The Effect of TQM Factors on Financial and Strategic Performance: An Empirical Test Using Manufacturing Firms

ABSTRACT Although interest in implementing the total quality management (TQM) philosophy as part of competitive and operational strategies has been around for approximately 25 years, there has been little empirical evidence to suggest that it has a positive effect on an organization's financial and strategic performance. Part of the problem is that a testable framework of TQM constructs has been slow to emerge. This research provides a test instrument and an empirically reliable framework to evaluate an organization's TQM implementation. This study of 257 manufacturing firms provides definitive evidence that TQM implementation is a significant predictor of customer satisfaction and a weak but significant predictor that TQM is associated with the improvement of several financial variables. Lastly, the findings suggest that the impact of the TQM variables on performance is highly correlated with duration but is not significantly correlated with either organizational size or industrial specialty. This suggests the robustness of the TQM philosophy as part of any competitive or operational strategy. Lastly, the findings clearly suggest that organizations using the TQM constructs will continue to improve over time. INTRODUCTION Total Quality Management (TQM) provides a paradigm shift in management philosophy for improving organization effectiveness (Byrne, 1992; Gagne, 1983; Lowe and Masseo, 1986; Tenner and DeToro, 1992; Waldman, 1994). TQM managers focus efforts of all members to continuously improve all organizational processes and increase value to customers, while relying upon a clear vision of the organization's purpose. This depends on the use of improvement tools (e.g., SPC, benchmarking, process/product improvement teams) and the removal of barriers both within the organization and between the organization and its various stakeholders. TQM has been embraced by thousands of organizations (Lawler and Mohrmon, 1992) as an important management component of operational strategies. However, despite its theoretical promise and enthusiastic response, anecdotal evidence suggests that attempts to implement it and/or achieve financial benefits are often unsuccessful (Erickson, 1992; Fuchsberg, 1992; Kendrick, 1993). Wyatt, a human resources consulting company, surveyed 531 companies that had undergone restructuring in 1992. Only 41% of the 361 companies that started TQM programs as a part of restructuring considered them to have been effective (Fuchsberg, 1993). Similarly, a study by McKinsey & Co. revealed that, of TQM programs in place for more than two years, as many as two-thirds were considered failures by the employees (Doyle, 1992). Anecdotal studies have most commonly attributed the failures of TQM implementation and financial improvement to deficiencies of: (1) shared vision, (2) application planning, (3) organizational commitment, (4) training, (5) reward systems, (6) empowerment, or (7) cross-functional integration (Brown et al., 1994; Danjin and Cutcher-Gershenfeld, 1992; Doyle, 1992; Emery and Summers, 1992; Gilbert, 1993). Unfortunately, few empirical studies have been initiated to examine relationships between TQM components and the success/failures of implementation. Part of the problem is that an agreed upon framework of TQM constructs has been slow to emerge. Further, few studies have examined performance in relation to the time since the organization began implementation of TQM. Most researchers are in agreement that it takes time to fully adopt most of the TQM initiatives. As such, time must play an important role in the success of a Total Quality Program. For example, the GAO (1991) study found that improving quality is a long-term process and that it took an average of 21/2 years for the companies in their study to realize performance improvements (the range was from 1 to 5 years). Lastly, few researchers have attempted to empirically test TQM organizations for financial benefits and those that have, focused on only one or two variables or constructs. …