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The Impact of TQM on the Singapore Service Sector

Conference Paper · December 1999

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 THE IMPACT OF TQM ON THE SINGAPORE SERVICE SECTOR

S. A. BRAHa, B. M. RAOb , and J. L. WONGa

a Department of Decision Sciences, National University of Singapore, 15 Law

Link Singapore 117591
b Department of Applied Statistics and Operations Research, Bowling Green
State University, Bowling Green, OH 43403, USA

ABSTRACT
In this paper we examined the impact of TQM on the business performance in the service sector of Singapore
and identified factors that are critical to the success of TQM implementations. The study yields clear evidence
that implementation of TQM leads to improved business performance. We observed that while accrued benefits
can be attributed to the traditional tools of TQM, such as, customer focus and quality improvement rewards,
success of TQM depends largely on its intangible and behavioral features such as top management support,
employee empowerment and employee involvement. The rigor of implementation of TQM also appears to be a
key factor in its success.

Key words: Total quality management, business performance, service operations management.

INTRODUCTION
The past decade witnessed a widespread acceptance of TQM as a means of gaining and
maintaining a competitive edge in the global marketplace. Many recent studies indicate a
definite positive association between the introduction of TQM and both long-term and short-
term business performances (e.g., Hendricks and Singhal (1997)). Success of TQM programs
appears to depend more on the intangible practices such as management commitment, open
organization, employee empowerment, rather than on features normally associated with TQM
such as, quality training, process improvement and benchmarking.
Singapore consistently emphasizes quality as exemplified by the success of the Port of
Singapore Authority and Singapore Airlines. Service sector represents about 69% of Gross
Domestic Product of Singapore and is a very important component of its economy.
Therefore, our interest is to find out the relationship between TQM practices and business
performance in the service sector and more accurately, Singapore service sector.
In this study we examined the relationship between TQM and business performance in
the Singapore service sector in order to determine if firms that implement Total Quality
Management have superior business performance compared to firms without it. We
identified factors critical to a TQM implementation and studied their relationship to a firm's
business performance. Also, we studied the effect of rigor of TQM adoption on the
performance of a firm.

HYPOTHESES
The primary objective of the study is to establish the effect of TQM program
implementations in the service sector of Singapore. The literature review indicates a
significant positive relationship between TQM and business performance of an organization.
This lead to the following hypotheses:

H1 (a) and H1 (b): There is a significant positive relationship between TQM and
the (a) operating and (b) financial performance of a firm.
 Our secondary objective is to identify critical factors of TQM implementation in services.
Saraph et al. (1989) identified and empirically validated critical areas of quality management
based on the prescriptions of leaders in quality management. Their study covered
manufacturing and service organizations at the unit level. Flynn et al. (1994) conducted a
similar study at the plant level based on multiple responses from direct laborers, plant
managers, quality managers, production and inventory managers, supervisors, process
engineers and human resource managers. Both studies independently lead to a similar set of
factors. Ahire et al. (1996) developed and empirically tested an instrument for measuring the
various quality management constructs based on a review of the prescriptive, conceptual,
practitioner and empirical literature on quality management. Black and Porter (1996)
developed an empirical framework for TQM, using the criteria for the Malcolm Baldrige
Quality Award as well as the perceptions and experiences of a range of total quality
practitioners as the basis. Based upon the above studies, we selected top management
support, customer focus, employee involvement, employee training, employee empowerment,
supplier quality management, process improvement, service design, quality improvement
rewards, benchmarking, and cleanliness and organization as constructs to represent the
critical factors of TQM implementation.
Furthermore, as TQM implementation encompasses all aspects of a firms operation, we
can expect the business performance of a firm to have a positive association with each of the
above constructs. This lead to the hypotheses that:

H2 (a)-H2 (b): There is a significant positive correlation between each of the

eleven implementation constructs and the (a) operating and (b) financial
performance of a firm.

QUESTIONNAIRE DESIGN
We divided the questionnaire into Sections A to E, each collecting a certain type of
information. Section A comprised of three general questions about the presence of, and
experience with, a quality program in a company. Section B gathers information on the
quality management practices in a company. We developed a total of fifty-five items
covering the eleven critical factors in TQM implementation identified in the hypothesis
section. Section C collects information about the structure of the industry of the respondent's
company. This list of items, adopted from Powell (1995), is divided into two groups namely,
entry barriers and rivalry. We used response to these questions as an index of industry
differences. Section D aims at measuring the (a) strategic business performance, dealing with
major corporate goals such as profitability, market share, sales turnover and return of capital,
and (b) operational business performance, dealing with the day-to-day running of the
organization. We used a subset of 18 key items from a comprehensive performance
measurement system of 14 of strategic business performance indicators, and 60 operational
business performance indicators proposed by Maskell (1989). Section E obtained a brief
profile of the organization.
For consistency and ease of completion, we standardized most of the scales in this study
to five-point Likert scales, with 1=below industry average, 3= industry average, and 5=above
industry average or with 1=strongly agree, 3= Neutral, and 5=strongly disagree, depending on
the question. Also, we reverse scored some of the measures to reduce possible bias in
responses. The remaining questions are in the form of multiple-choices.
A simple random sample of 950 service companies was drawn form the Singapore
Business Services 96/97 published by the Singapore Trade Development Board, and
Singapore 1000 Services published by Datapool (S) Pte Ltd.

1
ANALYSIS
With a total of 176 valid responses, our response rate came out to be 18.5%. 118 of these
firms (67.0%) claims to have made meaningful commitments to TQM indicating an apparent
wide spread use of TQM in the Singapore service sector. Logistics firms represent the single
largest group, with adequate representation from other sectors of the service industry in the
sample. Large firms (with more than 250 employees) comprises 56 of the responding
companies and rest are classified as small. 41% of the large firms and 17% of the small firms
are ISO certified.

Verification of Scales
We used factor analysis to test construct validity, which is the degree to that a measure
confirms a network of related hypotheses generated from a theory based on the concepts.
This analysis verifies that items that are supposed to measure a given factor actually load
together. We extracted factors by the principal component analysis with varimax rotation.
We used a factor loading of at least 0.30 as a guideline to determine whether a variable is part
of a factor. We used a minimum factor loading of 0.50 to ensure the quality of extracted
factors.
Reliability is the degree to which measures are free from errors and thus yield consistent
results. We chose Cronbach’s standardized  because it is the most commonly used
reliability test in survey research. The recommended minimum acceptability value for  is
0.70, although some studies use  as low as 0.60.

TQM Constructs
We forced the fifty-five TQM items into an 11-factor structure analysis via the varimax
rotation in order to identify the underlying structure. As a result, we discarded three of the
items with a factor loading of less than 0.5. Table 1 shows the factor loading as well as
Cronbach's  of the remaining items. The  values ranged from 0.7153 to 0.8981, indicating
a high level of internal consistency among TQM items. Some of the fifty-five TQM related
items do not load in their presumed factors. We placed these items with the factor where they
load highly and indicate them in Italics with an asterisk mark at the end.

Table 1. Factor Loading of TQM Constructs.

FACTORS LOADING
Top Management Support ( = 0.8981)
Long-term plans focused on quality are developed 0.83582
There are clear quality goals identified by top-level managers. 0.77935
At company meetings, top-level managers often discuss the importance of quality 0.74839
Top-level managers view quality as being more important than cost 0.67094
Top-level managers depend heavily on quality performance to evaluate employees 0.62038
Customer Focus (=0.8477)
A summary of customer complaints is given to floor managers 0.79817
Customers’ feedback is used to determine their requirements 0.75545
Customers’ requirement is used as the basis for measuring quality 0.74569
Floor managers are aware of the level of customer satisfaction 0.69125
We are frequently in close contact with our customers 0.57048

2
 Table 1. Factor Loading of TQM Constructs (continued).
FACTORS LOADING
Employee Involvement (= 0.8609)
All employees’ suggestions are evaluated 0.81864
Most employees’ suggestions are implemented 0.75630
We often work in teams, with members from a variety of departments 0.64129
We use the ability to work in team as a criterion in employee selection 0.59321
Employee Training (=0.8509)
Employee training is provided in quality principles 0.81864
Resources are available for employee quality training 0.75630
There is almost always some kind of employee training going on in our company 0.74478
Top-level managers allocate adequate resources towards efforts to improve quality* 0.70208
Top management are often involved in quality training 0.64129
Employee Empowerment (=0.8405)
Employees are encouraged to take initiative when dealing with customers’ complaints 0.76473
Problem solving ability is a criterion in selecting employees 0.67671
Employees are given the resources necessary to deal with customer complaints 0.63157
Supplier Quality Management (=0.8940)
Suppliers have programs to assure quality of their products 0.80841
We are more interested in developing a long-term relationship with our suppliers than 0.79472
reducing prices.
Quality is a more important criterion than cost in selecting suppliers 0.76512
We have a small number of high quality suppliers 0.73924
Suppliers are given assistance in improving quality 0.66008
Process Improvement ( =0.8169)
We have a program to reduce overall time between order received and order satisfied. 0.84640
We use inspection for quality control 0.84461
We have a program to find wasted time and costs in all internal processes 0.83452
We have standardized process instructions which are given to employees 0.76563
We use statistical control charts to control processes 0.72265
Service Design (=0.8672)
New service design are thoroughly reviewed before marketed 0.80166
Quality of new service is more important than reducing its costs 0.77261
There are employees from other functional department in the design team 0.67958
Employees not in the design team are also involved to a great extent in the design of new 0.62302
services to the market
Quality Improvement Rewards (=0.8142)
Supervisors are rewarded for quality improvements 0.82780
Workers are rewarded for quality improvements 0.81196
Rewards are given to the employees for good suggestions* 0.74478
Financial incentives are used to reward quality improvements 0.73822
Non-financial incentive are used to reward quality improvements 0.62817
The well-being of employees is considered when planning improvement activities 0.57598
Benchmarking (=0.7153)
We visit other organizations to investigate their practices 0.78172
We conduct research to find out the best practices of other organizations 0.72788
We monitor competitors to find out the best industry practices 0.58230
Cleanliness and Organization (=0.8959)
Overall layout and furnishing of the work area Is pleasant 0.90611
The work area is kept clean at all times 0.90339
Employees often have no trouble finding what they need in order to do their work 0.79950
We take pride in keeping our work area neat 0.73095
Customer-contact employees have to be well-dressed and neat 0.63579

3
Industry Constructs
We forced the five items measuring entry barriers and six items measuring rivalry into a 2-
factor structure. One item measuring entry barriers, “To compete in our industry, the initial
capital required is high” is dropped in the final model because it does not load high enough.
This may be due to the fact that the initial capital requirement in service industry is not high
enough to deter new entrants. Table 2 presents the resulting factors loading after dropping
this item. The  values for entry barriers and rivalry are high enough to conclude that the
factor items have high internal consistency. Powell (1995), however, points out that each of
the constructs of rivalry and entry barriers is somewhat broader than the TQM construct.

Table 2. Factors Loading of Industry Constructs.

FACTORS LOADINGS
Entry Barriers (=0.6915)
In our business, existing firms have advantages over new entrants 0.82713
New firms may find difficulties entering our industry successfully 0.79486
Large firms enjoy cost advantages in our industry 0.62869
In our industry, customers are loyal – they rarely switch to competitors 0.56851
Rivalry (=0.6869)
Most firms in our industry are operating below full capacity 0.73809
Compared to other industries, rivalry among firms in our industry is intense 0.70382
Firms in our industry advertise heavily compared to other industries 0.59922
In our industry, our equipment has no alternative uses 0.58458
Our industry is dominated by a few large competitors 0.58140
In our business, existing firms have advantages over new entrants 0.54547

Business Performance Constructs

Also, we forced the eighteen items of business performance into a 2-factor structure. Two
items “order-processing time”, and “costs of delivering the service” have been discarded due
to poor loading factor. Table 3 presents the resulting business performance constructs after
discarding these two items from operating performance. The relatively high  values (above
0.8) indicate internal reliability.
Table 3. Factor Loading of Business Performance Constructs.
FACTORS LOADINGS
Operating Performance (=0.8141)
Percentage of suppliers’ on-time deliveries 0.83177
Reputation for providing quality service 0.80583
Overall level of customer satisfaction 0.80530
Skill level of employees 0.76310
Level of employee satisfaction 0.76054
Productivity of our employees 0.71862
Number of repeat customers 0.67751
Number of customer complaints 0.66658
Level of employee absenteeism 0.65700
Percentage of on-time deliveries 0.58883
Level of employee turnover 0.58150
Financial Performance (=0.8018)
Overall financial performance 0.88241
Net profit as a percentage of net assets (return on asset) 0.84887
Revenue growth 0.83235
Our gross profit as a percentage of sales (return on sales) 0.81095
Market share 0.78570

4
TQM and Business Performance
We used three measures of TQM in the analysis. A binary variable TQM1 measures whether
TQM is implemented or not. TQM2 measures on a 6-point scale the answer to the question
"How advanced is the implementation of the program compared to programs of other
organizations you are familiar with"? Finally, TQM3 is the mean response to the fifty-five
TQM related items in the questionnaire.
Table 4 shows the zero-order correlation among the variables involved in testing H1 (a)
and H1 (b). The zero-order correlation between two variables is the relationship between
them without controlling for the effects of other variables on the relationship of interest. The
directions of correlation are in agreement with the competitive strategy framework of
Michael Porter, who predicts a significant positive correlation between entry barriers and
firm performance, and a significant negative correlation between rivalry and firm
performance. Financial performance, however, correlates significantly with entry barriers,
but not with rivalry. This could be because service sector is a large and growing part of the
Singapore economy with the strong and increasing demand during the survey period
cushioning the effects of rivalry. Also, the table shows that there is a significant correlation
between operating performance and rivalry, but not with entry barriers.
These results suggest that industry differences due to entry barriers and rivalry, although
important, do not completely explain the variability in business performance among firms.
Only entry barriers associate with financial performance and only rivalry associates with
operating performance significantly. Other firm-specific factors, such as size and the
adoption of TQM could explain variations in performance beyond those attributable to
industry factors.

Table 4. Correlation of Variables in Testing H1 (a) and H1 (b).

1 2 3 4 5 6 7 8
1. Entry Barriers 1.00
2. Rivalry -0.01 1.00
3. Firm Size 0.09 0.03 1.00
4. TQM1 - 0.09 0.17 0.37** 1.00
5. TQM2 - 0.21 0.04 0.25 NA 1.00
6. TQM3 - 0.09 0.06 0.12 NA 0.05 1.00
7. Financial Performance 0.23* -0.03 0.30** 0.39** 0.11 0.27* 1.00
8. Operating Performance 0.02 -0.23* -0.23* 0.33** 0.14 0.32** 0.39** 1.00
* Correlation significant at significance level of 0.05
** Correlation significant at significance level of 0.01
NA Not applicable

Table 4 also reveals significant negative correlation between firm size and business
performance. This confirms the findings of Manoochehri (1988), who compares the relative
strengths and weaknesses of large and small firms. Ahire and Golhar (1996) found statistical
evidence to indicate that small firms are more customers focused than large firms. They
attribute this to the greater flexibility of small firms, allowing management to align
operations management with TQM elements more easily.
Further, our interest is in finding out if the adoption of TQM (another firm specific factor)
can explain the differences in business performance. A proper test of H1 (a) and H1 (b)
requires controlling for industry factors and firm size from the analysis. This will remove
variations in business performance attributable to entry barriers, rivalry and firm size. Table
5 shows the resulting partial correlation after eliminating the effects of the three control
variables. The partial correlations are positive ranging from 0.13 to 0.40 and are larger than
their corresponding zero-order correlations. This indicates that one or more of the three
partial variables suppress the zero-order correlation through its joint correlations with TQM

5
and performance. A closer look suggests that perhaps only the firm size produce a
suppression effect on the relationship between TQM and operating performance. Also, there
is no such effect on financial performance because large firm size is associated with both
higher levels of TQM implementation and better performance.
Moreover, Table 5 shows a relationship between the adoption of a TQM program
(TQM1) and higher financial and operating performance. The results suggest that an
organization would benefit in terms of improved financial and operating performance from
the adoption of a TQM program. However, there is no significant relationship between how
advance the TQM program of a company is to both financial and operating performance.
This result is in contrast to the findings of Powell (1995), where all three measures of TQM
correlates significantly with the performance of an organization. Perhaps, TQM is a
relatively new concept to service companies and they lack benchmarks to compare their
TQM programs. We can, however, conclude that on the whole, TQM does show a significant
positive correlation with both financial and operating performance.

Table 5. Partial Correlation between TQM and Performance.

Financial Performance Operating Performance
Zero-order r Partial r Zero-order r Partial r
TQM 1 0.39** 0.40** 0.33** 0.36**
TQM 2 0.11 0.15 0.14 0.16
TQM 3 0.27* 0.28* 0.32** 0.34**
* Correlation significant at significance level of 0.05
** Correlation significant at significance level of 0.01

As stated earlier, there is a significant correlation between the rigor of TQM

implementation (TQM3) with both financial and operating performances. This suggests that
the financial and operating performances improve with the rigor of TQM implementation in
an organization. Also, this indicates that rigor of TQM implementation is a better predictor
of business performance than how long it has been adapted.

TQM Management Practices and Business Performance

H2 (a) and H2 (b) for each of the eleven-construct (i) to (xi) suggests a positive correlation
between each individual TQM management practice and business performance. Table 6
summarizes the results while removing the effects of rivalry, entry barriers and firm size.
The significant partial correlation between top management support and both measures of
performance provides statistical evidence of quality experts’ opinion that top management
dedication is crucial to the success of a quality program. Also, there is a significant partial
correlation between customer focus with both financial and operating performances.
Table 6 also shows significant partial correlation between employee involvement as well
as employee empowerment and both performance measures. Also, Table 6 shows that
quality improvement rewards correlate significantly with performance. Finally, even though
the other partial correlations are not significant, it is encouraging to see that there are no
negative correlations. For a fully integrated approach in implementing TQM, these other
tools which do not produce significant correlation would also be indispensable.

Table 6. Relationship Between TQM Practices and Business Performance.

Financial Performance Operating Performance
TQM Management Practices
Zero-order r Partial r Zero-order r Partial r
i) Top Management Support 0.2454* 0.2613** 0.3011** 0.2784**

6
 Financial Performance Operating Performance
TQM Management Practices
Zero-order r Partial r Zero-order r Partial r
ii) Customer Focus 0.0631 0.1932* 0.2425* 0.2276*
iii) Employee Involvement 0.2129* 0.2185* 0.2533** 0.2675*
iv) Employee Training 0.1536 0.1196 0.2138* 0.1957
v) Employee Empowerment 0.2724* 0.2624** 0.2065* 0.2268**
vi) Supplier Quality Management 0.1424 0.1265 0.1100 0.1459
vii) Process Improvement 0.1604 0.1243 0.2090* 0.1675
viii) Service Design 0.2479* 0.1585 0.1662 0.1729
ix) Quality Improvement Rewards 0.2329* 0.2298* 0.2539** 0.2367**
x) Benchmarking 0.1297 0.1564 0.1931 0.1690
xi) Cleanliness and Organization 0.0815 0.1175 0.1297 0.1482
* Correlation significant at significance level of 0.05
** Correlation significant at significance level of 0.01

We can see that more intangible, behavioral factors like management commitment,
employee involvement and empowerment produce significant partial correlations with both
performance measures. However, other TQM tools and techniques like customer focus and
quality improvement rewards have significant correlations with performance. This suggests
that TQM relies on the softer concepts duly complemented with some essential TQM tools
and techniques.

Limitations of the study

One of the limitations of this study is the relatively small sample size. Therefore, we
recommend caution in the interpretation of factor analysis results. This is especially true in
the factor analysis of the fifty-five items that made up the TQM constructs. Moreover, there
is a potential bias of sample size towards smaller service companies in Singapore. Thus, use
prudence in generalizing the analysis on the associated hypothesis tests. Of course, a larger
number of usable surveys would improve the quality of the data and results. Another
limitation to this study is self-reporting bias. This is a common problem when one collect
data from managers about their organizations, particularly about the managerial issues that
they are closely associated with.

SUMMARY
This study finds support for the proposition that TQM implementation leads to better
business performance in the service sector of Singapore. We find that adoption of a TQM
program and the rigor of its implementation correlate significantly with business
performance. We observe that the key to TQM success lies in the more intangible,
behavioral factors of top management support, employee empowerment and employee
involvement. Also, some of the more crucial TQM tools and techniques like customer focus
and quality improvement rewards contribute to the successful implementation of TQM.
The results of this study suggest that TQM is applicable to the service sector of the
economy. Its implementation is associated with better business performance and the more
rigorously it is being implemented, the better the business performance. We have identified
critical aspects of TQM that can determine the success of a TQM program in a service
environment. These factors include top management commitment, customer focus, employee
empowerment, employee involvement, and quality improvement rewards.

REFERENCES
AHIRE, L. S., GOLHAR, D. Y., AND WALLER, M. A., (1996) “Development and Validation of TQM
Implementation Constructs”, Decision Sciences, Vol. 27 No. 1, pp 23-56.

7
 AHIRE, S. L., AND GOLHAR, D. Y., (1996) “Quality Management in Large Versus Small Firms: An
Empirical Investigation”, Journal of Small Business Management, Vol. 34 No. 2, pp 1-13.

BLACK, S. A., AND PORTER, L. J., (1996) “Identification of the Critical Factors of TQM”, Decision
Sciences, Vol. 27 No. 1, pp 1-21.

FLYNN, B. B., SCHROEDER R. G., AND SAKAKIBARA, S., (1994) “A Framework for Quality Research
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HENDRICKS, K. B., AND SINGHAL, V. R., (1997) “Does Implementing an Effective TQM Program actually
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MANOOCHEHRI, G., (1988) “JIT for Small Manufacturers”, Journal of Small Business Management, Vol 26
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MASKELL, B., “Performance Measurement for World Class Manufacturing - 1”, Management Accounting,
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POWELL, T. C., (1995) “Total Quality Management as Competitive Advantage: A Review and Empirical
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SARAPH, J. V., BENSON, P. G., AND SCHROEDER, R. G., (1989) “An Instrument for Measuring the
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