Proceedings of the 11th Annual Conference
of Asia Pacific Decision Sciences Institute
Hong Kong, June 14-18, 2006, pp. 214-217.
THE EFFECTS OF TOTAL QUALITY MANAGEMENT ON FIRM PERFORMANCE:
EVIDENCE FROM TAIWAN INFORMATION-RELATED INDUSTRIES
Chin S. Ou
Department of Accounting & Information Technology, National Chung Cheng University, Taiwan
EMAIL: actcso@ccu.edu.tw
Fang C. Liu
Department of Accounting & Information Technology, National Chung Cheng University, Taiwan
EMAIL: g92525032@ccu.edu.tw
Yu C. Hung
Department of Accounting & Information Technology, National Chung Cheng University, Taiwan
EMAIL: actych@ccu.edu.tw
David C. Yen
Department of Decision Sciences and Management Information Systems, Miami University, U.S.A.
EMAIL:yendc@muohio.edu
ABSTRACT
Total quality management (TQM) has been proposed to improve firms operating performance, and received
considerable attention in recent research. This study empirically examines the extent to which total quality management
and firm performance are correlated and how total quality management impact various levels of firm performance.
Based on a comprehensive literature review, the total quality management framework developed by this paper
demonstrates the relationship between total quality management and firm performance by examining the direct and
indirect effects of seven TQM constructs on three different levels of firm performance. The proposed research model
and hypotheses are tested by using data collected from information-related small and medium size enterprises operating
in Taiwan. The test of the structural model supports the proposed hypotheses. The implications of research findings for
researchers and practitioners are discussed and the suggestions for further research are also provided.
Keywords: Total quality management, Performance, Information-related industries
INTRODUCTION
With the increasing competitive operating pressure and the development trend of customer-oriented business
environment, total quality management (TQM) has been recognized as an important issue and generated a substantial
amount of interest both among managers and researchers [1] [15]. Quality pioneers, such as Deming [4] and Juran [10],
asserted that competitive advantage can be gained by providing quality products or services. Eng and Yusof [5] argued
that quality holds the key competitiveness in today’s global market. In addition, TQM is widely considered as an
effective management tool, which can provide business with stability, growth, and prosperity [9]. In order to achieve
the requirement of quality, firms have to put the effort on the implementation of TQM. Therefore, firms will introduce
quality management practice to integrate internal information communications with TQM philosophy effectively. In
addition, the application of TQM can also be implemented to enhance the relationship between firms and their suppliers.
Moreover, the implementation of TQM can also increase customer satisfaction by providing preeminent products or
services.
LITERATURE REVIEW AND HYPOTHESES
Recent studies have examined the relationship between total quality management and various levels of firm
performance [3] [11] [13]. However, the results of these studies have different mixed outcomes, probably resulting
from the nature of the research designs used such as using TQM practices or firm performance as a single construct
[11]. The benefits of an effective TQM implementation can be examined with three different perspectives. First, from
the operating angel, the reason that TQM has became a hot topic in practice and academia is that it can be applied to
improve global competitiveness [7] [14]. Firms with effective TQM implementation can achieve internal benefits such
as improvements in quality and productivity, or outperform on operating income-based measures [2] [8]. From the
THE EFFECTS OF TOTAL QUALITY MANAGEMENT ON FIRM PERFORMANCE
215
financial performance perspective, careful design and implementation of consistent and documented quality
management systems can contribute significantly to superior financial performance [2]. Further, firm with effective
TQM implementation can significantly outperform on the stock price performance [8]. From the knowledge
management viewpoint, the implementation of TQM can also increase and create organizational knowledge, which
helps more understand how quality management practices affect firm performance [12].
Base on the result of literature review, this study inducted seven factors that may be the key drivers of the effective
implementation of TQM, namely customer focus, management leadership, human resource, quality data & reporting,
supplier management, design management, and process management [6] [11] [14].
No.
H1
H2a
H2b
H2c
Hypotheses
Customer focus is positively related to Management Leadership
Management Leadership is positively related to Human Resource
Management Leadership is positively related to Supplier Management
Management Leadership is positively related to Design Management
H3
H4a
H4b
H4c
H5a
H5b
H5c
H6a
H6b
H7
H8a
H8b
H8c
Human Resource Management is positively related to Quality Data & Reporting
Quality Data & Reporting is positively related to Supplier Management
Quality Data & Reporting is positively related to Design Management
Quality Data & Reporting is positively related to Process Management
Supplier Management is positively related to Design Management
Supplier Management is positively related to Process Management
Supplier Management is positively related to Operating Performance
Design Management is positively related to Process Management
Design Management is positively related to Operating Performance
Process Management is positively related to Operating Performance
Operating Performance is positively related to Customer Satisfaction
Operating Performance is positively related to Financial Performance
Customer Satisfaction is positively related to Financial Performance
DATA AND RESULTS
This study hypothesizes that firms with TQM practices should have better effects on various levels of firm performance.
In order to examine the relationship between quality management and business performance, this study takes small and
medium enterprises in the information-related industries to be the sampling target to investigation TQM implementation.
A total of seven constructs which are considered important for effective TQM implementation are proposed to form a
questionnaire. A five-point Likert scale was employed with a score of 1 relating to “strongly disagree” and 5
representing “strongly agree” to represent the attitude of respondents. A total 600 information-related companies were
randomly selected from Information Service Industry Association of R.O.C. and Taiwan Electrical and Electronic
Manufacturers; Association. The survey, through the mailed questionnaire, was carried out within one and half months.
After eliminating incomplete survey, 95 questionnaires are kept with the 15.83% of valid returned rate.
This study first applies the descriptive statistics to explore the general profile of the respondents. Of 95 valid
respondents, 52% were software-related companies and 48% were hardware-related companies. In addition, 67%
reported that the lifetime of their companies were over 16 years. Corresponding to the company size, 30% of
informants reported that the number of employees was over 200 people. Finally, we find that 40% of respondents have
over 76% of products exported.
Second, in order to examine the motivation for companies to implement quality management, we classified the
motivation of quality management into nine factors, such as increasing quality of products, improving goodwill,
improving firm’s competitive advantage, the requirement of management, following the trend, facing the pressure of
competitors, and expanding market share. It is worth to note that the top two strong motivations for companies to
implement quality management are increasing quality of products and improving firm’s competitive advantage. The
possible explanation is that one of characteristics of information-related industries is that, on average, the level of
employee educational background is higher than other industries. Therefore, the employees know the importance of
TQM. Beside, the export ratio of high-tech industry is also higher than other industries. In order to maintain and expand
global market share, high-tech industries emphasize on the implementation of quality management. In addition, the
216
CHIN S. OU, FANG C. LIU , YU C. HUNG, DAVID C. YEN
higher an employee’s educational background, the more understanding the meanings of quality management.
provides the continuous driving force to implement the TQM.
It
As for how long a firm has been introduced quality management practices, 33% respondents have implemented quality
management over 16 years. However, 56% respondents implement quality management by themselves. In order to
further investigate the actual implementations of quality management, we investigate the amount of quality
management invested in 2003 and 2004. The results showed that, on average, 57% of respondents invested less than
16,129 dollars in implementing quality management activities. For 41% respondents, the employee number of quality
management sector to total employee ratio is less than 5 %. And for the installment of quality management scheme,
51% of respondents chose to install ISO 2000 version.
Figure 1 shows the relationship among TQM practices and various levels of firm performance. We divide the research
model into three sections for detailed discussion. The first section is to examine the effects of essential key factors on
effective implementation of TQM philosophy. We choose to examine the relationship between customer focus and
management leadership, which is prerequisite for firms to implement TQM effectively. The second section is mainly to
examine the relationship among six TQM constructs and operating performance. And the third section is to thoroughly
examine the improvement effects of operating performance, which are resulted from the implementation of TQM, on
customer satisfaction and financial performance, respectively.
0.738***
Customer
Focus
Human
Resource
0.564***
Process
Management
Quality Data
& Reporting
0.731***
0.571***
0.745***
0.441***
0.172*
Management
Leadership
0.116
Financial
Performance
0.598**
*
0.397***
0.215*
Supplier
Management
Operational
Performance
0.382***
0.350***
0.809***
0.607***
0.387***
Design
Management
0.210
Customer
Satisfaction
***: p<0.01; **: p<0.05; *: p<0.1
CONCLUSION
This study contributes to the TQM literature by establishing comprehensive research model to examine the relationship
among TQM practices and various levels of firm performance. The findings of this research show that an effective
management leadership can positively influence human resource management, supplier management, and design
management. In addition, our findings provide evidence that the influence of TQM practices on firm performance
should be measured at different levels of performance. The findings state that TQM practices have direct effects on
operating performance. Then improving operating performance brings in the rise of customer satisfaction and
improvement of financial performance. However, this study only examines the effects of TQM on firm performance in
Taiwan information-related industries. Further research can expand research scope to different industries or investigate
the implementation situation in public companies rather than the small and medium size companies. However, quality
management can integrate from internal and external processes with knowledge creation processes. Thus, future
researchers can consider integrating TQM practices and knowledge management and measuring how the economic
effects of knowledge integration on firm value added.
REFERENCES
[1]
Ahire, S.L. & Landeros, R., Golhar, D. “Total quality management: A literature review and an agenda for future
THE EFFECTS OF TOTAL QUALITY MANAGEMENT ON FIRM PERFORMANCE
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
217
research,” Production and Operations Management, 1995, 277-307.
Corbett, C.J. & Montes-Sancho, M.J., Kirsch, D.A. “The financial impact of ISO 9000 certification in the United
States: An empirical analysis,” Management Science, 2005,51(7), 1046-1059.
Das, A. & Handfield, R.B., Calantone, R.J., Ghosh, S. “A contingent view of quality management: The impact of
international competition on quality,” Decision Sciences, 2000,31, 649-690.
Deming, E.W. Out of Crisis, Cambridge, MA: MIT Center for Advanced Engineering, 1986.
Eng, E.Q. & Yusof, S.M. “A survey of TQM practices in the Malaysian electrical and electronic industry,” Total
Quality Management, 2003,14(1), 63-77.
Flynn, B.B. & Schroeder, R.G., Sakakibara, S. “A framework for quality management research and an associated
measurement instrument,” Journal of Operations Management, 1994,11, 339-366.
Flynn, B.B. & Schroeder, R.G., Sakakibara, S. “The impact of quality management practices on performance and
competitive advantage,” Decision Sciences, 1995,26(5), 659-691.
Hendticks, K.B. & Singhal, V.R. “Does implementing an effective TQM program actually improve operating
performance? Empirical evidence from firms that have won quality awards,” Management Science, 1997,43(9),
1258-1274.
Issac, G. & Rajendran, C., Anantharaman, R.N. “A conceptual framework for total quality management in
software organizations,” Total Quality Management, 2004,15(3), 307-344.
Juran, J.M. “Made in USA: A renaissance in quality,” Harvard Business Review, 1993,71, 42-50.
Kaynak, H. “The relationship between total quality management practices and their effects on firm performance,”
Journal of Operations Management, 2003,21, 405-435.
Linderman, K.R. & Schroeder, G., Zaheer, S., Liedtke, C., Choo, A.S. “Integrating quality management practices
with knowledge creation processes,” Journal of Operations Management, 2004,22, 589-607.
Mohrman, S.A. & Tenkasi, R.V., Lawler, E.E., Ledford, G.G. “Total quality management: Practice and outcomes
in the largest US firms,” Employee Relations, 1995,17(3), 26-41.
Samson, D. & Terziovski, M. “The relationship between total quality management practices and operational
performance,” Journal of Operations Management, 1999,17, 393-409.
Sousa, R. & Voss, C.A. “Quality management re-visited: A reflective review and agenda for future research,”
Journal of Operations Management, 2002,20, 91-109.