XVII CONGRESO INTERNACIONAL EN CIENCIAS ADMINISTRATIVAS - 2013

UNIVERSIDAD DEL VALLE DE ATEMAJAC

TQM Drivers and the Effect on Business Results

CRUZ ALVAREZ JESUS GERARDO UNIVERSIDAD AUTONOMA DE NUEVO LEON

jesusphd@prodigy.net.mx

Abstract

The Total Quality Model [TQM]was first developed in the early 1970s, and it has been configured to include key aspects, such as leadership, customer focus, strategic planning, human capital, new product development, and operation management. One of the main concerns related to TQM is to determine the key elements of the TQM strategy that result in a positive effect on business results. Researchers have not yet conclusively determined those key elements. This empirical paper conducts further research on some recipients of the national quality award and their opinions regarding the key elements of TQM based on their experiences as mature organizations that have implemented the TQM model. Various statistical analyses are conducted to extract the core elements of a successful, generalized TQM model. Key words: total quality management, leadership, customer focus, operation management, business results. Theoretical background and hypothesis

Quality drives business results The aim of this research paper is to study the relationship between the elements of a quality award model and business results. This empirical research considers previous studies that have extensively analyzed the theoretical and empirical correlations between such factors. Some studies have found either positive or inconclusive linkages between constructs. The quality award model may be viewed as a practical extension of the overall TQM theory. Although TQM is an integrated model, the expectation is that some factors may be considered key drivers of financial business results. The TQM theory, which is based on the quality award model, typically integrates the following eight factors: 1) leadership; 2) strategic planning; 3) customer focus; 4) human capital; 5) new product, process, and service development; 6) operation management; 7) supplier development; and 8) social responsibility. However, what factors act as the key drivers of financial business results? This question is further analyzed from two perspectives—theory and practice—to determine the key drivers in this equation. Leadership H1: Leadership has positive effect on business results. The relative importance of leadership for a company’s vision and strategy is well documented in various empirical studies, including those conducted by Lakshman(2006) and Zehira (2012). Other studies have linked leadership and TQM success, such as the works of Choi et al. (1998), Davis (1997) and Douglas et al. (2001). The literature has documented that leadership practices have a positive relationship with business performance, as described by Hackman et al. (1995), Samson et al. (1999).

Accordingly, organizational leadership serves as the basis for companies to maximize their core competences to achieve the ultimate goals that are established in their business strategies, and the key performance indicators include social responsibility and customer and financial results, as documented by Sila(1997). Strategic planning H2: Strategic planning has positive effect on business results. The most orthodox literature strongly suggests that strategic planning and financial results are positively correlated, as described by Gicia (2011) and Rudd et al. (2008), although some studies are inconclusive with regard to this theoretical and empirical link, such as the work of Pearce. It is common knowledge that key performance indicators are directly linked to strategic planning and the implementation of such strategies throughout the company, as noted by Rhyne (1986) and Milleret al. (1994). Customer focus H3: Customer focus has positive effect on business results.

Customer focus and its link to business performance have been documented in previous empirical research by Zakuanaet al. (2010). The documented studies in large manufacturing firms revealed statistical evidence of a positive correlation between financial performance and customers as key drivers. The theoretical framework for customer focus indicates key quality tools, such as VOC (the voice of the customer), house of quality, QFD (quality function deployment) and Kano´s model, as the basis for business alignment with customer expectations, desires and needs, as indicated by CQM (1993), Kathawala (1994) Prakash et al. (2008) analyzed and highlighted a customer focus strategy as a means of gaining customer preference in the competitive market.

Human capital H4: Human capital has positive effect on business results. It is assumed that employee satisfaction, organizational development, and knowledge management in general terms (human capital) has a positive influence on financial results, as indicated by Chi(2009), Bernhardtet al. (2000), and Harter et al. (2002). Very few studies describe this relationship differently. The main concept of human capital is based on employee satisfaction and organizational development, which drive employees to become involved and empowered to be proactive and to focus on the continuous improvement of daily activities that improve business results, as noted by Koys (2003). New product, process, and service development H5: New product, process and service development has positive effect on business results. New product development should be considered a powerful strategy for attracting new customers and thus addressing their needs by developing products as a result of the customer focus strategy. Quality Function Deployment [QFD] is a customer-driven approach that transforms customer expectations into engineering requirements and manufacturing process parameters. According to Pang et al. (2011), QFD is extremely important during the product design stage. Working papers and empirical research have proven the

effectiveness of the application of QFD during the product design stage, as noted by Govindalruri et al. (2007), Freiesleben(2010) and Sharma et al. (2007). New product development requires the input of customers, which can then be extracted and analyzed using

a variety of marketing and customer-driven tools, such as QFD (e.g., the voice of the customer and house

of quality) and customer profile studies.

Furthermore, some theoretical studies describe the relationship and business synergy of well-designed

customer-oriented products, including the works of Kano (1984), Suet al. (2006), Fornell et al. (1987) and

Cristiano et al. (2000). Web-based technology can also be used as a powerful tool to establish closer

relationships with customers and thus identify their perceptions (benefits and drawbacks) of a product.

Initial web-based technology that focuses on the voice of the customer was developed by Park et al.

(2011).

Operation management H6: Operation management has positive effect on business results. Schroeder (2005) studied operation management in emergent fields that focus on the tactical levels of business strategies. The main goal of OM (operation management) is to increase productivity through the design or re-design of a current manufacturing footprint to optimize the process variables, reduce process variation and create products and/or services according to customer expectations as defined by specifications. OM has been linked to business performance in general terms; however, there is no consensus regarding this correlation. Another perspective of OM is that of an umbrella of different productivity tools, such as TPM (total productive maintenance), LM (lean manufacturing), SS (six sigma), and VA/VE (value added and value engineering); some of these tools are the key factors that are positively linked to business financial performance and, accordingly, are part of the overall OM theoretical framework in previous empirical research, such as the studies of Arawatu (2008) and Dinesh (2006). Supplier development H7: Supplier development has positive effect on business results. The literature emphasizes that supplier development has a positive influence on financial results throughout the supply chain, as proposed by Deming (1986). Supplier development effort focuses on quality assurance, sourcing and economy of scale strategies, fewer suppliers, long-term agreements based on products, and process control reliability rather than only price per piece and shipping performance, as researched by Kaynak(2008) and Saraph et al. (1989). Furthermore, supply development has a strong correlation with the competitive capabilities of any company, as documented by Garvin(1987). Social responsibility H8: Social responsibility has positive effect on business results. Current customer/market order qualifiers identify the social responsibility of companies among the factors that are considered by customers when making purchase decisions. The literature in this area is widespread with respect to social responsibility factors and its financial implications, including the works of Becchetti(2011), Moskowitz (1972), and Creyer et al. (1997).

Several studies support the theory that social responsibility influences the financial results of companies, whereas other studies do not conclusively support this relationship, including the works of Dohet al. (2010) and McWilliamset al. (2000). Moreover, other studies have indicated that social responsibility is only an order qualifier to enter into business rather than an order winning factor that enhances financial results. Critical success factors in the quality model H02: X1, X2, X3, X5, and X6 have positive effects on business results. Previous studies by Corredor(2011), Ghobadianet al. (1996), and Curkovicet al. (2000) indicate that the generalized model of Total Quality Management had a direct impact on financial results; however, there is no consensus about the key variables that had the most influence. Conversely, there are support strategies, such like New Product Development [NPD] and Operation Management [OM], that seem to be highly correlated to financial results of a company, as noted by Yong (2001) and Lee et al. (2003). Some representations of the TQM are the Total Quality Model awards, including the Malcolm Baldrige Award [MBA], the European Quality Model [EFQM] and the Nuevo Leon Quality State Award [NLQA], as indicated by NIST (2013), CCM (2012), and EFQM, (2012). Table 1: Quality award model cross-referenced with theoretical framework

Constructs Description of constructs Theoretical background

X1: Leadership Organizational leadership drives financial results.

Lakshman (2006);Zehira et al. (2012); Choi, T et al. (1998); Davis T. (1997); Douglas et al.(2001); Hackman, J. et al. (1995); Samson et al. (1999); and Sila (1997).

X2: Strategic planning

Strategic planning conceptualization and widespread deployment drives financial results.

Gicia(2011);Ruddet al. (2008);Rhyne(1986); Milleret al. (1994).

X3: Customer focus Customer focus is the basis for company success.

Prakash et al. (2008); Han et al. (2007);Zakuanaet al. (2010) ; Hauser et al. (1988); CQM (1993).

X4: Human capital Human capital (empowerment and employee satisfaction) drives company results.

Chi (2009); Bernhardt et al. (2000); Harter et al. (2002);and Koys (2003).

X5: New product, process and service

development

New product development plays a significant role in company strategies that aim to develop competitive advantages in the market.

Kano, N.(1984); Su(2006); Fornell(1987); Cristiano et al. (2000); Parket al. (2011), Panget al. (2011); Govindaluriet al. (2007); Freiesleben(2010); Sharmaet al. (2007).

X6: Operation management

Operation management seeks productivity and effectiveness in manufacturing and services. This tactical-level strategy deploys productivity and management tools to reduce and eliminate waste (non-value activities) and increase efficiency.

Schroeder(2005); and Dinesh(2006).

X7: Supplier development

Kaynak (2008); Saraph et al. (1989); Deming (1986); and Garvin, (1987).

X8: Social responsibility

Ethic and business sustainability constitute the social

Becchetti(2011); Moskowitz (1972); Creyer et al. (1997); Doh et al. (2010); McWilliams et al. (2000).

Constructs Description of constructs Theoretical background

responsibility framework for today’s companies in the market.

Y: Business results Several key activities drive financial business results, such as leadership, strategic planning, customer focus, new product development and operation management.

Corredor (2011); Ghobadian et al. (1996); Curkovicet al. (2000); Yong (2001); Lee (2003); CCM (2012); EFQM (2012).

Figure 1. The hypothesized theoretical model for the Nuevo Leon State Quality Award Reference.Made based on theoretical analysis.

X 1 : Leadership

X 2 : Strategic Planning

X 3 : Customer Focus

X 4 : Human Capital

X 5 : New Product ,

Process and Service

Development

X 6 : Operation Management

X 7 : Supplier Development

X 8 : Social Responsability

Y 1 : Business Results

Table2: Model framework of hypothesis concept

Hypothesis (Ho / Hi)

Ht1: X1, X2, X3, X4, X5 X6 X7, andX8 havepositive effects on financial results. Hti1: other case.

Ht2: X1, X3, X6, andX8 have positive effects on financial results.

Hti2: other case.

Figure 2. The hypothesized theoretical model for critical success factors in the quality model Reference.Made based on theoretical analysis.

X 1 : Leadership

X 2 : Strategic Planning

X 3 : Customer Focus

X 4 : Human Capital

X 5 : New Product ,

Process and Service

Development

X 6 : Operation Management

X 7 : Supplier Development

X 8 : Social Responsability

Y 1 : Business Results

Research Method

Sample Because of the amount of industrial activity that triggers economic activity, the city of Monterrey is one of the major environments in which to conduct this type of research. Monterrey is a city in the state of Nuevo Leon and is the third highest contributor to the state’s gross domestic product. Nuevo Leon developed a local state quality model and award in 1996, and in 2009, its scoring and coverage became nationwide in scope. Today, after 15 years, more than 2,000 companies have participated in the evaluation process, and the results show that only a few companies have attained the priceless award. This research focuses on the winners of the last two decades, and the people who participated in this web-based open survey were either mid-level employees or top managers of their organizations (seefigureNo. 3).

Figure3. Nuevo Leon State Quality Award: winner trends Reference.Made based on retrieved information from: CCM.(2012, June 23). Premio Nuevo Leon a la Competitividad. Retrieved from http://www.premiocompetitividadnl.com/portal/index.php.

Figure 4. Industry winners from 2000 to 2011 Reference. Made based on retrieved information from: CCM. (2012, June 23). Premio Nuevo Leon a la Competitividad. Retrieved from http://www.premiocompetitividadnl.com/portal/index.php.

´90 ´00 ´10

Winners 48 53 11

0

10

20

30

40

50

60

Medium Larger

Company size 9 4

0

2

4

6

8

10

A stratified random sampling method was employed to select only respondents from the industry category. This selected cluster includes 13 large organizations. The questionnaire invitations were distributed via the Internet, and the respondents used the web system to participate in the different aspects of the research. A total of 33 fully completed and usable questionnaires were returned in a time frame of two months. All 13 organizations participated in the research, and more than one person from each organization completed the questionnaire. The sample size and correction factors are displayed in figure No. 5.

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Figure 5. Sample size and sample correction factor Reference.Made based on sample size calculation.

Measurement The survey used a five-point Likert scale that ranged from 1 (strongly disagree) to 5 (strongly agree). The demographic characteristics of the respondents are shown in the following table. Table3: Sample composition

Variable Composition

1 Sample 2 33

3 Gender 4 Men 77%, Women 23%

5 Age 6 30 – 45 Years

7 Education 8 Bachelor’s degree or above

Reliability and convergent validity To test for measurement reliability, we performed the following test to compare each subset of data to validate the ―within‖ variation through the simple coefficient of variance. Because all subsets of data are part of a multidimensional model,Cronbach’s alpha test statistic is not applicable, as indicated by Tavakol (2011). The following table summarizes the coefficients of the variance tests (see table No. 4).

Table4: Coefficients of variance tests

Construct Variance coefficient VC< 0.500

Approved or Rejected

X1: Leadership

0.150 Approved

X2: Strategic planning

0.049 Approved

X3: Customer focus 0.107 Approved

X4: Human capital

0.265 Approved

X5: New product, process and service 0.105 Approved

X6: Operation management 0.109 Approved

X7: Supplier development 0.324 Approved Note: 0.324 with large variation

X8: Social responsibility 0.228 Approved

Y: Business results 0.160 Approved

According to table No. 4, all coefficient of variance are below 0.500; therefore, all questions are accepted to be used in the questionnaire. It is important to note that X7 (supplier development) shows significant variation. Results In this section, different analyses are shown in sequence: descriptive statistics, analysis of variance, main effects, stepwise regression analysis, and structural analysis using bootstrap analysis. The premise behind the different analyses is to ensure the availability of sufficient statistical evidence to either approve or reject the null hypothesis.

Box plot analysis (see figureNo. 6) o The box plot chart identifies significant differences for variables X1, X2, X3, X6, and X8.

Analysis of variance (see table No. 5) o The p-value calculation for the ANOVA is 0.000, which indicates that there is sufficient

statistical evidence of differences between X’j groups.

Main effects (see figure No. 7) o The chart identifies tendency to the fourth quartile on lickert scale.

Stepwise regression analysis (see table No. 6) o To obtain a step-by-step regression analysis that determines the main contributors to the

overall variance explanation, we conduct a stepwise 5-factor analysis. The outcome of this analysis identifies X1, X3, X6, and X8 as the key variables that explain a total of 71.74% of the overall variation.

Final model using key variables selected according to previous analysis (see figure No. 8)

Hypothesis test results (see table No. 7)

Figure6. Box plot for all Xs Reference.Made using statistical software Minitab V16.

Table5: Analysis of variance

One-way ANOVA: X1, X2, X3, X4, X5, X6, X7, and X8

Source DF SS MS F P

Factor 7 164.845 23.549 56.81 0.000

Error 256 106.121 0.415

Total 263 270.966

S = 0.6438; R-Sq = 60.84%; R-Sq(adj) = 59.77%

Da

ta

X8X7X6X5X4X3X2X1

5

4

3

2

1

Boxplot of all Xs

Me

an

of

Y543

5

4

3

54 54

4321

5

4

3

54 54

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4

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432

X1 X2 X3

X4 X5 X6

X7 X8

Main Effects Plot (data means) for Y

Figure 7. Main component analysis for all Xs Reference.Made using statistical software Minitab V16.

Table6: Stepwise analysis for Y vs. all Xs

Stepwise Regression: Y versus X1, X2, X3, X4, X5, X6, X7, and X8

AlphatoEnter: 0.15 AlphatoRemove: 0.15

Response is Y on 8 predictors, with N = 33

Step 1 2 3 4

Constant 0.69767 0.0439 -1.15185 -2.81028

X1 0.791 0.773 0.757 0.729

p-value 0.000 0.000 0.000 0.000

X8 0.231 0.223 0.215

p-value 0.027 0.025 0.025

X6 0.28 0.41

p-value 0.047 0.01

X3 0.027

p-value 0.08

S 0.435 0.407 0.386 0.372

R-Sq 62.52 68.26 72.35 75.27

R-Sq (Adj) 61.31 66.14 69.49 71.74

Figure 8. Final structural model employing bootstrap algorithm Reference.Made using statistical software PLCSMART.

Table 7: Hypothesis test results

Hypothesis Approved or Rejected

(from stepwise regression analysis)

H1: Leadership haspositive effect on business results. H1: Approved.

H2: Strategic planning has positive effect on business results. H2: Rejected.

H3: Customer focus has positive effect on business results.

H3: Approved.

H4: Human capital has positive effect on business results. H4: Rejected

H5: New product, process and service development has positive effect on business results. H5: Rejected

H6: Operation management has positive effect on business results. H6: Approved.

H7: Supplier development has positive effect on business results. H7: Rejected

X 1 : Leadership

X 3 : Customer Focus

X 6 : Operation Management

X 8 : Social Responsabilit

y

Y 1 : Business Results

Hypothesis Approved or Rejected

(from stepwise regression analysis)

H8: Social responsibility has positive effect on business results. H8: Approved

Ht2: X1, X3, X6, and X8 have positive effects on business results. Ht2: Approved

Discussion

Theoretical implications The theoretical framework identifies key elements that must be considered in a holistic model as the main enablers for financial results based on the theory of total quality management. Total Quality Management considers all elements to be key drivers with the same weight or effect on business results; however, there are some studies that have determined that some variables have a more significant impact on business results, as is the case in this study. Therefore, there is no common agreement in the field. This empirical research identifies the key elements of the TQM model to be the high-impact drivers of business results. These elements include X1: leadership, X3: customer focus, X6: operation management, and X8: Social responsibility.

X1: Leadership. The theoretical framework clearly identifies that leadership is one of the key drivers of productivity in nearly all top management models. Given that the engagement of people through leadership is critical in all business environments, the TQM theory is based on leadership.

X3: Customer focus. All organizations, including both public and non-public organizations, are driven by their customers. Accordingly, companies provide products and services to their customers or service users. As customers are the reason for the establishment of a business, all products and services are driven by customer needs.

X6: Operation management. We can consider Operation Management [OM] as the specific operational guidelines to convey its manufacturing or service process to assure that its products/services meet customer specifications. OM Operation management is a key element that provides the operational parameters, guidelines, set-up sheets, work instructions, and other tools to manage the manufacturing process through productivity and effectiveness.

X8: Social Responsibility. This is an important emerging field in today’s business environment, therefore it is no surprise why important organization consider this element into account for their day to day activities and place it into the annual operating plans and or strategical planning.

TQM model can be applied in a variety of organizations and based on this results in particular for those companies that have won the Nuevo Leon Quality State Award the key variables that have a direct impact on business results are: Leadership, customer focus, operation management and social responsibility.

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