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The research register for this journal is available at The current issue and full text archive of this journal is available at http://www.mcbup.com/research_registers http://www.emerald-library.com/ft A comparative A comparative study of TQM study of TQM practice and organisational practice performa...

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The research register for this journal is available at http://www.mcbup.com/research_registers

The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

A comparative study of TQM practice and organisational performance of SMEs with and without ISO 9000 certification Shams-ur Rahman

A comparative study of TQM practice 35 Received January 2000 Revised June 2000

University of Western Australia, Nedlands, Perth, Australia Keywords Performance, ISO 9000, Small to medium enterprises, TQM, Australia Abstract Recently, a highly credible report suggested that the quality philosophy and quality standards have not effectively reached the core of Australia's commercial base ± 780,000 small and medium enterprises (SMEs). Drawing on this critical finding, this study aims at providing empirical evidence on the differences in total quality management (TQM) implementation and organisational performance of SMEs in Western Australia, with and without ISO 9000 certification. Using the criteria of the Australian Business Excellence (ABE) framework as a guide, a questionnaire with 36 items was developed, checked for reliability and validity and applied to create a self-assessment measure of TQM practices. The results showed that there was no significant difference between SMEs with and without ISO 9000 certification with respect to TQM implementation and organisational performance. This result concurs with the findings of studies conducted in the context of large organisations in Australia.

Literature review and research hypothesis Over the last two decades, many studies have reported on the implementation of total quality management (TQM) principles and methods in organisations around the world. However, until recently, there have been only a few attempts to empirically establish the link between TQM practice and organisational performance. For example, Garvin (1986) studied quality practices and performance in the room air conditioner industry, and Roth et al. (1990) examined the relationship of various quality practices and performance in the USA, Europe and Japan. Since the appearance of Garvin's (1988, p. 92) caution note that ``More refined research is vital; otherwise, managers will continue to lack the hard evidence linking quality with the bottom line'', many studies have reported on the link between TQM practice and organisational performance. For instance, Bemowski (1991) studied quality practices of over 500 organisations and concluded that some of the quality practices such as process improvement methods, strategic plan deployment, and supplier certification programs, have a significant impact on performance regardless of type of industry and country of location. Garvin (1991) investigated the impact of TQM improvement strategies on the performance of 20 US companies that had performed well on the MBNQA in 1988/1989. He found a strong link between The author wishes to express his appreciation to the editor and the two anonymous referees for their helpful suggestions.

International Journal of Quality & Reliability Management, Vol. 18 No. 1, 2001, pp. 35-49. # MCB University Press, 0265-671X

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TQM practices and organisational performance measured in terms of productivity, profitability, customer satisfaction and employee relations. More recently, Madu et al. (1995) compared the quality practices and performance in manufacturing firms in the USA and Taiwan, as did Flynn et al. (1995) among world-class manufacturing firms in the USA. Madu et al. (1995) found that the practice of quality as perceived by middle managers in Taiwan is different from that of the USA. Taiwan's managers view customer satisfaction as the major factor in achieving significant improvement in organisational performance, whereas US managers view employee satisfaction as the primary element in achieving significant improvement in organisational performance. Powell (1995) studied 39 US manufacturing companies and found that only the ``soft'' aspects of quality practices, such as employee commitment, shared vision and customer focus contributed to organisational performance. Several empirical studies have been conducted to establish the link between TQM practice and organisational performance in the contexts of Australia and New Zealand (e.g. Terziovski and Samson, 1999; Samson et al., 1999; Dow et al., 1999; Sluti, 1992). The results of these studies indicate that TQM implementation has had a mixed success. For example, Terziovski and Samson (1999) and Dow et al. (1999) analysed data collected by the Australian Manufacturing Council (AMC, 1994) for 962 Australian and 379 New Zealand manufacturing companies and found a significant relationship between quality management practices and organisational performance. However, the results of these studies showed that only a handful of ``soft'' quality management practices have a positive relationship with organisational performance. Since the bivariate correlation coefficients of the quality management practices in both studies were found to be high, the conclusion regarding the effect of individual practices has to be treated with caution. Sluti (1992) studied 184 manufacturing companies in New Zealand, and found no conclusive evidence of the link between quality management practices and organisational performance. The results, however, showed that quality practices had significant positive impact on performance measures for work-in-process inventory levels, on-time delivery, product costs, process utilisation, and process output. As for TQM practice, many studies have been conducted to understand and assess the effectiveness of the ISO 9000 standards. The implementation of ISO 9000 has been found to improve customer satisfaction (Avery, 1994), gain competitive advantages (Vloeberghs and Bellens, 1996), increase profitability (Scotto, 1996) and improve product and service quality (Idris et al., 1996). Lloyds Register Quality Assurance (1994) commissioned a large study in the UK to determine why organisations obtain ISO 9000 certification and what effect it has on their business. One of the main conclusions of the study was that ``Like a fine wine, the benefits of ISO 9000 registration improve with age'' (p. 61). The study found that ISO 9000 companies experienced improvement in management control, better service delivery, higher productivity and competitive advantage. Research also revealed that ISO 9000 certification can

provide the building blocks for successful implementation of TQM (Askey and Dale, 1994). It is evident from the literature that the implementation of both TQM practice and ISO 9000 standards has impacted organisational performance. However, there seems to be no general agreement on how ISO and TQM are to be linked. Some researchers support the idea of starting with ISO as the first step towards TQM (e.g. Bradley, 1994), while others prefer to focus only on TQM (e.g. Binney, 1992). Taylor (1993) found that 33 per cent of organisations which had introduced ISO 9000 also had TQM in place and of those which did not, 43 per cent were either planning to introduce TQM or were considering it. On the other hand, 42 per cent of the organisations with TQM were planning to introduce ISO 9000. Based on these studies, a conceptual model is shown in Figure 1 which makes explicit the links among three components: TQM, ISO 9000 and organisational performance. In this model, TQM philosophy is equated with various criteria of the Australian Business Excellence (ABE) framework and posited as a primary influence on an organisation's performance. (The extended version of the model is shown in Figure 2.) The implementation of ISO 9000 enhances the organisation's performance directly, and also indirectly through the implementation of TQM philosophy. Therefore, the evaluation of impact of quality management and quality standards can be seen in three different ways: (1) Impact of TQM practice on organisational performance. (2) Impact of ISO 9000 implementation on organisational performance. (3) Impact of TQM plus ISO 9000 (or ISO 9000-TQM) on organisational performance.

A comparative study of TQM practice 37

Most studies on TQM and ISO 9000 implementation discussed above were conducted in the context of large manufacturing companies. Little research has been conducted on how TQM and ISO 9000 have been applied in small businesses in Australia. In a recent report on Quality, Productivity and Competitiveness, Foley et al. (1997) highlighted that ``Neither the quality

Figure 1. Conceptual framework

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Figure 2. Proposed links between TQM criteria, ISO 9000 and organisational performance

philosophy (TQM) nor quality standards (ISO 9000) have effectively reached the core of Australia's commercial base 780,000 small and medium enterprises'' (p. 81). In light of the above discussion and drawing on the critical finding of the Foley et al. (1997) report that SMEs have not taken full advantage of either TQM practices or ISO 9000 standards, the following hypothesis is proposed. Hypothesis TQM impact on organisational performance is greater for SMEs with ISO 9000 than for SMEs without ISO 9000. SMEs in Western Australia Businesses generally are defined or classified on quantifiable characteristics such as number of employees, sales volume or worth of assets. However, the classification based on the number of employees is most commonly used in management research (Terziovski et al., 1997; Haksever, 1996; Ghobadian and Gallear, 1996). In this study, the Australian Bureau of Statistics (ABS) classification of number of employees was used. The ABS, which categorises

business into three groups: small (1-49 employees); medium (50-99 employees); and large (100 or more employees). The reason for using this classification is that the number of people a company employs is usually proportional to the magnitude of its financial resources, and these resources may play an important role in the implementation of TQM. The small business sector is a vital contributor to the overall performance of the Western Australian economy. SMEs account for approximately 97.5 per cent of all private sector businesses and 58.4 per cent of the private sector workforce (ABS, 1999). Detailed statistics are given in Table I. Latest statistics indicate Western Australia's small business sector continues to experience positive growth. In 1998, the number of small businesses increased by 8.5 per cent. Over the last decade, Western Australia has led the country in small business growth, averaging annual growth rates of 5.1 per cent compared to a national growth rate of 3.5 per cent. During the same period, the number of employees in Western Australia grew by an annual average of 4.2 per cent, well above the national average of 3 per cent (SBDC, 1999).

A comparative study of TQM practice 39

Methodology Development of the survey instrument The criteria specified in the ABE, previously called Australian Quality Award (AWA) framework served as our conceptualisation of the TQM approach to management. The framework is structured with seven criteria: leadership, strategy and planning, information and analysis, people, customer focus, processes, products and services, and organisational performance (see Figure 2). Under each criterion exists one or more sub-criteria, which describe in more detail aspects of the criterion. Using these sub-criteria as a guide, a questionnaire with 36 items was developed to create a self-assessment measure of TQM practices. Additional questions were included to measure the quality perception and ISO 9000 certification status of the participating companies. A five-point Likert scale was used to measure the extent to which certain

Industry division

Small (1-49) ('000) (%)

Mining Manufacturing Construction Wholesale trade Retail trade Finance and insurance Property business Other business Total

5.4 27.0 20.4 23.6 56.4 8.0 43.7 78.8 263.3

Source: Adapted from ABS (1999)

0.97 4.83 3.65 4.22 10.08 1.43 7.81 14.1 47.1

Number of employees Medium (50-99) Large (+ 100) ('000) (%) ('000) (%) 1.6 6.9 3.8 7.1 8.1 6.3 12.3 17.3 63.4

0.29 1.23 0.68 1.27 1.45 1.13 2.20 3.1 11.3

22.3 32.3 16.9 10.2 39.3 14.9 40.1 56.8 232.8

4.0 5.8 3.0 1.8 7.0 2.7 7.2 10.2 41.6

All enterprises ('000) (%) 29.3 66.2 41.1 40.9 103.8 29.2 96.1 152.9 559.5

5.24 11.83 7.35 7.31 18.55 5.22 17.18 27.3 100.0

Table I. Industry division and size of employement in Western Australia

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management practices were used by managers (a higher score indicates greater agreement that the firm uses that particular management practice). Additionally, respondents were given an option to indicate if the item was not applicable to their company. A similar approach was applied by Kaldenberg and Gobeli (1995) and Quazi and Padibjo (1997) in their studies on SMEs in the USA and Singapore, respectively. The questionnaire was pretested using several companies not included in the random sample. Consequently, several questions were rewritten. Sampling procedure The sample for the study consisted of 250 firms which were randomly selected from a list of SMEs prepared by the Western Australian Department of Trade and Commerce. A questionnaire was mailed to the top management of each firm. A reply-paid envelope was included. A total of 53 firms responded to the questionnaire, giving a response rate of about 21 per cent. Given the low response associated with mail surveys, this response rate was considered reasonably adequate. Four of the responses received were not useable due to incomplete data. The analyses are based on the remaining 49 companies. Discussion of results and findings Profile of the respondents Table II provided an industry classification of the sample companies. The construction/engineering constituted the largest portion of respondents, with 42 per cent of respondents in this category. Among the remainder, manufacturing (durable and non-durable) accounted for the next largest portion of respondents with 11 per cent in each category. Approximately 31 per cent of the companies were subsidiaries of large companies, 23 per cent were limited liabilities, followed by partnership (11 per cent), sole proprietorship (9 per cent) and associate company (9 per cent) (Table III). In terms of sales volume (average of the last three years), about 27 per cent of the companies had $5-10 million in sales, 35 per cent had below $5 million, 32 per cent had $10-50 million and 6 per cent had more than $50 million in sales (Table IV). Industry type

Table II. Types of companies in the sample

Construction/engineering Chemicals/extractives Financial/insurance services Manufacturing (durable) Manufacturing (non-durable) Non-profit organisation Utilities Services Others

Per cent 42 9 3 11 11 6 6 6 8

Of the 49 companies that responded, 55 per cent were ISO 9001/9002 certified. Among the companies without ISO certification, 62 per cent expressed their intention to get such a certificate within the next five years. Reliability and validity of the survey instrument The survey instrument with 36 items was developed based on the seven criteria: leadership (L1-L4), information and analysis (IA1-IA3), strategy and planning (SP1-SP4), people (P1-P8), customer focus (CF1-CF8), processes, products and services (PPS1-PPS6) and the dependent variable, organisational performance (OP1-OP3) (see Table V). The instrument was evaluated for reliability and validity. Reliability refers to the instrument's ability to provide consistent results in repeated uses (Gatewood and Field, 1990). Validity refers to the degree to which the instrument measures the concept the researcher wants to measure (Bagozzi and Phillips, 1983). Three types of validity tests were considered in this study: content validity, construct validity, and criterion validity (Hair et al., 1998). A thorough reliability and validity analysis on measurement instruments in empirical research is essential for several reasons. First, it provides confidence that the empirical findings accurately reflect the proposed constructs. Second, empirically-validated scales can be used directly in other studies in the field for different populations and for longitudinal studies (Flynn et al., 1994). The data set of 36 items developed, based on the seven criteria of the ABE framework, was factor analysed by principal component analysis. Out of the seven criteria, ten factors were extracted. In factor analysis, a rotation Companies by ownership Associate company Family trust Joint venture Limited liability Partnership Sole proprietorship Subsidiary Others

Sales (three-year average) ($million) Less than 1.0 1.0-3.0 3.1-5.0 5.1-10.0 10.1-20.0 20.1-50.0 More than 50.0

A comparative study of TQM practice 41

Per cent of companies 9 3 3 23 11 9 31 11

Table III. Companies by ownership

Per cent of companies 6 16 13 27 16 16 6

Table IV. Company sales volume

Factors

Items

Leadership

Leadership

L1: L2: L3: L4:

Information and analysis

Strategy and planning

People

Information and analysis

Strategy and planning

Revised factor Reliability of revised loadings construct 0.670 X 0.741 0.827

Alpha = 0.605 (0.595)

IA1: Carefully collect data on all facets of business IA2: Analyse all work processes in the business IA3: Key performance figures are always available for analysis and decision making

0.884 0.830 0.873

Alpha = 0.820

SP1: SP2: SP3: SP4:

0.873 0.773 0.807 0.760

Alpha = 0.814

Employee empowerment and employee involvement

P1: P5: P6: P7:

Employee training and development

P3: P4: P2: P8:

Customer focus Customer management

Conduct regular reviews of quality performance Maintain close contact with customers Enforce total quality commitment to all staff Give quality issues top priority as criteria when decision making

Do regular strategic planning Business has clear quality goals Strategic plan is linked to quality values Planning process includes continuous quality improvement

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Table V. Results of construct reliability and within-scale factor analysis Criteria

Work as a team with clear goals Each member is encouraged to develop new ways to do their job better All staff understand how their tasks fit into an overall plan Ensure that all staff are focused on continuous improvement effort in all areas Encourage personal growth of staff Reward staff who help improve product/service quality Staff members are aware of long term business goals Staff members receive appropriate training and are multiskilled

0.608 0.723 0.723

CF1: Collect data to monitor changes in customer needs CF2: Systematically ask customers what they expect in products/services CF3: Systematically ask customers if they are satisfied with the products/services CF5: Investigate when we lose a customer

0.777 0.893

0.825 0.832 0.832 X X

0.839 0.800
...