This article was downloaded by: [East Carolina University]On: 25 May 2012, At: 06:19Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

Total Quality Management & BusinessExcellencePublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/ctqm20

The power of TQM: analysis of itseffects on profitability, productivityand customer satisfactionKati Tanninen a , Kaisu Puumalainen b & Jaana Sandström ba Stora Enso Corp., Imatra, Finlandb School of Business, Lappeenranta University of Technology,Lappeenranta, PO Box 20, FIN-53851, Finland

Available online: 28 Jan 2010

To cite this article: Kati Tanninen, Kaisu Puumalainen & Jaana Sandström (2010): The power ofTQM: analysis of its effects on profitability, productivity and customer satisfaction, Total QualityManagement & Business Excellence, 21:2, 171-184

To link to this article: http://dx.doi.org/10.1080/14783360903549949

PLEASE SCROLL DOWN FOR ARTICLE

Full terms and conditions of use: http://www.tandfonline.com/page/terms-and-conditions

This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,systematic supply, or distribution in any form to anyone is expressly forbidden.

The publisher does not give any warranty express or implied or make any representationthat the contents will be complete or accurate or up to date. The accuracy of anyinstructions, formulae, and drug doses should be independently verified with primarysources. The publisher shall not be liable for any loss, actions, claims, proceedings,demand, or costs or damages whatsoever or howsoever caused arising directly orindirectly in connection with or arising out of the use of this material.

The power of TQM: analysis of its effects on profitability,productivity and customer satisfaction

Kati Tanninena, Kaisu Puumalainenb� and Jaana Sandstromb

aStora Enso Corp., Imatra, Finland; bSchool of Business, Lappeenranta Universityof Technology, Lappeenranta, PO Box 20, FIN-53851, Finland

This article analyses the effects of total quality management (TQM) in anorganisational context. In our analysis we study how the experience (or age orapplication time) of TQM and the depth (level of self-assessing scores of thebusiness unit) of TQM affect the performance of the unit measured with customersatisfaction, profitability and productivity. Our unique research setting was based onlongitudinal data from a global integrated process products company. The results ofour analysis indicated that TQM does have an effect on all three types ofperformance measured. However, there was variation in whether the effects comefrom the experience of TQM or its implementation. As the results of this study arebased on one Case Company, the utilisation of the results as such may be somewhatlimited.

Keywords: total quality management; TQM effectiveness; profitability; productivity;customer satisfaction

1 Introduction

Companies implement numerous management, planning and controlling tools and hope

that these implementations will have an effect on their performance. There are surprisingly

few research results, however, on the effectiveness of these tools. The difficulty of con-

ducting this kind of research is to get access to the data that enables objective measurement

of effectiveness as well as to provide reliable evidence on the causalities. Since we have

unique profit unit level longitudinal data from a global industrial firm, we propose to show

whether the total quality management (TQM) strategy has an effect on profitability,

productivity and customer satisfaction.

TQM has been of interest to practitioners and academics, and according to Fisscher

and Nijhof (2005), there is hardly any management philosophy that is as widely

adopted by companies as quality management. Total quality practices are said to be

such an attractive and demanding management concept and philosophy, that they have

received great attention (Dale, 1999; Lakhe & Mohanty, 1994). The pioneering work of

Terziovski and Samson (1999) on the effects of TQM encouraged a research stream

which we try to follow. According to them, despite the extensive literature available on

TQM and its long history, little research has been done to establish the link between

TQM practices and organisational performance; moreover, the few available studies

have been interesting but not conclusive. There is quite extensive quality management

research that has concentrated on the status of TQM and the implementation of the relevant

ISSN 1478-3363 print/ISSN 1478-3371 online

# 2010 Taylor & Francis

DOI: 10.1080/14783360903549949

http://www.informaworld.com

�Corresponding author. Email: kaisu.puumalainen@lut.fi

Total Quality Management

Vol. 21, No. 2, February 2010, 171–184

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

tools in organisations (Lagrosen & Lagrosen, 2005). The adoption and performance

improvement have also been studied (Ehigie & McAndrew, 2005; Rungtusanatham et al.,

2005). However, quite often the studies have concentrated on evaluating the TQM adoption

practices against the present situation, and based on these analyses, recommendations or

better models have been presented (Gunasekaran, 1999; Terziovski et al., 1999). Sun

(1999) filled for his part this research gap with his empirical study (survey replication) on

TQM in Norway, with results about indications that TQM has on performance. Nevertheless,

almost 10 years later Ford and Evans (2006) comment that despite the potential benefits,

the extent to which self-assessments actually produce improvements is unclear. It can be

concluded that (1) the earlier TQM studies have concentrated on studying the adoption

rather than the whole implementation process; (2) they are also mainly cross-sectional

studies rather than longitudinal ones; and (3) the studies on the effectiveness of TQM

have focused on developing measures for effectiveness (Capon et al., 1995; Lee & Quazi,

2001). The problem with these studies is, however, the versatile subjective measures

instead of objective ones. Also (4): the cases in the past studies have been based on a

single country or a couple of countries instead of taking an international approach. Past

research will be presented more extensively in Section 2.

Our empirical study can be considered unique because of the research setting: it uses

objective performance measures, the level of analysis is the business unit, the depth of

TQM implementation is operationalised as the development of self-assessment scores,

and the significance of the age of TQM in various business units (experience of the

management tool) is clearly noted. To put it more precisely, in our analysis we study

how the experience of TQM and the depth of TQM implementation affect the performance

of the unit measured with customer satisfaction, profitability and productivity. Most of the

previous studies have measured TQM in the organisation with rough measures: e.g. TQM

is in use versus it is not in use. Consequently, our study aims at complementing existing

research by the following means. First, the performance measures, namely, profitability

(return on capital employed), productivity (tons per person) and customer satisfaction

(customer satisfaction measurement model) are objective. Second, TQM is examined

both with experience of the tool as well as with the output that the organisational unit

achieves with the tool (the self-assessment scores). Third, the longitudinal setting

enables us to identify the evolvement of the effects that the administrative innovation

has in the organisation. The results indicate that TQM has an effect on all three types

of performance. There is, however, variation in whether the effect comes from the

experience or depth of TQM.

Our study proceeds as follows. In Section 2 the earlier research is briefly discussed by

covering first a broader scope of TQM research and then focusing on the studies explaining

the effects TQM has on firm performance. Section 3 presents the data and measures, and

Section 4 introduces the models and results before Section 5 where the discussion and

concluding remarks are given.

2 Literature review

According to Hides et al. (2000), the experiences of adopting a TQM philosophy have

been shown to be beneficial to any business. Still, there are also many conflicting

results and opinions on the effects of TQM (Ford & Evans, 2006), and quite a lot of

researchers submit that TQM alone cannot improve the results. For example, the study

of Kannan et al. (1999) highlights the fact that quality initiatives alone cannot improve

profitability and the market share; on the contrary they write that the belief that TQM

172 K. Tanninen et al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

programmes automatically lead to improved financial performance fails to recognise other

essential elements (Kannan et al., 1999). Even though TQM can have a positive effect on

operational and business results, there is no guarantee that it will definitely and alone

directly produce superior profitability, since other factors may be present (Montes et al.,

2003; Terziovski & Samson, 1999; Zairi et al., 1994). It must be all the business excellence

enablers together that contribute collectively to the improvements (Sun, 1999). According

to Zairi et al. (1994), TQM is only a licence to practise, and Montes et al. (2003) conclude

that TQM has an impact on the way organisation members apply their knowledge in the

organisation, and therefore it affects organisational performance. Then on the other

hand, advantages such as cost savings and improved productivity and profitability

produce the leading results for any firm that wants to succeed (Brah et al., 2002).

Consequently, there exists research showing that quality activities, particularly TQM,

have beneficial effects on business performance (Joiner, 2007; Mann & Kehoe, 1994;

Pegels, 1994; Terziovski et al., 1999).

Handfield et al. (1998) find that that the positive linkage between TQM and financial

performance occurs through two processes: first, improved internal performance within

the organisation leads to less waste, improved efficiency, and ultimately higher return

on assets, and second, improved customer satisfaction levels generate increased word of

mouth, loyalty, brand value, and so on, leading to higher sales and market share (Handfield

et al., 1998). Sun (2000) also points out the relevance of the customer satisfaction perspec-

tive in creating business performance. According to the study of Yang (2006), TQM along

with human resource management significantly affected quality performance, especially

with regard to customer and employee satisfaction. According to Vora (2002), customer

and employee satisfaction and streamlined processes together produce improved oper-

ational and financial results which will eventually lead to business excellence. The

results of Lakhal et al. (2006) reveal positive relationships between quality management

practices and organisational performance. Furthermore, Mann and Kehoe (1994) have

shown that all the quality activities investigated, particularly TQM, had a positive effect

on business performance (Mann & Kehoe, 1994). In the same year Pegels (1994) also

wrote that total quality management is not just concerned with quality, because pro-

ductivity, timeliness, flexibility and profitability are also important performance measures

in a TQM programme. Shenawy et al. (2007) used the random effect meta-analysis for

studying the effects of TQM. Their results suggested a model for TQM that incorporated

five major components: top management commitment and leadership, teamwork, culture,

training and education, and process efficiency. According to their results, each of these

components led to competitive advantage (Shenawy et al., 2007). When effectively

implemented, TQM practices significantly improve financial performance (Hendricks &

Singhal, 1997).

As the advantage of using the quality award criteria and their systematic approaches

has also been of interest to researchers, the success of the award winners has been the

target of many studies. The research work of Jacob et al. (2004) examined how Baldrige

Award winners perform with respect to several accounting and financial metrics. Their

results showed that the award winners performed significantly better than the industry

medians in terms of profitability and assets utilisation, and the winning firms stand out

as performance leaders in their industries (Jacob et al., 2004). They got the results by

investigating several accounting performance metrics and the firm value of 18 Baldrige

Award winners using both raw and industry adjusted measures. In contrast, Hansson

and Eriksson (2002) argue that during the implementation period, the award recipients

do not necessarily perform better than their competitors and the branch indices; but on

Total Quality Management 173

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

the other hand, the award recipients perform better during the post-implementation period

(Hansson & Eriksson, 2002). Eriksson and Hansson (2003) made the same findings which

indicate that the financial performance develops more advantageously for companies that

have successfully implemented TQM, than their branch indices and stated competitors.

Wisner and Eakins (1994) made a performance assessment of the US Baldrige Quality

Award winners and paid special attention to financial characteristics. While their study

revealed a strong positive relationship between quality improvement programmes and

the competitive attributes of the Baldrige Award winners, there is no guarantee that

these improvements will result in continual financial success (Wisner & Eakins, 1994).

Quality improvement programmes should be viewed not as a trivial solution for compa-

nies, but rather as a means with which to build and maintain a strong competitive foun-

dation that will ensure the opportunity for financial success (Wisner & Eakins, 1994).

So, generally speaking, the implementation of assessment criteria and quality management

systems help organisations to keep up with the challenges they face (Da Rosa et al., 2001;

Wisner & Eakins, 1994).

Having started the implementation, the results do not, however, appear immediately.

Firms wanting to implement TQM effectively must have patience. It may take a rather

long time to implement TQM as it requires major organisational changes in the culture

and employee mindset. That is why the benefits will also be realised only in the long

run (Hendricks & Singhal, 1997). The findings of Agus and Abdullah (2000) also indicate

that the length of TQM implementation has a significant impact on the companies’ finan-

cial performance, because the long-term TQM adopters are found to outperform short-

term adopters. The results of the study of Sun (1999) indicated that the number of years

of practising quality management is significantly related to both the implementation of

TQM enablers and the results achieved from TQM as well as ISO certification. The

longer a company has practised TQM, the better its results will be. The implementation

of TQM must be seen as a long period of continuous improvement, and not as a fast

turnkey project. The study of Sun (1999) also suggests that there is a learning effect in

TQM implementation, and companies should not be frustrated at the slow showing of

benefits at the early stages of TQM implementation. The main conclusion of the study

is that in order to be effective, the quality management programme must be total or

complete (Sun, 1999). We have collected relevant research on the effects of TQM on

performance as summarised in Table 1.

As we can see from the earlier studies on TQM adoption and usefulness of the TQM

procedures, there are opinions for and against its effects on the performance of the

company. Based on these earlier writings, we propose that the length of the implemen-

tation time, e.g. the time of the adoption (experience) and the implementation of the

TQM approach do have an effect on the performance of the company (Figure 1). Based

on this argument, we propose two hypotheses as follows:

H1: Experience of the management tool has a positive effect on the performance measures.

H2: The depth of the implemented management tool has a positive effect on the performancemeasures

3 Data collection and measures

3.1 Case description

The Case Company is an integrated process products company producing wood-based

products sales totalling E14.6 billion in 2006. The Company has some 44,000 employees

174 K. Tanninen et al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

Table 1. The studies on the effects of TQM on performance.

Authors (year) Target (1) (2) (3) (4) Results

Mann and Kehoe(1994)

To describe the prime effectsof TQM and other qualityactivities on businessperformance

Questionnaires: randomsample 142 responses(22%) and TQM sample 69resp. (58%). Interviewswith 21 org.

c n o & s TQM has beneficial effects onbusiness performance

Capon et al. (1995) To explore the role ofmeasurements in a TQMprogramme, how much therate of success improveswhen the measures are used

One company c n o & s Measuring and displaying resultsincreases the chance of successin a TQM programme

Zbaracki (1998) To clarify the relationshipbetween technical practicesand rhetoric of TQM

Interviews, documents andobservations, 5organisations

c n s Managers use the TQM rhetoricto develop their TQM. Thisdevelops too optimistic viewof TQM

Sun (1999) To clarify the components ofTQM and their impact onperformance

Questionnaire survey, 316comp.

c n o & s Some of the TQM practicescontribute to the increase ofcustomer satisfaction andbusiness performance

Terziovski and Samson(1999)

Test the strength of therelationships betweenTQM practice andorganisationalperformance, to evaluatethe results of threeempirical studiesconducted 1991, 1993,1996

Manufacturing companies(n ¼ 1000, resp. rate 30%).Quantitative

c n o & s TQM tends to have mixed resultswhen covaried for companysize and industry type

Hendricks and Singhal(1997)

To study the impact of TQMon financial performance

Study of nearly 600 awardwinners, public companies

l n o TQM improves financialperformance

(Continued)

To

tal

Qu

ality

Ma

na

gem

ent

17

5

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

Table 1. Continued.

Authors (year) Target (1) (2) (3) (4) Results

Lee and Quazi (2001) To use the self-assessmenttool to assess qualityperformance in variousfunctions of theorganisations

Questionnaire, self-assessment tool used toassess quality performance

c n s There is a significant correlationbetween the assessment scoresand actual scores receivedfrom SQA (Singapore QualityAward application)

Brah et al. (2002) To determine the successfactors of a qualityprogramme

Questionnaire, statistical, 185responses

c v o & s Results suggest the propositionthat TQM implementationcorrelates with qualityperformance

Montes et al. (2003) To provide a framework forstudying the relationshipbetween TQM andorganisational performance

Conceptual c – s TQM content must fit the busin ssstrategy

Lagrosen and Lagrosen(2005)

To study the effects of thedifferent models and toolsof quality management

Questionnaire: 265respondents (resp. rate53%)

c n s There is a statistical correlationbetween the adoption of thevalues of TQM and successfulquality management

Lakhal et al. (2006) To explore the relationshipbetween qualitymanagement practices andtheir impact onperformance

Questionnaire, stat. 133comp. survey

c n o & s There is a positive relationshipbetween quality managementpractices and organisationalperformance

Shenawy et al. (2007) To integrate the findings ofempirical studies on theeffect of TQM oncompetitive advantage

Meta-analysis of 51 studies c i o The used components lead tocompetitive advantage

Joiner (2007) To explore the relationshipbetween the extent of TQMimplementation andorganisation performance

Questionnaire, 84 responses(resp. rate 53%)

c n s There is a strong positiverelationship between TQMpractices and organisationperformance

Note: (1) Sample and data collection; (2) Type of study: 1 ¼ longitudinal, c ¼ cross-sectional; (3) Scope: n ¼ national, i ¼ international; (4) Performance measure: o ¼ objective,s ¼ subjective.

17

6K

.T

an

nin

enet

al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

in more than 40 countries on five continents, and its shares are listed on three stock

exchanges. The Company serves mainly business-to-business customers through its own

global sales and marketing network. Customers are mainly concentrated in Europe,

North America and Asia. The Case Company has production facilities in Europe, North

and Latin America, and Asia.

The Case Company’s focus is on productivity and asset evaluation. The Company is

operated and managed as one industrial group, with a core product portfolio. Working

closer with the customers continues to be one of the cornerstones of its strategy. The

continual improvement activities have been of great interest in the Company, starting

from the top management. They believe that success comes from improving faster than

the competitors.

Business excellence is the Case Company’s management approach to business devel-

opment and continuous improvement. The business excellence approach includes various

business excellence models, systems for quality, environmental issues and occupational

health and safety, productivity programmes, Six Sigma and other quality tools as well

as customer satisfaction and other surveys under the same umbrella. Business excellence

is verified with the annual self-assessment approach, which has been in use for years.

During the self-assessment, units compare themselves with the selected common business

excellence criteria (e.g. Malcolm Baldrige Quality Award Criteria, MB) or the Company’s

own self-assessment criteria. The ultimate target is to improve profitability, competitive-

ness, productivity and shareholder value towards business excellence in the whole

Company and to reach the corporate vision as being the leading company in the world

in its own field.

3.2 Used measures and data description

The used empirical data are both longitudinal and cross-sectional by nature (panel data).

As the Case Company has been implementing the management tool in question, namely,

the self-assessment approach TQM for many years all around the company, the rich and

historical data enabled the analysis of the effectiveness of the tool.

Data related to the management tool included years 1995–2006 collected from the

Case Company. The self-assessment scores were collected from the continual improve-

ment process material from the files of the Case Company. The scores were based on

the national or international quality award criteria like the Finnish Quality Award Criteria,

Figure 1. The hypothesised model of factors affecting the performance measures of the company.

Total Quality Management 177

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

the European Quality Award Criteria (EFQM) or the American Malcolm Baldrige

National Quality Award Criteria (MB), or then the scores were based on the Case

Company’s own business excellence criteria. The content of all these criteria is almost

the same, and they include similar categories. Whatever the used criteria, the percentages

of the maximum scores available were calculated to enable the comparison between the

different criteria and scores. In this study the used scores do not include the results

category; only the received scores of the operational categories are included.

The measures of the experience and implementation of the management tool were both

based on the TQM approach scores. TQM experience was measured with the time of the

adoption, i.e. the year when the unit in question utilised the TQM approach for the first

time. The implementation of the management tool was measured with the results of the

operational scores of the TQM approach from each year.

The performance measures consisted of three objective metrics used in the Case

Company.

(1) Profitability was measured by return on capital employed (ROCE%), and the data

were available for the period 1998–2006. Also, Wisner and Eakins (1994) and

Jacob et al. (2004) utilised financial performance measures in their studies when

assessing the performance measures of Malcolm Baldrige Award winners.

(2) Productivity was measured with two different kinds of productivity data, depend-

ing on the nature of the unit. Productivity of manufacturing units was measured

as produced tons per person and productivity of sales units respectively as sold

tons per person. Manufacturing productivity data were available for the period

1999–2006 and sales productivity for 2000–2006. Gunasekaran et al. (1998)

highlighted the productivity issues when presenting a framework for developing

a TQM system with a target to improve quality and productivity.

(3) The third measure was customer satisfaction, which Sun (1999) has also used in

earlier studies. Customer satisfaction was measured in this study with the data

received from the Case Company’s customer satisfaction measurement system

that has been used in the company since 1996. The statement used here was

‘Overall satisfaction with the unit’ and it was measured with the mean value

calculated on a Likert scale 1–5 (1 ¼ very dissatisfied and 5 ¼ very satisfied).

The customer satisfaction measurement system was changed in 2004 so that this

statement was not included in the system; therefore the results from the years

2004–2006 used here are calculated as mean values from available questions in

the system. These questions referred to ‘product quality’, ‘delivery performance’,

‘technical customer satisfaction’ and ‘satisfaction with sales’. Furthermore, in

2004–2006 only upper organisational level results, i.e. division level results

were measured in the company (not the separate unit levels), so we have used

the division level results representing the units belonging to each division.

Table 2 includes descriptive data on the above-mentioned objective measures.

Customer satisfaction has increased from the mean value of 3.69 (year 1999) to 4.10

(year 2006) measured with overall satisfaction with the company. Profitability was

measured by ROCE, which varied a lot during the research period. Manufacturing pro-

ductivity has increased when comparing the mean value of the year 1999 to 2006, but

there is a lot of variability between the years. Sales productivity in contrast has increased

more constantly, measured by the mean value during the research period. The adoption

rate of the management tool was at its highest during the years 2001–2003. This is

because just before this period, the Case Company merged with another company, and

178 K. Tanninen et al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

Table 2. Descriptive analysis of the objective data.

1999 2000 2001 2002 2003 2004 2005 2006

Cs N 37 41 41 43 44 46 46 46Cs Mean 3.69 3.73 3.96 4.06 4.03 4.12 4.06 4.10Cs s.d. 0.27 0.31 0.18 0.19 0.19 0.08 0.09 0.08Roce N 39 58 60 64 64 65 69 66Roce Mean 14.64 20.01 15.06 11.62 5.09 6.23 1.32 8.92Roce s.d 10.90 18.83 17.15 14.58 11.51 13.55 11.58 11.46Prod N 18 43 36 46 46 48 50 48Prod Mean 758.27 1087.98 1154.08 1050.36 1066.98 1234.70 1088.31 1211.15Prod s.d. 238.57 711.60 704.69 698.91 657.06 790.13 631.22 694.32Sold N 26 32 32 32 32 30 30Sold Mean 12677.09 11616.32 12357.48 12593.51 13434.00 13076.27 16526.03Sold s.d. 8173.41 7432.26 8727.69 9858.93 7866.63 6123.38 9483.68SA N 37 55 115 126 122 83 57 37SA Mean 50.88 47.57 40.75 44.33 47.42 49.68 53.28 53.43SA s.d. 8.10 11.52 11.76 9.99 9.64 8.07 10.42 9.68Time N 62 80 133 156 160 162 163 163Time Mean 2.10 2.40 2.05 2.60 3.51 4.45 5.42 6.42Time s.d. 1.35 1.76 2.16 2.27 2.31 2.35 2.38 2.38

To

tal

Qu

ality

Ma

na

gem

ent

17

9

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

with the merger the size of the company was doubled. This increase in the number of units

within the company was also visible when measured with activity in implementing the

management tool. The mean value of the scores has slightly increased and is 53.43 of

the maximum 100 in 2006. However, the scores were at their lowest during the same

time period when the number of units increased significantly.

4 Analysis and results

The effect of TQM on performance was examined in a linear regression analysis for panel

data which consisted of eight years of annual time series from up to 163 cross-sections (i.e.

organisational units). The panel was unbalanced, as there were some missing observations.

The analyses were conducted with the Intercooled Stata 8.0 software. The four dependent

variables – customer satisfaction, profitability, manufacturing productivity, and sales

productivity – were analysed separately, and several different model specifications and

estimation methods were tested for each of them. As all the dependent variables exhibited

some trend over time, year dummies were included as independent variables in all the

models along with the hypothesised independents (the length of TQM experience and

self-assessment scores of the previous year). The Hausman (1978) specification test was

performed to assess whether the fixed or the random effects model would be more

appropriate (Wooldridge, 2006). Autocorrelation and heteroskedasticity tests were also

conducted, and robust estimation methods were used when necessary. All the models

had heteroskedasticity in error terms across organisational units, and thus feasible GLS

estimation was selected instead of OLS in cases where the Hausman test implied a

random effect model. Customer satisfaction had no autocorrelation in errors, and thus it

was estimated with least squares including cross-sectional dummies and robust standard

errors, which yields the same estimates as the fixed effect model. The results are shown

in Tables 3 and 4.

The number of organisational units with at least two years of data varied from 28 to 49.

The productivity values had fewer observations due to their applicability to only certain

types of units. The sales productivity values also started one year later than the other

dependent variables. The number of years per unit varied from two to eight with an

average of about four or five years of data. All the models were statistically significant

at the 1% level.

The results for customer satisfaction are shown in the first columns of Table 4. The

coefficient of self-assessment scores in the previous year is negative, but not significant.

Table 3. Model fitting information.

CS ROCE Prod_tons Sold_tons

N of observations 202 229 155 101N of units 42 49 37 28Obs per unit avg 4.81 4.67 4.19 3.61Heteroskedasticity Yes Yes Yes YesAutocorrelation No AR(1) ¼ 0.50 AR(1) ¼ 0.77 AR(1) ¼ 0.83Estimation method LSDV with robust s.e. FGLS FGLS FGLSModel significance F ratio Wald chi2 Wald chi2 Wald chi2

Value (d.f.) 11.15 (8,152) 124.50 (8) 55.87 (8) 41.16 (7)p 0.000 0.000 0.000 0.000

Fit statistic R2 Log likelihood Log likelihood Log likelihoodValue 0.62 –807.83 –1014.06 –883.98

180 K. Tanninen et al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

Table 4. Estimated model coefficients.

CS ROCE Prod_tons Sold_tons

Coeff. s.e. P Coeff. s.e. p Coeff. s.e. p Coeff. s.e. p

SA_lag –0.00 0.00 0.184 0.33 0.07 0.000 2.49 2.39 0.298 29.72 22.99 0.196TQM time 0.04 0.01 0.000 –0.52 0.29 0.077 103.15 18.03 0.000 689.73 211.2 0.001Year 2000 –0.13 0.06 0.049 12.69 2.12 0.000 448.15 102.73 0.000 n.a. n.a. n.a.Year 2001 0.04 0.04 0.308 6.11 2.08 0.003 289.19 94.88 0.002 896.07 941.87 0.341Year 2002 0.10 0.04 0.029 2.20 1.74 0.206 260.76 80.39 0.001 –21.72 841.43 0.979Year 2003 0.06 0.04 0.149 –3.10 1.55 0.046 189.10 66.35 0.004 –1094.45 730.64 0.134Year 2004 0.11 0.03 0.000 –2.55 1.34 0.057 175.11 54.02 0.001 –783.79 678.19 0.248Year 2005 0.03 0.03 0.356 –4.12 0.85 0.000 85.57 41.10 0.040 –1931.90 652.50 0.003Constant 3.93 0.11 0.000 –6.19 3.71 0.095 136.79 139.39 0.326 8980.90 1394.08 0.000

To

tal

Qu

ality

Ma

na

gem

ent

18

1

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

The time of applying TQM has a positive and significant effect, implying that despite some

overall annual variation in customer satisfaction, those units that have started to apply

TQM earlier have a higher level of customer satisfaction than their less experienced

counterparts.

The results for profitability (ROCE) have a very clear overall downward trend over

the years. Taking this into account, the length of TQM experience still seems to have a

marginally significant negative effect, whereas the self-assessment scores are significantly

and positively related to ROCE. This implies that the longer a unit has applied TQM, the

poorer its profitability, but those units that have succeeded better in implementing TQM

are clearly more profitable.

The productivity results are basically the same in terms of manufacturing and sales

productivity: the longer the experience of TQM, the better the productivity. The coeffi-

cients for self-assessment scores are also positive, but the effects are not statistically

significant.

In sum, our first hypothesis stating that the length of experience of TQM has a positive

effect on performance is supported for customer satisfaction and productivity measures,

but rejected for profitability. The second hypothesis predicting that the depth of TQM

implementation has a positive effect on performance is supported for profitability but

rejected for customer satisfaction and productivity.

5 Conclusions

Our study was empirical by nature and concentrated on studying how the experience

(length of implementing) and the implementation (level of self-assessing scores) of

TQM affect the performance of the unit. We had a possibility to utilise objective

performance measures: customer satisfaction, profitability and productivity. The research

setting was also interesting, and we used the organisational unit as the unit of analysis and

operationalised TQM with the development of self-assessment scores (implementation of

the management tool) and the age of TQM in various business units (experience of the

management tool).

The results indicated that TQM does have an effect on all three types of performance

measured here. However, there was variation in whether the effects come from the experi-

ence of TQM or its implementation. The experience with the TQM approach affected the

customer satisfaction results positively, so the units that had started to apply TQM earlier

had more satisfied customers than their less experienced counterparts. However, when

measured with profitability, the longer a unit had applied TQM, the poorer its profitability

was, but then on the other hand, the units that have succeeded better in implementing TQM

are clearly more profitable. Productivity also increased as the experience of the TQM

approach increased. The results support e.g. the study of Sun (1999), where he found

that all the TQM practices contributed to the increase of customer satisfaction and business

performance to a certain extent; human resource development, quality strategy and quality

leadership were at the top in terms of contribution. It is good to remember, however, that

none of the measures can guarantee improvement alone and there may also be other factors

influencing the business environment.

Our study complemented existing research, and its main contributions were the

following. First, the performance measures of explainable factors were objective, includ-

ing profitability (return on capital employed), manufacturing productivity (tons per

person), sales productivity (sold tons per person) and customer satisfaction (customer

satisfaction measurement model). Second, TQM (the explaining factor) was examined

182 K. Tanninen et al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

both with experience of the tool as well as with the output that the organisational unit

achieves with the deployment of the tool (the self-assessment scores), and third, the

longitudinal setting enabled us to identify the evolvement of the effects that the TQM

approach had in the organisation. With this study we also had the possibility to follow

the impacts of the whole TQM approach implementation process through to its effects

and the real bottom-line results. Also, the Case Company with its international business

environment provided a perfect ground for our study.

As the results of this study are based on one Case Company, the utilisation of the

results as such may be somewhat limited. This study also raised some interest for

further studies, such as, what the role of human resources development issues (based on

the TQM approach) are in performance measurement, and how the so-called ‘soft’

issues influence the companies’ performance.

References

Agus, A., & Abdullah, M. (2000). Total quality management practices in manufacturing companiesin Malaysia: An exploratory analysis. Total Quality Management & Business Excellence, 11,1041–1051.

Brah, S.A., Tee, S.S.L., & Rao, B.M. (2002). Relationship between TQM and performance ofSingapore companies. International Journal of Quality & Reliability Management, 19,356–379.

Capon, N., Kaye, M.M., & Wood, M. (1995). Measuring the success of a TQM programme.International Journal of Quality & Reliability Management, 12(8), 8–22.

Dale, B.G. (1999). Managing quality (3rd ed.). Malden, MA: Blackwell Publishers Ltd.Da Rosa, M.J., Saraiva, P.M., & Diz, H. (2001). The development of an excellence model for

Portuguese higher education institutions. Total Quality Management, 12, 1010–1017.Ehigie, B.O., & McAndrew, E.B. (2005). Innovation, diffusion and adoption of total quality

management (TQM). Management Decision, 43, 925–940.Eriksson, H., & Hansson, J. (2003). The impact of TQM on financial performance. Measuring

Business Excellence, 7(1), 36–50.Fisscher, O., & Nijhof, A. (2005). Implications of business ethics for quality management. The TQM

Magazine, 17, 150–160.Ford, M.W., & Evans, J.R. (2006). The role of follow-up in achieving results from self-assessment

processes. International Journal of Quality & Reliability Management, 23, 589–606.Gunasekaran, A. (1999). Enablers of total quality management implementation in manufacturing: A

case study. Total Quality Management & Business Excellence, 10, 987–996.Gunasekaran, A., Goyal, S.K., Martikainen, T., & Yli-Olli, P. (1998). Total quality management: A

new perspective for improving quality and productivity. International Journal of Quality &Reliability Management, 15, 947–968.

Handfield, R., Ghosh, S., & Fawcett, S. (1998). Quality-driven change and its effects on financialperformance. Quality Management Journal, 5(3), 13–30.

Hansson, J., & Eriksson, H. (2002). The impact of TQM on financial performance. MeasuringBusiness Excellence, 6(4), 44–54.

Hausman, J.A. (1978). Specification tests in econometrics. Econometrica, 47, 455–473.Hendricks, K.B., & Singhal, V.R. (1997). Does implementing an effective TQM program actually

improve operating performance? Empirical evidence from firms that have won qualityawards. Management Science, 43, 1258–1284.

Hides, M.T., Irani, Z., Polychronakis, I., & Sharp, J.M. (2000). Facilitating total quality througheffective project management. International Journal of Quality & Reliability Management,17, 407–422.

Jacob, R., Madu, C.N., & Tang, C. (2004). An empirical assessment of the financial performance ofMalcolm Baldrige Award winners. International Journal of Quality & ReliabilityManagement, 21, 897–914.

Joiner, T.A. (2007). Total quality management and performance. International Journal of Quality &Reliability Management, 24, 617–627.

Total Quality Management 183

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012

Kannan, V.R., Tan, K.-C., Handfield, R.B., & Ghosh, S. (1999). Tools and techniques of qualitymanagement: An empirical investigation of their impact on performance. QualityManagement Journal, 6(3), 34–49.

Lagrosen, Y., & Lagrosen, S. (2005). The effects of quality management – a survey of Swedishquality professionals. International Journal of Operations & Production Management, 25,940–952.

Lakhal, L., Pasin, F., & Limam, M. (2006). Quality management practices and their impact onperformance. International Journal of Quality & Reliability Management, 23, 625–646.

Lakhe, R.R., & Mohanty, R.P. (1994). Total quality management. International Journal of Quality &Reliability Management, 11(9), 9–33.

Lee, P.-M., & Quazi, H.A. (2001). A methodology for developing a self-assessment tool to measurequality performance in organizations. International Journal of Quality & ReliabilityManagement, 18, 118–141.

Mann, R., & Kehoe, D. (1994). An evaluation of the effects of quality improvement activities onbusiness performance. International Journal of Quality & Reliability Management, 11(4),29–44.

Montes, J.L., Jover, A.V., & Fernandez, L.M.M. (2003). Factors affecting the relationship betweentotal quality management and organizational performance. International Journal of Quality &Reliability Management, 20, 189–209.

Pegels, C.C. (1994). Total quality management defined in terms of reported practice. InternationalJournal of Quality & Reliability Management, 11(5), 6–18.

Rungtusanatham, M., Forza, C., Koka, B.R., Salvador, F., & Nie, W. (2005). TQM across multiplecountries: Convergence hypothesis versus national specificity arguments. Journal ofOperations Management, 23, 43–63.

Shenawy, E.E., Baker, T., & Lemak, D.J. (2007). A meta-analysis of the effect of TQM oncompetitive advantage. International Journal of Quality & Reliability Management, 24,442–471.

Sun, H. (1999). Diffusion and contribution of total quality management: An empirical study inNorway. Total Quality Management, 10, 901–914.

Sun, H. (2000). Total quality management, ISO 9000 certification and performance improvement.International Journal of Quality & Reliability Management, 17, 168–179.

Terziovski, M., & Samson, D. (1999). The link between total quality management practice andorganisational performance. International Journal of Quality & Reliability Management,16, 226–237.

Terziovski, M., Sohal, A., & Moss, S. (1999). Longitudinal analysis of quality management practicesin Australian organizations. Total Quality Management, 10, 915–926.

Vora, M.K. (2002). Business excellence through quality management. Total Quality Management &Business Excellence, 13, 1151–1159.

Wisner, J.D., & Eakins, S.G. (1994). A performance assessment of the US Baldrige Quality Awardwinners. International Journal of Quality & Reliability Management, 11(2), 8–25.

Wooldridge, J.F. (2006). Introductory econometrics: A modern approach (3rd ed.). Mason, OH:Thomson South-Western.

Yang, C.-C. (2006). The impact of human resource management practices on the implementation oftotal quality management. The TQM Magazine, 18, 162–173.

Zairi, M., Letza, S.R., & Oakland, J.S. (1994). Does TQM impact on bottom-line results? The TQMMagazine, 6, 38–43.

Zbaracki, M.J. (1998). The rhetoric and reality of total quality management. Administrative ScienceQuarterly, 43(3), 602–636.

184 K. Tanninen et al.

Dow

nloa

ded

by [

Eas

t Car

olin

a U

nive

rsity

] at

06:

19 2

5 M

ay 2

012