Does Implementing an Effective TQM Program Actually Improve Operating Performance? Empirical Evidence from Firms That Have Won Quality Awards

Abstract

This study explores the hypotheses that implementing effective total quality management (TQM) programs improves the operating performance of firms. The winning of quality awards is used as a proxy for the effective implementation of TQM programs. Changes in various performance measures for a test sample of quality-award winners are compared against a sample of control firms. Our statistical tests provide strong evidence that firms that have won quality awards outperform the control firms on operating income-based measures. Over a 10-year period, from 6 years before to 3 years after the year of winning the first quality award, the mean (median) change in the operating income for the test sample is 107% (48%) higher than that of the control sample. There is reasonably strong evidence that firms that have won quality awards do better on sales growth than the control firms. Over the 10-year period, the mean (median) change in sales for the test sample is 64% (24%) higher than that of the control sample. We also find weak evidence that firms in our test sample are more successful in controlling costs when compared with the firms in the control sample. In addition, the results indicate that firms in our test sample increased their capital expenditures more than the control sample over the time period prior to winning quality awards. Compared with the control sample, the test sample shows higher growth in both employment and total assets.

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