The very act of reducing reject & scrap, rework & defects, improving performances of products and customers’ satisfaction should lead to increased profitability (Wruck and Jensen, 1994). Garvin (1983) indicated that earnings and market shares are positively affected by higher quality.

There are as many disappointment and failures in the quality movements as there are success stories. Whether or not quality improves the businesses’ bottom line is an important question. In past, some business fell into financial hardships soon after winning prestigious awards like Deming award (from Japan) and Baldrige award in United States (Jay and Peter, 1992). On the other hand, Toyota known for it best quality product is also most profitable auto manufacturer. Furthermore, empirical studies done in the past have also shown links between the profitability and quality. Garvin (1983) and Hendricks and Singhal (1997) are important examples of such studies. Researchers have used earning before interest and tax (EBIT) as a measure of profitability. We have tested whether or not award winners have higher EBIT compared to the control group. Increases in sales growth and /or profit margin can increase EBIT. Again, Profit margin can be increased either by commanding premium price in the market or reducing the cost of production.

One of the aims of quality management is to satisfy customers. Baldrige award gives a very high importance to customer satisfaction (Garvin, 1991). It is expected that satisfied customers will lead to increased market share via more sales. Many practitioners understand this link and embark on quality management in order to increase their market, and only handful of them reported success (Jay and Peter, 1992). On the other hand, Toyota is now the number one car manufacturer (Economist, 2005, 2004). The success of Toyota is based on their reputation for high quality. Besides, empirical studies by Garvin (1983) and Hendricks and Singhal (1997) suggest a link between high quality and the market share. Thus, we have used change in sales for Baldridge award winners to that of the control group.

High quality good or service may command premium price. When premium price is charged firms can enjoy high profit margins, even when their cost structures are comparable to that of their competitors. However, premium prices and market share may not be complimentary. For example, Toyota and Honda despite their reputation of high quality do not charge premium. They are more interested in increasing their market share. Prices of different models of Toyota and Honda cars are average compared to same category cars produced by their competitors (Power report, the, 2002). There is a possible link, therefore, between quality and profit margins. Thus we compared the profit margins of award winners with those of control groups. Profit margin is measured as (Sales – Cost of good sold)/Sales.

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“There is no doubt that relative perceived quality and profitability are strongly related. Whether the profit measure is return on sales or return on investment, businesses with a superior product/service offering clearly outperform those with inferior quality”