Does Quality Management Support Innovation? A Resource-based View Yong-tao Song1, Xiu-hao Ding2 1 Institute of Management Science and Engineering, Henan University, Kaifeng, 475004, China School of Management, Huazhong University of Science and Technology, Wuhan, 430074, China (henusyt@gmail.com) 2 Abstract - Based on the resource-based view, this paper develops a conceptual model incorporating quality management practice, R&D capability, innovation, and firm performance. A questionnaire survey is conducted to examine the hypotheses. The results indicate that quality management practice has a significant positive influence on innovation through the mediating effect of R&D capability. Moreover, the positive influences of R&D and innovation on firm performance are supported. This paper identifies the influencing mechanism between quality management and innovation, and contributes to the quality management theory. Keywords – quality management practice, innovation, R&D capability, resource-based view I. INTRODUCTION With the trend of intensive competition and shortening product life-cycle[1], firms realize the significant importance of product/service innovation. In such a case, innovation has been widely accepted, researched and paid more and more attention by scholars and practitioners as a strategic tool, and a plenty of studies investigated how to improve innovation efficiency and to increase innovation outputs. In parallel with the development of quality management and the significant role it plays in improving product quality and promoting firm performance, scholars and firms anchored their hops on quality management to improve innovation, and a lot of studies began to explore the influence of quality management on innovation. However, the research related to the quality management in innovation/research and development (R&D) activities is just a beginning, and extant studies on quality management in innovation/R&D are mainly concentrating the concept of quality in innovation, case studies of successful quality in innovation activities, and quality management framework in innovation process[2], etc. The relationship between quality management and innovation, and how to execute quality management in innovation process is still unclear. Anecdotal evidence suggests that the effect of quality management looks obvious in manufacturing process, yet proves ineffective in innovation activities. Both the senior managers and the first-line staffs did not understand how to execute quality management in innovation process. A review of the studies conducted on quality management in innovation activities reveals that there are few studies examine the relationship between quality management and innovation, and what is more important is that most of these studies focus on the influence of quality management on innovation results, e.g. product innovation[3-5], process innovation[3-5], technological innovation[6, 7], or administrative innovation[6], and the influence mechanism of quality management on innovation is neglected. Moreover, there are conflicting conclusions in existing researches. Some scholars state that quality management fosters innovation[3], and other studies reveal that quality management hinders quality[4]. Therefore, it is reasonable to conclude that the ambiguous influence mechanism of quality management on innovation is the main reason of existing conflicting results. In reality, quality management is composed of various elements and innovation is also a multidimensional phenomenon. The impact of quality management on innovation depends both on the specific elements of quality management and the type of innovation[7]. Up to now, little is known about how quality management influence innovation and it is difficult to estimate the influence of quality management on innovation accurately. Clarifying the effects of quality management on innovation can not only guide firms’ innovation practices, but also enrich quality management theory and innovation theory through expanding the applying scope of quality management. Therefore, this study aims to investigate the mechanism that quality management influences innovation. Specifically, this study wants to know the paths through which quality management influences innovation. Thus, this study introduces the term of R&D capability based on resource-based view, and investigates the mechanism quality management capability influencing innovation through analyzing the relations among quality management practice, R&D capability, and innovation. II. THEORETICAL FRAMEWORK AND HYPOTHESES A. Theoretical Background Prior empirical studies show that the implementation of quality management in manufacturing or servicing can improve quality performance and firm performance[8-10]. There are abundant studies on quality management theory[11], firm quality management system construction[12], quality management practice[8] and relationship between quality management and performance[8-10]. However, few studies investigate quality management in the innovation background. Prior scholars argue that quality management stresses rules and standardizations and limits its application in innovation activities[13]. However, with the development of quality management theory, some practices and tools of quality management have been widely applied in innovation activities, such as new product development and R&D. For example, the involvement of people and teamwork of quality management are consistent with the crossfunctional team in NPD and/or R&D, and customer focus of quality management is consistent with customer participation in NPD, and quality function deployment is applied widely in customer need survey in innovation activities. Nowadays, innovation has changed from technologydriven to multifactor-driven (including technology and market) behaviors, and just relying advanced technology can not guarantee that the innovation fruits meet the requirements of customers/market. In addition, technology advancement and diffusion makes it is almost impossible for firms to form core capabilities relying one technology. As a result, it is necessary for firms to integrate innovation, which is supported by technology, and quality management, which is based on customer/market and production, to ensure innovation going smoothly. Although there are growing calls to apply quality management to NPD, and scholars have made great efforts to do this, it is unpractical to apply manufacturing-based quality management theory, practices, and technologies to NPD process directly. First, quality management and innovation have different theoretical bases, which make them conflict sometimes. Second, the relationship between quality management and performance in traditional manufacturing process will change in innovation environments. Quality management improves performance through quality or efficiency improvement in manufacturing process, while it will affect performance through R&D capability improvement in innovation environments. Therefore, it is necessary to clarify the mechanism that quality management influences firm performance with the purpose of applying quality management in innovation activities effectively. Meanwhile, although quality management has developed for almost 100 years since 1920s, it has not formed a widely accepted, formal and integrated theory. Academy of Management Review discussed quality management in 1990s, and scholars such as Sitkin et al. [11] explored how to develop quality management theory in virtue of existing management theories. On this basis, Sousa and Voss[14] and Schroeder et al.[15] put forward that existing management theories (for example, contingency theory and institution-based theory) can be employed to improve quality management theory. This study introduces the term of R&D capability based on resource-based view and takes quality management as inimitable resources forming dynamic capability. According to capability-based theory, firms’ capabilities are not endowed when born and can not be bought in market, and they are created through environment adaption and resource acquisition and configuration. Quality management is a method to gain competitive advantage, and creates conditions for firms to adapt environment and acquire and configure resources. Introducing R&D capability, this study can explain how quality management influence innovation and consummate quality management theory. B. Hypotheses On the basis of literature review, this study puts forward the conceptual model in Figure 1, which links quality management practice, R&D capability, innovation and firm performance. We attempt to analyze the relationships among these variables to clarify the paths that quality management influencing innovation and how quality management contributes to firm performance in the innovation environments. Innovation Quality management practice Firm performance R&D capability Fig. 1. Conceptual model The focus of innovation is improvement of processes . Thus, quality management, whose principle is continuous improvement of processes, will promote innovations. Existing studies also suggest that quality management has a positive effect on innovation[3, 7], because some elements of quality management, especially basic quality management practice and software quality management, can promote innovation. Santos-Vijande and Álvarez-González[6] find that Total Quality Management (TQM) has significant positive effects on innovation culture and management innovation. Although the effects of TQM on innovation may change in different conditions or environments, TQM is always the resources supporting and cultivating innovation. Therefore, this study proposes: H1: Quality management practice has a positive effect on firm innovation. Existing studies argue that quality management promotes innovation, but they do not explore the paths and mechanisms that quality management influences innovation. This study introduces the term of R&D capability based on resource-based view to clarify the effect of quality management on innovation. There is not a widely accepted definition of R&D capability, and scholars also use different terms. Su et al.[17] use R&D capability, and Ettlie and Reza[18] use new product dynamic capability, and Huang and Chu[19] use product development capability. If firms want to succeed in innovations, they should have R&D capabilities. Quality [16] management practice, which is valuable and inimitable, pushes firms to construct their R&D capabilities. R&D capability affects product and process innovation directly. Furthermore, because R&D capability reflects firms’ capabilities to produce science discoveries and technological breakthrough, it determines firm innovation performance in a large part. Therefore, we have the following hypothesis: H2: Quality management practice positively affects firm innovation through R&D capability. R&D capability can not only promote firm innovation but also influence firm performance positively. As innovation is becoming more and more import in the economy, firms’ successes are more and more dependent on innovation performance, which is determined by R&D capability. Existing studies also confirm that R&D capability has significant effect on firm performance. For example, Zaheer and Bell[20] find that innovation capability improves firm performance based on Canadian security companies, and the empirical results of Ettlie and Pavlou[21] also suggest that new product development capability positively affects new product performance and firm performance. Thus, we have the following hypothesis: H3: R&D capability has a positive effect on firm performance. In the literature about innovation, the influence of innovation on firm performance receives a lot of attention. Some studies explore the relationship between innovation and firm performance from the perspective of innovation motivation, and argue that innovation has significant positive effect on firm performance. The reason is that unique innovative products, services and processes contribute to firms’ differentiation strategies, and provide firms sustainable competitive advantages. Then, firms can surpass competitors and increase sales and profits. Therefore, this study puts forward: H4: Firm innovation positively influences firm performance directly. III. ETHODOLOGY A. Research Setting This study sends the copies of questionnaires to firms that have obtained quality management system certification with the help of China National Institute of Standardization, which have well-developed management bases and abundant management experiences. We sent questionnaires to directors of R&D or quality management department of 300 firms using mail or email. The data collection process lasted about 2 months. In order to increase the recovery rate of questionnaire, we promised that we would provide the research findings to the survey firms. Meanwhile, we maintained full anonymity for all informants throughout the survey process, and informed the respondents that the survey was designed for research only and there were no wrong or right answers to our questions in our cover guide[22]. One month after sending the questionnaires, we reminded the respondents that had not completed the questionnaires using mail or telephone. When the survey finished, a total of 198 usable questionnaires were achieved after we removed the incomplete questionnaires with missing data or doubt answers, constituting a 66 percent response rate. B. Analysis and Findings A confirmatory factor (CFA) approach is used to test the common method bias. A model positing that a single factor underlies the study variables is assessed by linking all items of the dependent and independent variables to a single factor. The results show that one-factor model is not acceptable and common method bias did not pose a serious threat to interpretation of the subsequent analyses in this study[22]. Reliability is assessed using the internal consistency method via Cronbach’s alpha. All of the four latent constructs, with the exception of R&D capability (0.698), have Cronbach alphas of more than 0.7. These results indicate that all scales demonstrated good reliability[23]. Convergent validity was assessed from the measurement model by determining whether each indicator’s estimated pattern coefficient on its hypothesized underlying construct factor is significant (greater than twice of its standard error), and discriminant validity was assessed from the measurement model by determining whether all confidence intervals ( ± two standard errors) around the correlation estimate between two factors did not include 1.0. The result provides strong evidence of convergent validity and discriminant validity (as shown in Table I). TABLE I CORRELATIVE COEFFICIENT AND STANDARD ERROR 1 2 Quality management practice 1.00 Innovation capability 0.77(0.04) 1.00 Innovation 0.72(0.04) 0.80(0.04) Firm performance 0.63(0.05) 0.65(0.05) Notes: the numbers in the brackets are the standard errors. The following fit statistics were obtained for the structural model: chi-square (x2) =638.90, degrees of 3 4 1.00 0.67(0.04) 1.00 freedom (df) =270, Root Mean Square Error of Approximation (RMSEA) =0.083, Comparative Fit Index (CFI) =0.97, Non-Normed Fit Index (NNFI) =0.97, Goodness-of-Fit Index (GFI) =0.79, and Root Mean Square Residual (RMR) = 0.058. The standardized loadings (γ), standardized errors, and t-values are shown in Table Ⅱ. All of the standardized loadings were high (γ>0.20) and significant (t>1.96). The results thus provided empirical support for Hypothesis 2, Hypothesis 3, and Hypothesis 4. TABLE Ⅱ RESULTS OF STRUCTURAL MODEL Standardized loading Hypotheses Path T value Result H1 Quality management practice→ Innovation H2 Quality management practice→ R&D capability R&D capability→ Innovation 0.22 1.90 Reject 0.79 0.64 8.78 4.84 Supported H3 R&D capability→ Innovation 0.40 3.05 Supported H4 Innovation→ Firm performance 0.35 2.81 Supported IV.DISCUSSION AND IMPLICATIONS A. Main Finding Several interesting findings can be drawn form this study. First, this study finds that quality management practices do not significantly influence firm innovation directly, but indirectly through the mediating effect of R&D capability. Second, this study finds that R&D capability and firm innovation positively influence firm performance, which is consistent with early empirical studies. B. Managerial Implications The first managerial implication to be drawn from the results is that innovation is influenced by many factors, but is mostly determined by R&D capability. Quality management can not guarantee innovation performance solely, and some elements of quality management even restrain innovation. For example, quality management emphasizes the reduction of variances to enhance process stability. However, because of the nonrepeatability and uncertainty of innovation, it is no use to improve the reliability and stability of the process through reduction of process variation. Moreover, innovative ideas of product emerge when there is variation in organizational process, when something different and untried is pursued[24]. Thus, the reduction of variations will limit the sources of new product ideas. The second managerial implication is about the relationship between quality management and R&D capability. Although quality management is widely diffused and applied in the world, a lot of contents of quality management are difficult to imitate[8], especially the soft elements such as leadership, quality strategy, and quality culture. Firms can use these inimitable quality management elements to construct firms’ core capabilities and competitive advantages. Therefore, quality management capability can promote firm innovation through R&D capability. This finding clarifies the mechanism that quality management influences firm innovation, and can explain the inconsistency in existing studies. More recently, some studies have realized that the relationship between quality management and innovation is complex. They suggest that quality management and innovation are dynamic capabilities based on learning, improvement and revolution[25], and these two capabilities complement each other. Although quality management influences R&D capability positively, we should recognize that the effect is limited. Benner and Tushman[26] have found that TQM contributes to exploitation capability but do not to exploration capability. Thus, when firms create their R&D capability, they should make full use of all kinds of resources[25]. Third, prior studies have confirm that firms’ specific and inimitable elements can strengthen their R&D capability, which will contribute to firm performance[20]. Moreover, studies on innovation have also confirmed the direct and indirect influences of innovation on firm performance. Therefore, firm can integrate quality management practice and other practices to construct R&D capability, and use R&D capability to promote innovation and improve firm performance. V. LIMITATIONS AND FUTURE RESEARCH This study discusses the relationships among quality management practice, R&D capability, firm innovation and firm performance, and clarifies the mechanism that quality management influences firm innovation, which can explain the inconsistency in existing studies. 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