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Impact of total quality management on


productivity
Article in The TQM Magazine November 2003
DOI: 10.1108/09544780310502705

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Jamshed Khan
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What has changed?

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
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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

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

374

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


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
A simple model for TQM is depicted in
Figure 1. The model consists of two main
components:
(1) TQM philosophy;
(2) TQM systems and tools.

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.

TQM and productivity

TQM cannot exist without a complete


acceptance of its philosophy by at least the top
management. Once the basic TQM
philosophy is accepted by the top
management then different systems and tools
can be initiated to propagate and facilitate a
culture based on such a philosophy.

TQM philosophy
TQM philosophy consists of four basic
beliefs, which are as follows:

(1) absolute customer focus;


(2) employee empowerment, involvement
and ownership;
(3) continuous improvement; and
(4) use of systematic approaches to
management.

Increasing competition in the global market


necessitates that productivity should not be
considered as an indicator of efficiency only; it
must also measure effectiveness. Yet the
distinction between the two is often
overlooked. For example, a company that
produces according to process specifications
may be using its resources efficiently, but
unless it is producing what its customers want
it may not be using them effectively. There is

Figure 2 Components of TQM philosophy and their interrelationships

Figure 1 Structure of TQM

375

Impact of total quality management on productivity

The TQM Magazine

Jamshed H. Khan

Volume 15 Number 6 2003 374-380

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 employee


empowerment, involvement, ownership

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.

Quality cant 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.

376

Impact of total quality management on productivity

The TQM Magazine

Jamshed H. Khan

Volume 15 Number 6 2003 374-380

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.

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.

Table I Effects of TQ efforts on performance of organizations


From year

Percentage change
in operating income

Percentage change
in sales

Percentage change
in total cost/sales

Percentage change
in number of employees

Percentage change
in assets

2 6 to 2 1
2 4 to 2 1
2 1 to +1
2 1 to +3
2 6 to +3

10.41
8.88
14.77
35.06
107.12

6.21
2.8
6.26
18.15
63.74

0.27
2 0.45
2 0.39
2 0.94
2 1.27

0.35
2.33
5.56
13.69
17.00

2 1.93
1.8
8.24
17.52
45.46

Source: Hendricks and Singhal (1997)

377

Impact of total quality management on productivity

The TQM Magazine

Jamshed H. Khan

Volume 15 Number 6 2003 374-380

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.

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 companys 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.
Xeroxs revenues and profits have increased
by more than 30 per cent per annum since
1991 and its share of the US documentoutsourcing market has risen to 40 per cent;
almost three times the share of its nearest
competitor.

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 Motorolas 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 Minnesotabased 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
industrys 10 per cent. Consequently, the
company has doubled its market share since
1992. In addition, from 1991 to 1997,
Solectrons stock has significantly
outperformed its largest competitor and even
S&P500.
Xerox
Four years after having introduced the
Leadership through Quality program,

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.

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Impact of total quality management on productivity

The TQM Magazine

Jamshed H. Khan

Volume 15 Number 6 2003 374-380

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).

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.

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.

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 doesnt 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.

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

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 doesnt
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.

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Impact of total quality management on productivity

The TQM Magazine

Jamshed H. Khan

Volume 15 Number 6 2003 374-380

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.

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
Transactions, pp. PC.01.1-PC.01.7.
Thompson, K.R. (1998), Confronting the paradoxes in a
total quality environment, Organizational
Dynamics, Winter, pp. 62-74.
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.

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