Measuring the return of quality investments

Until recently, methodologies allowing the identification of financial returns of improvements in quality have been unavailable. Therefore, the benefits of the investment in products or services quality have been questioned by many companies. In addition, it has been difficult or impossible, in most business contexts, to choose in an objective way between different types or levels of quality investment. We propose an integrated methodology for estimating the return of quality investments, allowing a cost-benefit analysis. The approach uses a chain of causality that assumes that quality investments potentially affect customer satisfaction and loyalty, which in turn influence customer behaviours, generating financial returns to the firm. An application for the mobile telecommunications industry is presented. We conclude that it is possible to estimate financial returns for different types and levels of quality investment, given sufficient knowledge of the critical paths in the value chain. By producing measures of profitability, it becomes possible to compare investments in quality with other competing investments, enabling a rational allocation of available resources, and allowing managers to approach the investment in quality as any other type of investment in a competitive environment.