TQM and financial performance: are findings of direct effects methodological artefacts?

Abstract

Whether the relationship between total quality management (TQM) and subsequent financial performance is direct or indirect has been one of the most productive research streams in the quality management literature. The current study adds to this important literature stream by demonstrating that findings of a direct relationship between the two constructs may be due to potential data analytic pitfalls associated with the particular longitudinal research techniques employed. The current study briefly reviews six potential pitfalls. Then, to demonstrate how these pitfalls can potentially compromise research results, the current study analyses the relationship between TQM and financial performance in a panel of 93 publicly traded, US firms that won supplier quality awards in the period 1985–1993. The data set is analysed utilising two alternative research methodologies: cross-sectional analysis utilising a series of t-tests (a popular research approach in this literature stream) that does not address any of the potential pitfalls and MANOVA for repeated measures that addresses all six. The study concludes with practical implications for quality management and top management executives.

Keywords:

• Edwards Deming
• financial performance
• longitudinal analysis
• TQM
• total quality management