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Impact of total quality management on productivity

Article  in  The TQM Magazine · December 2003

DOI: 10.1108/09544780310502705

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Perspective
Impact of total quality
management on
productivity
Jamshed H. Khan
The author
Jamshed H. Khan is Associate Dean, Business School,
Lahore University of Management Sciences (LUMS),
Lahore, Pakistan.
Keywords
Total quality management, Productivity rate, Pakistan
Abstract
The twenty-first century harbors intense global
competition where the playing field and the rules of the
game have changed. There is an urgent need for Pakistani
businesses to change the way they operate. This paper
introduces the total quality management (TQM) concept
and argues that its implementation is the critical need of
the hour for the survival of our industries both locally and
internationally. The paper is divided into four segments:
the first discusses the changed environment in which
businesses are operating; the second gives a brief
introduction to the TQM philosophy and discusses TQM
systems and tools; the third discusses the effect of TQM on
productivity and explains what is meant by “effective
productivity”; and the fourth presents some of the benefits
that were realized by international and local firms
implementing TQM.
Electronic access
The Emerald Research Register for this journal is
available at
http://www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is
available at
http://www.emeraldinsight.com/0954-478X.htm
The TQM Magazine
Volume 15 · Number 6 · 2003 · pp. 374-380
q MCB UP Limited · ISSN 0954-478X
DOI 10.1108/09544780310502705
374
What has changed?
Intense global competition and diminishing
trade barriers are making it more and more
difficult for companies to maintain their
market share. Competition from companies
operating in different markets has increased as
advancements in telecommunications and
information technology have broken down
traditional barriers to entry (e.g. geographical
and trade barriers).
Export-based Pakistani industries are faced
with increased threats from new entrants for
example, over the past five years Bangladesh
has surpassed Pakistan in knitwear-garment
exports, while India and China are posing a
serious threat to Pakistani exports in other
textile markets. All other categories of
Pakistani exporters are facing similar
situations.
With increasing pressures from the
international community to meet the
guidelines of the World Trade Organization
(WTO), the Pakistani Government will not be
in a position to maintain protectionist policies
(import restrictions, tariffs and different types
of subsidies) for local industries.
The consolation is that the pressure to excel
is not only upon industries in Pakistan, but
upon every single business the world over.
The breaking of traditional barriers provides
our domestic industry an opportunity to enter
new international markets in the same way as
it provides other countries access to our
domestic markets. The “threat” can thus be
regarded as an “opportunity”. However,
before taking advantage of this opportunity,
we must answer two very important
questions:
(1) Are we providing our customers the best
value for their money?
(2) Are we competitive enough to contest for
market share with the best producers in
the world?
Our performance to date clearly indicates that
the answers to the above questions are “no”. If
we had been providing the best value for
money we would not have lost market share in
the textile and knitwear markets. For the most
part, we are not productive enough to
compete for market share in the international
arena.
In a competitive environment, a business
must persuade a customer to buy its products
rather than those of competitors at a price that
is more than its cost of production. A rational
 Impact of total quality management on productivity The TQM Magazine
Jamshed H. Khan Volume 15 · Number 6 · 2003 · 374-380

customer, however, would like to maximize (1) absolute customer focus;

value for his money. Therefore, a successful
producer must enhance the total value of his
products so that the price is acceptable to the
customer while his own costs are low enough
to allow him to make a profit.
How can a business maximize “total value”
of a product for the customer while
minimizing the real cost to produce it? The
key to success for businesses in the future lies
in the answer to this question.
Total quality management (TQM) is all
about fostering a culture that is continuously
oriented towards increasing customer
satisfaction while minimizing the real cost of
production.
TQM model
(2) employee empowerment, involvement
and ownership;
(3) continuous improvement; and
(4) use of systematic approaches to
management.
The core of the TQM philosophy is “absolute
customer focus”. Belief in “employee
empowerment, involvement and ownership”,
“continuous improvement” and the “use of
systematic management” help the
organization achieve continual increase of
customer satisfaction at a continually lower
real cost.
Figure 2 describes the individual
components of the TQM philosophy and their
inter-relationships, which are further,
discussed in subsequent sections.

A simple model for TQM is depicted in

Figure 1. The model consists of two main TQM and productivity
components:
(1) TQM philosophy; Increasing competition in the global market
(2) TQM systems and tools. necessitates that productivity should not be
considered as an indicator of efficiency only; it
TQM cannot exist without a complete
must also measure effectiveness. Yet the
acceptance of its philosophy by at least the top
distinction between the two is often
management. Once the basic TQM
overlooked. For example, a company that
philosophy is accepted by the top
produces according to process specifications
management then different systems and tools
may be using its resources efficiently, but
can be initiated to propagate and facilitate a
unless it is producing what its customers want
culture based on such a philosophy.
it may not be using them effectively. There is

TQM philosophy
Figure 2 Components of TQM philosophy and their interrelationships
TQM philosophy consists of four basic
beliefs, which are as follows:

Figure 1 Structure of TQM

375
 Impact of total quality management on productivity
Jamshed H. Khan
no point in churning out well-made products
that nobody wants. To be profitable, a
company must judge productivity and value
from the perspective of the customer, not
from the engineer. Hence, internal processes
must only be geared towards producing
products and services that the customers find
useful and valuable.
The TQM philosophy ensures “effective
efficiency” by encouraging companies to plan
products and develop systems that deliver
products only according to the expectations of
the customer. Several studies have validated
that in the long run, companies that adopt
TQM achieve greater effective productivity,
profitability and market share for most kinds
of products and market situations. A look at
the individual components of the philosophy
shows why.
Productivity and absolute customer
focus
Delighted customers are the prime
determinant of sustainable competitive
advantage for any organization. To retain
customers and entice new ones a company
needs to focus on providing value to the
customer and that too in a manner that is
more effective than that of its competitors.
Customer satisfaction transforms into
customer delight when goods or services
exceed customers” expectations. Thus,
understanding what the customer wants is
crucial. When a company directs all its efforts
towards this goal, it automatically produces
only what is required by its customers. This
leads to higher sales and operating profits for
the company as customers pay more and buy
more when it comes to quality products that
they want. It also curbs inventory pileup of
both unsold and returned/rejected inventory
as well as recall costs, warranty claims and
product liability costs. When care is also taken
to satisfy the requirements of internal
customers, items are produced according to
specifications thereby minimizing defective
items, the cost of rework and subsequently
throughput time. Hence, customer focus
enhances effective productivity by reducing
internal and external failure costs along with
ensuring that only those goods are produced
that are in demand.
376
The TQM Magazine
Volume 15 · Number 6 · 2003 · 374-380
Productivity and employee
empowerment, involvement, ownership
Quality can’t be delegated. It must be assumed
and lived by everyone on the payroll (Harari,
1993).
According to Evans and Lindsay (1996), 60
per cent to 90 per cent of the costs of total
quality are difficult to control by management
alone. When workers themselves are
committed to delivering quality, they take
greater initiative towards meeting product and
process specifications; detecting and
eliminating bottlenecks; improving product
and process designs and setting realistic yet
challenging performance targets. Diversity in
views and experiences encourages creative
ideas for “serving the customer” and this
invariably fosters productivity.
Productivity and continuous
improvement
The ever-changing tastes of customers and
pressure from competitors induce firms to
adopt proactive strategies to retain and/or gain
market share. Hence, continuous
improvement is essential for the very survival
of a company. Both incremental and
breakthrough improvements enhance
productivity by decreasing costs and/or
improving performance. Performance is
enhanced through greater responsiveness,
shorter cycle times for new products or
services, better products, shorter throughput
time and unique marketing, engineering or
production strategies. Costs decline by
reducing errors, defects and wastage.
Productivity and systematic
management
The systematic management approach
ensures that whatever we produce is
consistent with what we wanted to produce,
thereby reducing wastage. It also ensures that
all the resources are appropriately utilized and
efficiency is gained by increasing output while
reducing input.
 Impact of total quality management on productivity
Jamshed H. Khan
Benefits obtained by organizations
embarking on the TQM journey
A number of awards have been instituted to
recognize organizations and individuals for
commitment to quality. Two of the more
famous are the Deming Prize and the
Malcolm Baldrige National Quality Award
that have been presented to more than a 100
organizations since 1951 and 37 organizations
since 1988 respectively. We will use receipt of
a quality award as a proxy for successful
implementation of TQM in that organization.
Empirical evidence from businesses that have
won the Malcolm Baldrige National Quality
Award also supports the belief that
implementing TQM improves productivity.
Effects of TQM on performance
Hendricks and Singhal (1997) carried out a
study to empirically prove that TQM
improves the performance of organizations.
Based upon the concepts of TQM the study
tried to prove that “implementing an effective
TQM” would:
.
improve the profitability of the firm;
.
increase revenues; and
.
reduce costs.
The sample for the study consisted of 463
firms. All the firms had won “quality awards”
and had financial data available for a period of
ten years – starting from six years before the
year in which they had won the award. The
performance of these firms was compared
with that of a control group that had not made
any efforts towards TQM. The results were
adjusted for the performance of the firms in
the control group. The results of broad
parameters studied are given in Table I.
Table I Effects of TQ efforts on performance of organizations
Percentage change Percentage change
From year in operating income in sales
2 6 to 2 1 10.41 6.21
2 4 to 2 1 8.88 2.8
2 1 to +1 14.77 6.26
2 1 to +3 35.06 18.15
2 6 to +3 107.12 63.74
Source: Hendricks and Singhal (1997)
The TQM Magazine
Volume 15 · Number 6 · 2003 · 374-380
TQM and profitability
In seven out of ten years, the firms in the
sample showed higher increase in percentage
changes in the operating income as compared
to the control group with the magnitude of
changes in positive years being higher than
those in negative years. Furthermore, the
changes in operating income-based measures
are more significant over longer intervals.
Over a period of ten years (2 6 to +3) the
average percentage change of the test sample
over the control group is 107 per cent.
Other operating income-based measures
also provide strong evidence that firms with
effective TQM have outperformed other firms
in the control group and thus proves the
hypothesis that TQM efforts improve the
operating income of organizations. For
example, the control adjusted percentage
changes in operating income/employee,
operating income/assets and operating
income/sales over the ten-year period from
(2 6 to +3) are 22.09 per cent, 20.92 per cent
and 19.82 per cent respectively.
TQM and revenues
Firms in the test sample have performed
better than firms in the control group with
significant increase in sales over the years. The
control adjusted percentage change in sales
over a period of ten years (2 6 to +3) is 63 per
cent; whereas, percentage change in sales/
assets is 5.6 per cent over the same ten-year
period. The percentage changes are higher
when measured over longer intervals. This
evidence supports the second hypothesis that
TQM efforts result in increase in sales.
TQM and costs
Cost per dollar of sales of the test sample is
lower in seven years out of ten, whereas over a
period of ten years (2 6 to +3) the change is
2 1.27 per cent, the change, though negative,
is weakly significant at 10 per cent level.
Percentage change Percentage change Percentage change
in total cost/sales in number of employees in assets
0.27 0.35 2 1.93
2 0.45 2.33 1.8
2 0.39 5.56 8.24
2 0.94 13.69 17.52
2 1.27 17.00 45.46
377
 Impact of total quality management on productivity
Jamshed H. Khan
In comparison with percentage changes over
the ten year period (2 6 to +3) of profitability
(107.12 per cent), sales (63.75 per cent),
growth in employment (17 per cent) and in
total assets (45.46 per cent); a negative change
in total costs/sales (2 1.27 per cent) is quiet
insignificant.
Some examples of organizations benefiting
from incorporating a TQ culture in their
organization are given below.
Individual examples of TQM effects on
international firms
Granite Rock Inc.
In 1993 after four years of TQ efforts,
customer accounts at Granite Rock, increased
by 38 per cent, when overall construction
spending in its market area declined by over
40 per cent.
Motorola
Due to TQ efforts Motorola’s employee
productivity improved 100 per cent from
1988 to 1994 at an annual compound rate of
12.2 per cent. Motorola has driven down
manufacturing time for pagers from 40 days
to less than one hour.
3M
3M dental products division, a Minnesota-
based supplier of dental products competing
in a $4 billion global market with over 100
competitors, has doubled global sales and
market share over the past 10 years and, from
1991 to 1996, doubled its rate of profit.
Solectron
Solectron, a worldwide producer of
electronics design, manufacturing and
support services to leading original equipment
manufacturers, has, on average, experienced
revenue growth of 47 per cent per annum, well
above the electronics manufacturing services
industry’s 10 per cent. Consequently, the
company has doubled its market share since
1992. In addition, from 1991 to 1997,
Solectron’s stock has significantly
outperformed its largest competitor and even
S&P500.
Xerox
Four years after having introduced the
“Leadership through Quality” program,
378
The TQM Magazine
Volume 15 · Number 6 · 2003 · 374-380
Xerox had reduced its average manufacturing
costs by 20 per cent. There was an increase in
the average revenue produced by each person
in the business products and systems group by
20 per cent, and the time required to bring out
new products to market was reduced by an
average of 25 per cent. More than 70 per cent
of the company’s workforce participated in
about 2,500 problem solving and quality
improvement teams around the world. The
supplier base also declined to 350 as
compared to 5,000 at one time.
Xerox’s revenues and profits have increased
by more than 30 per cent per annum since
1991 and its share of the US document-
outsourcing market has risen to 40 per cent;
almost three times the share of its nearest
competitor.
Individual examples of TQM effects on
local firms
Consumer product company
Within three years of implementing the TQM
philosophy, the company experienced a
progress of 107 per cent in its return on
employees whereas the revenue per employee
had increased to 25 per cent. Consequently
the total revenues of the company rose to an
impressive 130 per cent.
The impact of TQM on company
operations was clearly exhibited by the
inventory turnover ratio, which improved by
56 per cent (an increase from 8.7 times to 13.6
times).
Engineering service company A
TQM helped this company reduce the defect
rate of its products by 8 per cent (from 12 per
cent to 4 per cent) within three years. Its
operations became highly efficient in terms of
a reduced lead-time from ten weeks to six
weeks and the inventory turnover ratios
showed an increment of 63 per cent (from
1.66 times to 2.71 times).
The company became adept at asset
utilization and experienced an increase in
return on assets by 7 per cent whereas its
return on employees rose to 219 per cent. The
output per employee grew to 57 per cent,
which consequently pushed the revenue per
employee to a substantial 102 per cent.
 Impact of total quality management on productivity
Jamshed H. Khan
Engineering service company B
In a time span of three years the company
utilized TQM to experience fruitful gains in
terms of a reduced lead-time by four weeks
(from 20 weeks to 16 weeks), and employee
turnover by 10 per cent (from 24 per cent to
14 per cent).
The most significant affect of TQM on the
company was in terms of on-time delivery of
products to its customers, which stood at a
remarkable rate of 99 per cent by the end of
the three years. The operations of the
company showed tangible results translated
through the improvement in the inventory
turnover by 26 per cent (from 1.9 times to 2.4
times).
Knitwear exporter
The company experienced an increase in
revenues of 42 per cent within three years of
implementing TQM. It was also successful in
reducing its cost per employee by nearly 24
per cent (from Rs.792,324 to Rs.604,365)
and its defect rate to 4 per cent.
The company experienced progress in its
sales and operations in terms of inventory
turnover, which improved by 20 per cent
(from 4.25 times to 5.12 times), and a
reduced lead-time from an average of 90 days
to a phenomenal average of 53 days; an
improvement of nearly 70 per cent.
Conclusion
Considering the current state of global
competition, it is imperative for Pakistani
businesses to develop a customer-focused
culture as soon as possible. This would ensure
that their resources are efficiently and
effectively utilized to produce only those
products and services which the customer
wants and is willing to pay a premium for.
This points towards developing a TQ culture.
Before any of this can be achieved, senior
executives of organizations will have to fully
understand and believe in the TQ philosophy
without which achievement of maximum
benefits would not be possible no matter how
many material resources are invested. The
systems and tools cannot promise significant
or sustainable results without the visible
commitment of the top management to the
TQM philosophy.
Looking at the experience of companies
both local and international, which have
379
The TQM Magazine
Volume 15 · Number 6 · 2003 · 374-380
implemented TQM successfully, there is little
doubt that the TQ culture if applied correctly,
yields significantly better results in all the
performance categories of financial results,
customer satisfaction, and employee
satisfaction. TQM also provides a long term
sustainable competitive advantage in an
increasingly competitive global market. As
discussed, this philosophy is not alien to the
Pakistani cultural and religious values.
TQM is the harbinger of a paradigm shift
from a reactive culture to a proactive one with
the overriding emphasis on delighting the
customer. Involvement and empowerment of
every single employee within the organization
- from the most humble to the most powerful
is essential in order to develop ownership of
the culture and to stem conflict of interest. As
the scope is company wide, everyone is
responsible for ensuring quality.
References
Evans, J.R. and Lindsay, W.M. (1996), The Management
and Control of Quality, West Publishing Company,
Minneapolis, MN.
Harari, O. (1993), “Ten reasons why TQM doesn’t work”,
Management Review, January, pp. 33-8.
Hendricks, K.B. and Singhal, V.R. (1997), “Does
implementing an effective TQM program actually
improve operating performance? Empirical evidence
from firms that have won quality awards”,
Management Science, Vol. 43 No. 9, pp. 1258-74.
Further reading
Anderson, E.A. and Adams, D.A. (1997), “Evaluating the
success of TQM implementation: lessons from
employees”, Production and Inventory Management
Journal, Vol. 38 No. 4, pp. 1-6.
Becker, S.W. (1993), “TQM does work: ten reasons why
misguided attempts fail”, Management Review,
May, pp. 30, 32-33.
Brown, S. (1998), “New evidence on quality in
manufacturing plants: a challenge to lean
production”, Production and Inventory Management
Journal, Vol. 39 No. 1, pp. 24-9.
Clemmer, J. (1992), Firing on All Cylinders, Irwin,
New York, NY.
Creech, B. (1994), The Five Pillars of TQM, Truman Talley
Books/Dutton, New York, NY.
Crosby, P.B. (1980), Quality Is Free, Mentor, Somerset, NJ.
Harari, O. (1993), “The eleventh reason why TQM doesn’t
work”, Management Review, May, pp. 31, 34-36.
Kanji, G.K. (1995), “Total Quality Management:
Proceedings of the First World Congress”, Chapman
& Hall, London.
Kanji, G.K. (1996), Total Quality Management in Action,
Chapman & Hall, London.
 Impact of total quality management on productivity
Jamshed H. Khan
Kannan, V.R., Tan, K., Handfield, R.B. and Ghosh, S. (1999),
“Tools and techniques of quality management: an
empirical investigation of their impact on
performance”, ASQ Quality Management Journal,
Vol. 6 No. 3, pp. 35-47.
Logothetics, N. (1992), Managing for Total Quality,
Prentice-Hall International, New York, NY.
Peters, T. and Austin, N. (1985), A Passion for Excellence,
Random House, New York, NY.
Senge, P.M. (1990), The Fifth Discipline, Century Business,
London.
Shin, D., Kalinowski, J.G. and El-Enein, G.A. (1998),
“Critical implementation issues in Total Quality
Management”, SAM Advanced Management
Journal, Winter, pp. 10-14.
380
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Volume 15 · Number 6 · 2003 · 374-380
Sterman, J.D., Repenning, N.P. and Kofman, F. (1997),
“Unanticipated side-effects of successful quality
programs: exploring a paradox of organizational
improvement”, Management Science, Vol. 43 No. 4,
pp. 503-21.
Sypsomos, M.G. (1997), “Beyond project controls – the
quality improvement approach”, AACE International
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Thompson, K.R. (1998), “Confronting the paradoxes in a
total quality environment”, Organizational
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Van Horn, L.H. (1997), “Improving results through total
quality management”, American Agent & Broker,
June, pp. 46-9, 69-72.
Weaver, C.N. (1995), Managing the Four Stages of TQM,
ASQC, Milwaukee, WI.