The Impact of Total Quality Management (TQM) on Financial Performance: Evidence from Quality Award Winners

Abstract

Total Quality Management (TQM) is periodically lambasted by management gurus and the business media for its supposedly lackluster impact on financial performance. This paper presents objective evidence on whether this criticism is indeed justified. The evidence is based on a study of nearly 600 quality award winners. Three critical issues are addressed in this paper. First, we discuss the ongoing debate on TQM’s ability to significantly improve financial performance, the reasons for this debate, and the importance of resolving this debate one way or the other. Second, we present evidence on the financial results that publicly traded organizations have achieved from implementing TQM effectively. Financial results are measured using variables such as stock returns, operating income, sales, and costs. Third, we discuss how the financial results vary by organizational characteristics such as size, capital intensity, extent of diversification, and the maturity of the TQM implementation. This evidence helps set realistic expectations of what different organizations can expect to get from TQM. The paper also offers a methodology, including various performances measures and data sources that organizations can use to link their quality initiatives to financial results.

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