Study Finds Quality Shifting From Operational Compliance to Strategic Business Driver

Good quality is adding an average of 11 percent to organizations’ revenue growth

Published: Wednesday, April 29, 2020 - 12:00

(ETQ: Boston) -- ETQ, a leading provider of quality management solutions, released findings from a first-of-its-kind research study–“The State of Quality Management: 2020.” According to the survey, companies are investing more in quality as a strategic business growth initiative that brings a significant return on investment (an average 23 percent). The report also finds that poor quality is costing organizations $49 million per year on average.

ETQ commissioned the comprehensive study to uncover key trends and insights about quality management today and how it may evolve in the near future. Based on a survey of senior-level quality stakeholders in life science, food and beverage, and manufacturing firms, the study found that good quality is adding an average of $156 million, or 11 percent to bottom-line revenues (based on average surveyed company revenue of $25 million to $1 billion-plus). On the other hand, the high cost of poor quality is attributed to sweeping product recalls, with 96 percent of respondents experiencing a recall in the last five years. Results of the survey were discussed during a live webinar on April 14, 2020.

“The Rise of Quality as a Strategic Initiative: 2020 Survey Results and Analysis” was presented by ETQ leaders and industry experts, along with findings from a separate informal ETQ survey concerning the business and quality process impacts of Covid-19.

“The results from ‘The State of Quality Management: 2020’ are eye-opening on many levels and reinforce the financial impact quality has on corporate performance,” says Rob Gremley, CEO, ETQ. “As the survey shows, companies committed to quality as a strategic business driver benefit from stronger customer loyalty, less costly product recalls, competitive differentiation, and ultimately, stronger revenues.”

Quality’s impact on business performance

The survey was completed in January 2020 and uncovered other trends in organizations’ quality spending plans.

• Organizations currently spend an average of 6 percent of total organization revenues on quality programs and people.
• Organizations believe that a considerable investment level will be required to accomplish major quality initiatives over the next three-to-five years. Fifty-seven percent plan to make a moderate investment and 40 percent plan on making a substantial investment.
• The majority of respondents frequently meet organization quality goals even if it means a delay in product delivery.
• At the time of survey completion in January 2020, 42 percent of organizations plan to increase quality spending at an average rate increase of 21 percent in 2020, and 39 percent of respondents plan to increase quality headcount in 2020.

Product recalls and supply chain management

Product recalls are widespread and occurring at an increasing rate for a large share of organizations. Recalls affect all aspects of an organization in terms of costs and damage to brand reputation and customer loyalty.

According to “The State of Quality Management: 2020”:
• Product recalls are widespread, affecting all organizations (96 percent) and occurring at an increasing rate.
• Twice as many organizations experienced an increase (56%) rather than a decrease (24%) in product recalls.
• Two-thirds (68%) of organizations were using a quality management system (QMS) solution at the time of a product recall, and 83 percent reported that their QMS solution helped them in their recovery process.

The study also found that while organizations are monitoring supplier quality, they frequently need to replace suppliers because of quality concerns. 
• 87 percent of organizations use a quality management process in managing their suppliers.
• 72 percent of respondents have needed to replace a supplier due to quality issues.

The quality performance perception gap

According to the survey results, there is also a quality performance perception gap between chief executive officers (CXOs) and quality management:
• 57 percent of the C-level respondents said their organizations are doing “great” on quality, while only 41 percent of quality managers agreed. Quality performance among staff with IT titles was even lower, at 33 percent.

This discrepancy could be attributed to the fact that CXOs are mostly focused on the big picture and not dealing with the day-to-day challenges of enforcing a quality program.

About the survey methodology

The “State of Quality Management: 2020” research report was prepared by Salloway & Associates for ETQ to inform the life sciences, food and beverage, and manufacturing industries on the state of the quality management market. As part of the comprehensive report, the company completed a total of 300 online surveys, from November 2019 to January 2020, among a broad cross-section of U.S. decision-making stakeholders of quality management programs in those industries. It included CXO management, quality or supply chain managers, and IT managers that support quality and supply chain functions within mid-market ($100 million–$500 million) and enterprise-level organizations (more than $500 million).

About The Author

ETQ LLC

ETQ LLC is a software innovator and the first company to provide a flexible application development technology for creating and accessing custom vertical industry applications for use with a web-browser client. ETQ is the leading enterprise quality and compliance management software for identifying, mitigating, and preventing high-risk events through integration, automation, and collaboration.