatively unimportant in driving
GDP growth.
164. See the discussion in subsection 5.2 for an explanation of
how the intensity of QM implementation in each sector was
estimated under the Baseline Scenario.
165. This percentage estimate is labelled C1 in Figures 11a
through 11f.
166. This is labelled as C2 in Figures 11a through 11f.
167. To reiterate an important point, the net Exchequer tax
receipts (or net benefit to the Exchequer) arising from QM
implementation is defined as the sum of taxes less subsidies
on products and production, from all sectors, resulting from
that implementation.
168. Again, all figures are in real 2009 pounds. 2009 is the base
year of the model.
169. This point is noted by Deming (1982) in Out of the Crisis.
170. Because the model is built on these inputs, it coheres
with the literature review, survey and case studies by
construction. As such, the model’s estimates are not
compared to the findings of the literature review, survey and
case studies.
171. This limitation, that the quality of a model’s results are reliant
on the quality of its inputs, is a limitation of all economic
models. This limitation is not peculiar to Cebr’s model.
172. This requirement is a feature of all mathematical models of
the economy; it is not peculiar to Cebr’s model.

6 CONCLUSION
6.1 Aims and structural overview of the report model had to rely on such a causal assumption.
On behalf of the CQI, Cebr has compiled a report which
investigated QM systems’ impacts at the microeconomic level – This is because there is no such thing as mathematical or statistical
of individual public, private and voluntary sector organisations causation. The model’s purpose was to estimate the magnitude of
– and at the macroeconomic level – of UK headline economy- QM’s impacts on UK economy-wide macroeconomic indicators,
wide indicators. Specifically, the report’s dual research aims were assuming that the causal assumption is correct.
to demonstrate and quantify the extent to which more effective,
intensive and longer-term use of QM systems and techniques (i) Having helped to establish causality, the literature review, case
creates more productive and successful organisations; and (ii) studies and survey were used to provide inputs into the model
affects headline UK economic indicators. and give convincing arguments as to why its results can be
trusted.174
The report made use of three investigative methods to gather
primary evidence – a literature review, case studies and a survey 6.2 Summary of the report’s findings
of 120 organisations – in achieving the first aim. The literature In relation to the report’s first aim, the literature review, survey
review adopted a working definition of QM (which agrees with and case studies consistently yielded evidence that the effective
the CQI’s definition) which applies to the report as a whole. implementation of QM procedures and the attainment of
As already described, the structure of investigation adopted by QM certification could improve a variety of outcomes for
the case study and survey sections was a product of the literature organisations in the public, private and voluntary sectors.
review. The adopted structure of those sections allowed their
findings to be easily compared to those of the literature review The literature review found evidence that QM had increased
throughout the report. The findings of the literature review, stock prices, profits, revenues, customer retention and employee,
case studies and survey were independent and usually found customer and user satisfaction across institutions in the public,
to be coherent with each other.173 Precisely because they are private and third sectors.175 The literature review also found
independent, this coherency suggests that the data provided by evidence that QM mechanisms reduce the costs associated with
the sources are correct. It is unlikely that three independent data identifying and rectifying problems during or after production,
sources would all be incorrect in the same way. while raising those expenditures which focus on stopping
problems before they occur. This cost rebalancing was found
Thereafter, the report used the inputs provided by the literature to be associated with a reduction in overall costs. The literature
review, case studies and survey to formulate a bespoke economic review also suggested that QM programmes could have their most
model which estimated the impacts of QM on headline UK substantial impacts on organisations’ outcomes several years after
macroeconomic indicators. Cebr reasoned that the construction of they were first instituted – ie they sometimes become effective
an economic model based on these inputs was likely to yield more with a lag. Finally, several of the authors under review noted
accurate estimates of QM’s impacts on the UK macroeconomy that managerial commitment to a QM programme was a key
than the only feasible alternative; regression analysis. The wide precondition of its success in all sectors.
range of inputs and Cebr’s scrutiny of them suggested that the
inputs used accorded closely with reality. This implication is that The survey of 120 organisations provided evidence which
the findings of Cebr’s bespoke economic model (which were corroborated the literature’s findings. Survey respondents indicated
ultimately derived from those inputs) also paralleled economic that QM mechanisms were important in driving down costs and
reality closely. Finally, three independent data inputs indicated maintaining customer or service-user retention rates. Private sector
that the causal assumption upon which the model was predicated organisations reported that QM programmes were often used to
– that QM can improve the efficiency of individual organisations’ help justify price premia on goods and services.
productive processes and that, in aggregate, this can improve
headline UK economic indicators – was correct. Because the The case studies largely support the findings of the literature review
literature review, survey and case study data were all independent, for organisations in specific sectors. There were some notable
it is extremely unlikely that the data they provided, as to the points of departure between the literature review and case study
validity of the causal assumption, would have been incorrect in findings for some sectors. For example, the case study respondents
the same way. As such, their coherency means Cebr is confident from the legal services sector note that their QM mechanisms
that the model’s underlying causal assumption was correct. became effective comparatively quickly – ie without the lag which
As discussed in subsection 5.2, like all methods of empirical was predicted by the literature. This suggests that QM mechanisms
economic investigation (modelling or regression analysis) the have their effects more rapidly in legal services businesses than in

those organisations which were examined by the authors of the QM’s effects as those effects are in reality.
papers and books of which the literature review was comprised.
The theme of these three conclusions, that QM systems
Using inputs from the literature review, case studies and survey, substantially improve organisations’ outcomes, can be
Cebr’s bespoke economic model achieved the report’s second aim of encapsulated by examining the average estimated RoI effects of
estimating the impact of QM programmes on headline UK economic QM programmes. The RoI estimates, derived from the case study
indicators. The principal estimates of the model were as follows: interviews, all indicated that businesses attain pecuniary benefits
far outweighing the cost of implementing their QM systems. They
iv. In 2011, it was estimated that QM procedures contributed suggest that QM programmes are particularly effective in terms
£86bn to UK GDP (in terms of real 2009 pounds). If QM of reducing costs. On average, for every £1 a business spent on
programmes had been rolled out as fully as possible a QM programme, costs were reduced by £16. QM programmes
throughout the economy, in 2011 GDP might have been also yielded impressive RoI estimates for revenues, suggesting that
£46bn (in terms of real 2009 pounds) higher. for every £1 spent on a QM programme, revenues were increased
by £6. The RoI estimates were drawn from independent case
v. In 2011, QM procedures were estimated to have contributed studies and all suggested that businesses gain more from their QM
£8.4bn (in terms of real 2009 pounds) to the Exchequer. If QM programmes than they spend on them. Hence, Cebr is confident
programmes had been rolled out as fully as possible, in 2011 that a typical business can anticipate a positive RoI from
the Exchequer’s net tax takings might have been £8bn (in implementing a QM programme. Our confidence in this regard
terms of real 2009 pounds) higher than they actually were. is added to by the case study responses of a quality excellence
body. The excellence body found that, over the past seven years,
vi. In 2011, it was estimated that QM procedures had caused UK across a sample of 830 businesses there was an average RoI of
economy-wide employment to be 1.43 million higher than 19:1. More qualitatively, across all sectors, businesses consistently
it would otherwise have been. If QM programmes had been reported that QM systems had positive impacts on customer
instituted as far as possible in all sectors of the economy, in retention, customer satisfaction and employee satisfaction.
2011 employment could have been 455,000 higher than it These qualitative benefits link to the RoI benefit of higher
actually was. revenues – ie increased customer satisfaction and retention
induces consumers to buy more, pushing up revenues.
It is evident from the literature review, case studies and survey They also link to the RoI benefit of reduced costs. Increased
that QM’s positive impacts on these headline UK macroeconomic employee satisfaction decreases costs by discouraging
indicators is a product of its effects on the performance of absenteeism and encouraging workplace enthusiasm.
individual organisations. In aggregate, QM systems improve
headline UK macroeconomic indicators precisely because they Overall, the literature review, case studies and survey data inputs
help organisations to produce more goods and services with all indicate that QM programmes have improved outcomes
the same inputs, while reducing cost, increasing employee and for public, private and voluntary sector organisations. The
customer satisfaction, and raising revenues and profits. independence and consistency of these inputs means that Cebr
is confident that the more intensive and longer-term use of QM
Building on its discussion of individual organisations, and systems creates more productive and successful organisations.
also furthering the report’s second aim, the literature review’s This achieved the report’s first aim: ascertaining the extent
conclusions echo those of the model: QM programmes improve to which QM programmes enable organisations to become
economy-wide macroeconomic outcomes. The literature review more efficient and productive. The three input sources were
reached this conclusion with regard to QM programmes’ impacts used to construct an economic model which estimated how
on the UK’s GDP and international competitiveness. far QM programmes (a) have already improved headline UK
macroeconomic indicators – such as GDP, employment and tax
The findings attained by Cebr’s comprehensive examination of receipts, and (b) have the potential to improve these indicators
QM in the UK economy, and the methods used to achieve those in the future. The model estimated that QM programmes have
findings, point to three broad conclusions: improved these indicators significantly and have the potential to
improve them more in the future. This satisfied the second aim of
i. QM programmes have already played a vital role in the the report: formulating quantitative estimates of QM’s impacts on
success of individual private, public and voluntary sector headline UK macroeconomic indicators.
organisations and, in aggregate, have played a substantial role
in improving UK macroeconomic outcomes. References
173. S ection 4 indicates that there were some notable points of
ii. If QM programmes were instituted more widely, these divergence between the case studies and literature review.
desirable effects would probably become more pronounced. This simply suggests that some of the organisations which
provided case studies were not typical of those which
iii. Cebr has placed a high degree of confidence in points i had been investigated by the authors of the papers in the
and ii because they were derived from independent and literature review.
comprehensive sources which were in broad agreement with 174. The model’s findings were not compared to those of the
each other. Due to their independence, it is extremely unlikely literature review, case studies and survey. Such a comparison
that these sources would have yielded data which were would have been redundant because the model – being built
coherent with each other if the data had not been reflective of on inputs from the literature review, case studies and survey
reality. Because there is only one way to be absolutely correct, – will cohere with them by construction.
but (effectively) infinite ways to be incorrect, it is much more 175. The findings relating to profits and stock prices only apply to
likely that they will have been independently reflective of private sector organisations.

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The Contribution of Quality Management To The UK Economy

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Report for the Chartered Quality Institute

and Chartered Management Institute

The contribution of quality management to the UK economy | CQI and CMI

3 CASE STUDIES: REPORTED EFFECTS OF QUALITY MANAGEMENT ON BUSINESS OUTCOMES 22

4 SURVEY: REPORTED IMPACTS OF QUALITY MANAGEMENT ON BUSINESS OUTCOMES 40

5 MODEL: ESTIMATED IMPACTS OF QUALITY MANAGEMENT ON HEADLINE UK ECONOMIC INDICATORS 44

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In summary, the findings of the literature review, case studies and

As a consequence, Cebr has a high degree of confidence in the

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Continuing on from the discussions in previous subsections, when

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Throughout this review, we have endeavoured to establish

The UK Parliament White Paper (1982), ‘Standards, Quality

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A key theme throughout the literature review has been one of

In what is arguably the seminal work of the QM literature, Out

Deming reasoned that a successful QM programme will typically

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4.1 Survey introduction

This section of the report builds naturally on the literature review

Figure 1: In your estimation, what magnitude of cost savings has

Companies also perceive a strong association between

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Furthermore, most firms (83%) agreed that the achievement

While, at first glance, these results may seem surprising, they