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Total quality management performance in multinational companies: A learning

Daniel Jimnez-Jimnez Micaela Martinez-Costa Angel R. Martnez-Lorente Hammady Ahmed Dine
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Total quality management
performance in multinational
A learning perspective
Received 7 January 2014
Revised 3 June 2014 Daniel Jimnez-Jimnez and Micaela Martinez-Costa
Accepted 11 June 2014 Departamento de Organizacin de Empresas y Finanzas,
Universidad de Murcia, Murcia, Spain
Angel R. Martnez-Lorente
Departamento de Economa de la Empresa,
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Universidad Politcnica de Cartagena, Cartagena (Murcia), Spain, and

Hammady Ahmed Dine Rabeh
Departamento de Organizacin de Empresas y Finanzas,
Universidad de Murcia, Murcia, Spain

Purpose Multinational corporations face a more intense competence and a higher number of changes in
the different countries they operate. In this regard, organizational learning and quality management are key
elements that could help them to survive in the market. Convinced by the numerous benefits and competitive
potential of total quality management (TQM) programmes, corporations have promoted its implementation.
The purpose of this paper is to analyse the interaction between these programmes and organizational
learning, more precisely with exploitation and exploration capabilities, in order to understand the way in
which quality management programmes could help to develop learning in the companies.
Design/methodology/approach Structural equation modelling was used to test the proposed
model. The sample comprised 111 medium-sized Spanish companies, with four different responses
each. Constructs are measured with Likert scales previously tested in the literature.
Findings The results show that TQM is positively and strongly related to both exploitation and
exploration and that the relationship between TQM and exploitation is higher. Concerning the effects
of exploitation and exploration on firm performance; results of the analysis show that only exploration
capability positively affects organizational performance. It is also confirmed a positive effect of a TQM
system in performance.
Originality/value This research covers a gap in the literature regarding the relationship between
organizational learning and TQM, particularly with the concepts of exploitation and exploration in the
context of multinational companies.
Keywords Total quality management, Multinational companies, Exploration, Exploitation,
Performance improvement
Paper type Research paper

1. Introduction
The environment in which companies operate nowadays is changing and dynamic; and
consequently, surviving in it becomes a firms main goal (Millson and Wilemon, 2002;
Ali, 2000; Garrett et al., 2009). Multinational companies (MNCs) are considered to have
The TQM Journal better opportunities to acquire and exploit knowledge than domestic organizations
Vol. 27 No. 3, 2015
pp. 328-340
Emerald Group Publishing Limited
The authors acknowledge the funding received from the Spanish Ministry of Science and
DOI 10.1108/TQM-01-2014-0002 Technology (research project ECO2009-12825) to undertake this research.
since they are open to new experiences, markets, cultures, and ideas (Bonache and Total quality
Zrraga-Oberty, 2008). Many organizational theories have been formulated along the management
recent knowledge-based economy, seeking an answer to the most organizational
effective credentials to cope with change requirements. This paper draws on
knowledge-based (Grant, 1996) and quality-based (Deming, 1981) views. Both in MNCs
approaches prioritize organizational learning and improvement as an efficient tool
for monitoring internal and external surroundings, and then generating performance. 329
The general conclusion of total quality management (TQM) and organizational
performance literature indicates positive interactions. The implementation of a TQM is
a key source of competitive advantages (Terziovski and Samson, 2000; Martinez-
Lorente et al., 2000; Martnez-Costa and Jimnez-Jimnez, 2008a, b; Hung et al., 2011).
Although quality management is a key determinant of success in competitive
environments such as nowadays ones (Deming, 1981), according to some authors
(Slater and Narver, 1995; Andreu and Ciborra, 1996; Baker and Sinkula, 1999; Akgn
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et al., 2006; Barney, 1991) learning is the most influential competitiveness source
mechanism. However, the literature studying their connexions is scarce. The present
paper deals with an empirical study tackling the simultaneous effect of both TQM and
learning capabilities on firm performance. More precisely, the main purpose of this
contribution is to empirically analyse if organizational learning capabilities and TQM
simultaneously affect firm performance. This means to examine if TQM fosters
performance through organizational learning capabilities enhancement. Additionally,
the direct implications of TQM and exploitation/ exploration capabilities in organizational
performance are studied. In doing so, a proposed model explaining these relationships is
empirically checked.
The paper begins with a literature review pointing out the current state of literature
about TQM, organizational learning capabilities (i.e. exploitation/exploration), and
performance. Work hypotheses are posed after reviewing literature. Next, the methodology
to test hypotheses is explained and finally results, findings, implications, limitations, and
the potential future research lines are provided.

2. Literature review
MNCs are considered to have better opportunities to acquire and exploit knowledge
than domestic organizations since they are in contact with different sources of
knowledge in different countries (foreign suppliers, customers, competences,
institutions, etc.). Some authors even affirm that there is a relationship between the
degree of internationalization and performance (Riahi-Belkaoui, 1998; Gomes and
Ramaswamy, 1999; Yip et al., 2000; Cadogan et al., 2002), what suggest that MNC could
attain better competitive advantages than local companies.
A TQM implementation could provide MNC a philosophy that focuses on customer
satisfaction, continuous improvement and the concept of the company as a whole
system (Dean and Snell, 1991), in order to develop successful products and processes
for different markets and countries.

2.1 The relationship between TQM and organizational performance

According to Flynn et al. (1994), TQM can be defined as an integrated effort to achieve
and maintain high-quality products based on the maintenance of continuous process
improvement and error prevention, at all levels and in all functions of the organization,
with the aim of reaching and even exceeding customers expectations. In fact,
the different definitions of TQM indicate that it is more than simple tools or techniques.
TQM It is a management philosophy (Vanichchinchai and Igel, 2011). This management
27,3 philosophy has inspired different models associated to quality awards in different
countries. The Malcolm Baldrige Quality Award in the USA or the EFQM in Europe
capture the key dimensions of TQM (Bou Llusar et al., 2009).
Leading companies adopt TQM to strengthen their organizational performance
(Vanichchinchai and Igel, 2011). In general, researchers have concluded that TQM has
330 a positive effect on company results. In the literature dealing with this issue one can
find papers analysing the relationship between TQM and product quality and other
non-financial results (Shetty, 1993; Elmuti and AlDiab, 1995; Mohrman et al., 1995;
Powell, 1995; Forker et al., 1997; Choi and Eboch, 1998; Dow et al., 1999; Terziovski and
Samson, 1999; Terziovski and Samson, 2000; Zhang, 2000). Others have studied the
effect on financial results (Easton and Jarrell, 1998; Hua et al., 2000; Hendricks and
Singhal, 2001a) and there are also papers analysing the effect of TQM on stock market
value (Hendricks and Singhal, 1996; Easton and Jarrell, 1998; Adams et al., 1999;
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Hendricks and Singhal, 2001b). A recent paper (Zhang and Xia, 2013) have replicated
the longitudinal study of Hendricks and Singhal (1997) to explore whether the results
were still relevant and found that results were largely consistent. This is a confirmation
that TQM is still useful in the new competitive environment.
The first hypothesis of the present study arises as a new confirmation about the
effect of a TQM system in the company performance:
H1. The implementation of a TQM programme increases firm performance.
2.2 The mediation of exploitation and exploration
Exploitation and exploration are widely cited in literature as learning mechanisms
(March, 1991; Benner and Tushman, 2003; Andriopoulos and Lewis, 2009; Gupta et al.,
2006) or learning capabilities (Yalcinkaya et al., 2007; Auh and Menguc, 2005; Lisboa
et al., 2011). The present paper; adopts the classification offered by Yalcinkaya et al.
(2007) subdividing the learning capabilities into two main categories: exploitation and
exploration capabilities. A similar adoption was assumed by Lisboa et al. (2011) and
Auh and Menguc (2005), considering exploitation and exploration to be the two main
organizational learning capabilities.
Examining the organizational internal and external learning focus; March (1991)
defines exploitation as an enhancement-focus learning, while he presents exploration to
be a new alternatives seeking learning mechanism. In other words, exploitation is a
localized learning whilst exploration seeks innovative and ground-breaking ideas
and forms as a kind of learning-by-experimentation (Kim et al., 2011). Moreover,
exploration entails activities such as search, variation, risk-taking, discovery,
innovation, and research and development, while exploitation includes activities
such as the reuse, reorganization, re-enhancement, refinement, production, efficiency,
selection, implementation, and execution of existing assets and competences (March,
1991; Benner and Tushman, 2003; Auh and Menguc, 2005).
Although many scholars have pointed out the rewards and importance of
exploitation, there are also negative views that consider that a too much focus
on exploitation carries some strategic risks. In this regard, Raisch et al. (2009) pointed
out that a focus on exploitation activities likely hinders the development of new
knowledge and processes. March (1991) points out that firms that neglect exploration
and focus on exploitation may lack the capability to adapt to an evolving environment.
Levinthal and March (1993) consider that exploitation is inherently self-reinforcing,
causing a success trap, which hinders exploration activities.
An important aspect of the TQM approach is orientating companies to know their Total quality
weaknesses and strong points, involving new organizational measures in order to management
enhance their operations and then generate performance. Barrow (1993) and
Martnez-Costa and Jimnez-Jimnez (2008a, b) concluded that organizational learning
is an important outcome of TQM. However, matching the above-mentioned definitions, in MNCs
delimitations and implications of exploitation, exploration and TQM, clearly allows
recognizing the stretchiness of the main goals of exploitation and TQM system 331
implementation. The tenet of both prioritizes the improvement of routines reusing the
existing assets within companies. In this regard, the second hypothesis of the present
research is stated as follows:
H2. Exploitation capability plays a mediator role in the relationship between TQM
and performance.
In contrast with exploitation, exploration begins from the logic of creating new
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knowledge and strategic competences and new tools; and require fresh organization
(Benner and Tushman, 2003; Lynn et al., 1996). It relies basically on outsourcing
(March, 1991), and reflects the experimentation of totally different technological
trajectories (Benner and Tushman, 2003), or experimentation with new alternatives
(Yamakawa et al., 2011). Moreover, requires a flexible organizational form, a creativity-
stimulating culture, and the ability of appreciating longer term and uncertain
outcomes. Exploration has been associated with flexibility and decentralization
cultures (Benner and Tushman, 2003), and results from experimentation, flexibility,
and divergent thinking (March, 1991).
Many scholars have argued the effects that exploration has on organizational
performance, as it a process of knowledge development. However, others consider that
it is a risky and uncertain activity, claiming that a too much focus on exploration
involves many risks (March, 1991). In this sense, Raisch et al. (2009) pointed out that a
focus on exploration activities likely fosters the development of new knowledge and
processes, March (1991) points out that firms that neglect exploration and focus on
exploitation may lack the capability to adapt to an evolving environment. Renewing
firms technological and organizational assets base is susceptible to increase firm
performance through the new knowledge and other assets acquired.
In this paper it is argued that exploration could complement TQM systems, with
positive interactions between the practices of both patterns. Avoiding the failure trap
defined in Levinthal and Marchs (1993), exploration capability may provide the
missing corner of TQM practices. In this regard it has been stated the third hypothesis:
H3. Exploration capability plays a mediator role in the relationship between TQM
and performance.

3. Methodology
3.1 Population
The population used in this study includes MNC Spanish manufacturing organizations
with between 50 and 500 employees according to SABI (Sistema de Anlisis de
Balances Ibricos) database. This study was designed to cover a wide spectrum
of industries.
The information was collected with a structured questionnaire via a web page
designed for this purpose. Multiple informants from each company have been used
enhancing the validity of the research findings. Four managers in the same company
TQM answered the survey (supply, production, marketing, and human resource managers).
27,3 Every manager answered to a common part of the questionnaire (i.e. performance
measures) and a specific part (i.e. operation managers provide information about
TQM; and marketing managers answer exploitation and exploration information).
In total, 444 questionnaires were collected (four for each one of the 111 companies that
participated on the study).
3.2 Measures
This study used existing scales taken from former works within the same field.
TQM. The scale of Flynn et al. (1994) was adopted to measure TQM implementation
in organizations.
Exploitation and exploration capabilities. Different scales have been used for
measuring exploitation and exploration (Rosenkopf and Nerkar, 2001; Katila and
Ahuja, 2002; Sidhu et al., 2004; He and Wong, 2004). Some papers used a combined
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continuous measure for exploration-exploitation (Lavie and Rosenkopf, 2006) based on

the assumption that exploration inhibits exploitation and vice versa (March, 1991).
In this paper, exploration and exploration capabilities have been operationalized
with two separate indicators, each made up with five items taken from the scales used
by Atuahene-Gima (2005). An item of each scale was eliminated in the process of
testing scales.
Organizational performance. Since the questionnaire included questions regarding
the EFQM Excellence Model, performance was measured using the scales referred to
results in such model. The EFQM model has five enablers and four results. The
sub-criteria were used as a guide for developing the final questionnaire. The different
statements of performance were evaluated to avoid duplications and the list was
reduced to 16 items four measuring four results criterion. Four different managers in
each company have answered these items, so the mean of these answers for each item
was calculated. Four items were finally selected, one for each EFQM result criterion.
Control variables. We have included as control variables the age (number of years
from its creation), size (number of employees), and the degree of internationalization of
the company (mean of the rate of importations and exportations). They were recoded to
a one to five Likert scale.

3.3 Validation of measures

Analyses were conducted with structural equation modelling (Parisi et al., 2006) using
the statistical programme EQS 6.1 (Bentler, 1995). Following the two-stage model-
building process for applying SEM (Hair et al., 1998; Jreskog and Srbom, 1996; Hoyle
and Panter, 1995), in the following section, confirmatory factor analysis (CFA) is carried
out and then the structural models corresponding to the hypotheses.
To assess the unidimensionality of each construct, CFA of the nine constructs was
conducted employing 21 items (Anderson and Gerbing, 1988). The results of the CFA to
test the validation of the measures ( 2(183) 312.902; BBNFI 0.940; GFI 0.875;
RMSEA 0.060; CFI 0.948; IFI 0.948) indicate a good fit for the model.
Reliability of the measures is calculated with Bagozzi and Yis (1998) composite
reliability index and with Fornell and Lackers (1981) average variance extracted index.
For all the measures, both indexes are higher than the evaluation criteria of 0.6 for the
composite reliability and 0.5 for the average variance extracted (Bagozzi and Yi, 1998).
Furthermore, all items load on their hypothesized factors, and the estimates are positive
and significant, which provides evidence of convergent validity (Bagozzi and Yi, 1998). Total quality
Discriminant validity was tested by three different procedures recommended by management
Anderson and Gerbing (1988) and Fornell and Larcker (1981). First, discriminant
validity is indicated since the confidence interval ( 2 SE) around the correlation
estimate between any two latent indicators never includes 1.0 (Anderson and Gerbing, in MNCs
1988). Second, discriminant validity was tested by comparing the square root of the
AVEs for a particular construct to its correlation with the other constructs (Fornell and 333
Larcker, 1981).
A descriptive statistics and a zero-order correlation of the variables is provided in
Table I. It also provides an overview of the means and standard deviations of the
constructs and the correlations between these variables.

4. Analysis and results

The proposed structural model is shown in Figure 1. This model summarizes the four
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proposed hypotheses. Conventional maximum likelihood estimation techniques were

used to test the model ( Jreskog and Srbom, 1996). The fit of the model is satisfactory
( 2(237) 360.766; BBNFI 0.901; RMR 0.037; RMSEA 0.069; CFI 0.915;
IFI 0.917.), thereby suggesting that the nomological network of relationships fits the
data. This is another indicator to support the validity of these scales (Churchill, 1979).
Table II also provides numerical data about the relationships among all the
variables proposed on the model. First, the results argue that a firm is likely increasing
its performance when implementing a TQM system; which means that H1 is
sufficiently supported ( 0.685, p o0.01). This evidently supports former related
works (Mohrman et al., 1995; Powell, 1995; Forza and Filippini, 1998; Anderson and
Sohal, 1999; Dow et al., 1999; Samson and Terziovski, 1999; Curkovic et al., 2000;
Martnez-Lorente et al., 2000; Escrig Tena et al., 2001).
The results also demonstrate that the implementation of a TQM system positively
affects both exploitation ( 0.461, p o 0.01) and exploration ( 0.379, p o 0.01).
However, although TQM has a positive effect on both exploitation and exploration
capabilities, the difference of a 2-test that explains the distinction among both
parameters is significant, which supports the idea that implementing a TQM likely
affects the exploitation more than exploration ( 2(1) 3.844; p o 0.05).
Concerning the effects of exploitation and exploration on firm performance; results
of the analysis show that only exploration capability ( 0.216, p o 0.01) positively
affects organizational performance. These results only support H3 but not H2.
In consequence, only explorative competences mediate the relationship between TQM
and performance.
Finally, we have not found evidence about the effect of internationalization on TQM,
although results show how the degree of internationalization provides better
performance to companies.

5. Conclusions and implications

The main purpose of the present study was to analyse the effects of TQM system
on learning capabilities (i.e. exploitation and exploration) in the context of MNCs.
Additionally, it aimed to empirically uphold overwhelming assumptions about the
existence of positive and direct effects of TQM implementation on the one hand,
and the exploitation and exploration capabilities on the other hand, on organizational
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Table I.
correlation matrix
Reliability Correlation matrix
Construct Mean SD Cronbach SCRa AVEb 1 2 3 4 5 6 7
1. TQM 4.128 0.331 0.813 0.878 0.512 1
2. Exploitation capability 3.189 0.660 0.916 0.922 0.706 0.462 1
3. Exploration capability 3.404 0.505 0.893 0.894 0.629 0.363 0.305 1
4. Performance 4.038 0.355 0.841 0.854 0.601 0.652 0.338 0.470 1
5. Internationalization 3.009 1.411 0.110 0.154 0.031 0.235 1
6. Age 3.288 1.371 0.317 0.345 0.295 0.342 0.055 1
7. Size 3.234 1.414 0.167 0.250 0.017 0.055 0.097 0.143 1
Notes: Fit statistics for measurement modelPof 21 indicators for four constructs:
P (183) 312.902; BBNFI 0.940; GFI 0.875; RMSEA 0.060; CFI 0.948;
a 2 P 2 b P 2 P 2
IFI 0.948.
P Scale composite reliability (rc=( i) var ()/ [( i) var () + yii]; (Bagozzi and Yi, 1998)); average variance extracted (rc=( i var ())/[ i
var () + yii], (Fornell and Larcker, 1981))
The results show that TQM is positively and strongly related to both exploitation and Total quality
exploration and that the relationship between TQM and exploitation is higher. This, in management
turn, explains the nature and main targets of TQM as a processes management system
that are basically exploitative more than explorative (Benner and Tushman, 2003).
However, this study indicates that TQM, exploitation and exploration are compatible in MNCs
and fit each other, as they have many common intersections in nature
and application. 335
Moreover, based on the previously argued relationship, TQM, in addition to its
argued benefits, can serve as an organizational learning platform for increasing firm
results and performance.
Although, the findings underline a higher relationship between TQM and
exploitation, this cannot imply that companies adopting TQM should focus solely on
exploitative learning. TQM may induce and motivate leveraging the different internal
assets in concordance with the main target of TQM. However, there has not been found
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a positive relationship between exploitation and performance. This could be a problem

for companies that only focus on this competence.
Moreover, exploration is the assets acquisition strategic key (Andriopoulos and
Lewis, 2009; March, 1991), therefore in no case should be neglected by companies.
In this regard, a direct effect of TQM and exploration on firm performance
is also empirically argued confirming previous findings (e.g. Terziovski and
Samson, 2000; Raisch et al., 2009; Lisboa et al., 2011; Hoang and Rothaermel, 2010;
Martnez-Costa et al., 2009; Hung et al., 2011).

Size Exploitation

TQM Performance Figure 1.

The hypothesized

Standard parameter
Linkages in the model Estimate t-value
TQMperformance 0.685 4.393***
TQMexploitation capability 0.461 4.059***
Exploitation capabilityperformance 0.129 1.354
TQMexploration capability 0.379 3.147***
Exploration capabilityperformance 0.216 2.442**
InternationalizationTQM 0.121 1.229
Internationalizationperformance 0.141 1.963**
AgeTQM 0.178 1.753*
Ageperformance 0.051 0.693
SizeTQM 0.328 3.141***
Sizeperformance 0.156 1.956*
Notes: Fit statistics for measurement model of 21 indicators for four constructs: 2(237) 360.766; Table II.
BBNFI 0.901; RMR 0.037; RMSEA 0.069; CFI 0.915; IFI 0.917. *p o0.1; **p o0.05; Construct structural
***p o0.01 model
TQM Broadly, TQM is seen as a quality operational enhancement model, able to generate
27,3 performance. The argued compatibility and positive interaction with exploitation
and exploration may open new gates towards a potential integration, to fulfil the
missing strategic dimension of TQM as the focus of the latter in mainly internal while
exploration targets external required assets and capabilities.

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Corresponding author
Dr Micaela Martinez-Costa can be contacted at: mili@um.es

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