The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1741-038X.htm

TQM and
An analysis of the relationship organizational
between TQM implementation performance
and organizational
829
performance
Received August 2005
Evidence from Turkish SMEs Revised January 2006
Accepted February 2006
Mehmet Demirbag
Management School, University of Sheffield,
Sheffield, UK
Ekrem Tatoglu
School of Business Administration, Bahcesehir University,
Istanbul, Turkey
Mehmet Tekinkus
Faculty of Economics and Administrative Sciences,
Gaziantep University, Gaziantep, Turkey, and
Selim Zaim
Faculty of Economics and Administrative Sciences,
Fatih University, Istanbul, Turkey

Abstract
Purpose – The principal aim of this paper is to determine the critical factors of total quality
management (TQM) and to measure their effect on organizational performance of SMEs operating in
Turkish textile industry.
Design/methodology/approach – Data for this study was collected using a self-administered
questionnaire that was distributed to 500 SMEs in textile industry in the city of Istanbul in Turkey
selected randomly from the database of Turkish Small Business Administration (KOSGEB). Of the 500
questionnaires posted, a total of 163 questionnaires were returned.
Findings – Using exploratory and confirmatory factor analyses, seven empirically validated
dimensions of TQM were identified. The structural equation modelling technique was employed to
investigate the relationship between the implementation of TQM practices and organizational
performance. Data analysis reveals that there is a strong positive relationship between TQM practices
and non-financial performance of SMEs, while there is only weak influence of TQM practices on
financial performance of SMEs. With only a mediating effect of non-financial performance that the
TQM practices has a strong positive impact on financial performance of SMEs.
Research limitations/implications – The sample is restricted to only a single region and a single
industry, so it would be strongly recommended that data be gathered from various parts of Turkey
including both various manufacturing and service industries. As the data in this study were collected Journal of Manufacturing Technology
from top managers of organizations on the basis of their subjective evaluations, objective performance Management
Vol. 17 No. 6, 2006
indicators should also be employed in the analysis. pp. 829-847
Originality/value – Despite some attempts on the applicability of TQM practices and advanced q Emerald Group Publishing Limited
1741-038X
manufacturing technologies as well as their impact on organizational performance of SMEs, there is a DOI 10.1108/17410380610678828
JMTM lack of systematic empirical evidence regarding the extent of TQM implementation and its effect on
performance of SMEs in emerging market economies. This paper presents new data and empirical
17,6 insights into the relationship between TQM implementation and organizational performance in SMEs
operating in Turkey.
Keywords Total quality management, Organizational performance, Small to medium-sized enterprises,
Turkey
Paper type Research paper
830
Introduction
Quality has become one of the most important drivers of the global competition today.
Intensifying global competition and increasing demand for better quality by customers
have caused more and more companies to realize that they will have to provide high
quality product and/or services in order to successfully compete in the marketplace. To
meet the challenge of this global competition, many businesses have invested
substantial resources in adapting and implementing total quality management (TQM)
strategies. TQM can be defined as a holistic management philosophy aiming at
continuous improvement in all functions of an organization to produce and deliver
commodities or services in line with customers’ needs or requirements by better,
cheaper, faster, safer, easier processing than competitors with the participation of all
employees under the leadership of top management.
The role of TQM is widely recognized as being a critical determinant in the success and
survival of both manufacturing and service organizations in today’s competitive
environment. TQM is also seen as a source of competitive advantage (Powel, 1995;
Hackman and Wageman, 1995; Douglas and Judge, 2001), innovation (Singh and Smith,
2004), change and new organizational culture (Irani et al., 2004). Any decline in customer
satisfaction due to poor service quality would be a serious cause of organizational failure.
Consumers are becoming increasingly aware of rising standards in product/service
quality, prompted by competitive trends, which have developed higher expectations.
Despite some attempts on the applicability of TQM practices and advanced
manufacturing technologies as well as their impact on organizational performance of
SMEs (Ahire and Golhar, 1996; McAdam and McKeown, 1999; Yusof and Aspinwall,
2000; Cagliano et al., 2001; Sun and Cheng, 2002; Lee, 1998, 2004; Raymond, 2005;
Dangayach and Desmukh, 2005), there is a lack of systematic empirical evidence
regarding the extent of TQM implementation and its effect on performance of SMEs in
emerging market economies such as Turkey. SMEs play a very crucial role to the
economies of most emerging nations from the viewpoint of generating employment
and economic growth. They account for more than half of the employment and added
value in most countries (UNCTAD, 1993). Similar trend is also observed in Turkey
where SMEs constitute 99 per cent of all business establishments and employ
53 per cent of the workforce in the manufacturing sector (Taymaz, 1997). In view of the
fact that the success of small business has a direct impact on the national economy, this
paper presents new data and empirical insights into the relationship between TQM
implementation and organizational performance in SMEs operating in Turkey.
The paper is organized as follows: The next section provides a review of
the theoretical literature and sets out the hypotheses of the study. The research methods
are presented in the section Research methodology. The next section presents the results
followed by conclusion and managerial implications.
Literature review and hypotheses development TQM and
Although the literature on TQM includes a rich spectrum of works, there is no consensus organizational
on the definition of quality. The notion of quality has been defined in different ways by
different authors. Gurus of the TQM practices such as Garvin, Juran, Crosby, Deming, performance
Ishikawa and Feigenbaum all provided their own definitions of quality concept and
TQM. Garvin (1987) proposed a definition of quality in terms of the transcendent,
product based, user based, and manufacturing and value-based approaches. He also 831
identified eight attributes to measure product quality (Garvin, 1987). Juran defined
quality as “fitness for use” and focused on a trilogy of quality planning, quality control,
and quality improvement (Mitra, 1987). Similarly, Crosby (1996) defined quality as
“conformance to requirements or specifications” that is based on customer needs. He
identified 14 steps for a zero defect quality improvement plan to achieve performance
improvement. According to Deming, quality is a predictable degree of uniformity and
dependability, at low cost and suited to the market. He also identified 14 principles of
quality management to improve productivity and performance of the organization
(Deming, 1986). Ishikawa also emphasized importance of total quality control to improve
organizations’ performance. He contributed to the quality literature by introducing a
cause and effect diagram (Ishikawa diagram) to diagnose quality problems (Mitra, 1987).
In a similar vein, Feigenbaum introduced the concept of organization-wide total quality
control and defined quality as “the total composite product and service characteristics of
marketing, engineering, manufacturing and maintenance through which the product
and service in use will meet the expectations by the customer” (Mitra, 1987). Major
common denominators of these quality improvement plans include management
commitment, strategic approach to a quality system, quality measurement, process
improvement, education and training, and eliminating the causes of problems.
TQM is the culture of an organization committed to customer satisfaction through
continuous improvement. This culture varies from one country to another and between
different industries, but has certain essential principles, which can be implemented to
secure greater market share, increased profits, and reduced costs (Kanji and Wallace,
2000). Management awareness of the importance of TQM, alongside business process
reengineering and other continuous improvement techniques was stimulated by the
benchmarking movement to seek, study, implement and improve on best practices
(Zairi and Ahmed, 1999). A review of extant literature on TQM and continuous
improvement programs identifies 12 common aspects: Committed leadership, adoption
and communication of TQM, closer customer relationships, benchmarking, increased
training, open organization, employee empowerment, zero defects mentality, flexible
manufacturing, process improvement, and measurement.
Furthermore, to determine critical factors of TQM, various studies were undertaken
and different instruments were developed by individual researchers and institutions
such as Malcolm Baldrige Award, EFQM (European Foundation for Quality
Management), and the Deming Prize criteria. Based on these studies, a wide range of
management issues, techniques, approaches, and systematic empirical investigations
have been generated.
Saraph et al. (1989) developed 78 items related to TQM practices, which were classified
into eight critical factors to measure the performance of TQM in an organization. They
labelled these critical factors as: Role of divisional top management and quality policy, role
JMTM of the quality department, training, product and service design, supplier quality
17,6 management, process management, quality data and reporting, and employee relations.
Flyyn et al. (1994) developed another instrument which they identified seven quality
factors of TQM. These are top management support, quality information, process
management, product design, workforce management, supplier involvement, and
customer involvement. This instrument is in close resemblance to the preceding
832 instrument developed by Saraph et al. (1989). In a later study, Flyyn et al. (1995) measured
the impact of TQM practices on quality performance and competitive advantage.
On the other hand, Anderson et al. (1994) developed the theoretical foundation of
quality management practice by examining Deming’s 14 points. They reduced the
number of factors from 37 to 7 using the Delphi method, which consist of visionary
leadership, internal and external cooperation, learning, process management,
continuous improvement, employee fulfilment and customer satisfaction.
In a similar vein, using the Malcolm Baldrige Award criteria Black and Porter (1996)
identified ten empirically validated critical TQM factors, which include corporate
quality culture, strategic quality management, quality improvement measurement
systems, people and customer management, operational quality planning, external
interface management, supplier partnerships, teamwork structures, customer
satisfaction orientation, and communication of improvement information. In addition
to Black and Porter (1996), various authors also assessed the validity of Malcolm
Baldrige Award criteria (Wilson and Collier, 2000; Flynn and Saladin, 2001).
Ahire et al. (1996) developed 12 integrated quality management constructs, which
were labelled as supplier quality management, supplier performance, customer focus,
statistical process control usage, benchmarking, internal quality information usage,
employee involvement, employee training, design quality management, employee
empowerment, product quality, and top management commitment.
Performance measurement is very important for the effective management of an
organization. According to Deming without measuring something, it is impossible to
improve it. Therefore, to improve organizational performance, one needs to determine
the extent of TQM implementation and measure its impact on business performance
(Madu et al., 1996; Gadenne and Sharma, 2002).
Traditionally, organizational performance has been measured by using financial
indicators, which may include inter alia profit, market share, earnings, and growth
rate. Kaplan and Norton (1996) emphasized that financial indicators would measure
only past performance. Therefore, in order to overcome potential shortcomings of
traditional organizational performance systems they added non-financial categories to
the traditional performance measurement system.
There is a relatively large body of empirical studies that measure business
performance by TQM criteria (Samson and Terziovski, 1999; Flyyn et al., 1995; Wilson
and Collier, 2000; Fynes and Voss, 2001; Flynn and Saladin, 2001; Montes et al., 2003;
Benson et al., 1991; Choi and Eboch, 1998). These studies explore a variety of theoretical
and empirical issues. If TQM plan is implemented properly, it produces impact on a wide
range of areas including understanding customers’ needs, improved customer
satisfaction, improved internal communication, better problem solving and fewer errors.
In the following subsections, we develop a number of hypotheses to investigate the
relationship between the implementation of TQM practices and organizational
performance in SMEs. First, we examine the relationship between the critical factors of
TQM and their effect on both financial performance and non-financial performance. TQM and
Next, we investigate to what extent non-financial performance mediates the organizational
relationship between TQM practices and financial performance.
performance
TQM practices and financial performance
Empirical studies investigating the relationship between TQM practices and financial
performance have produced mixed results. These studies either use stock price 833
performance (Hendricks and Singhal, 1996, 2001; Easton and Jarrel, 1998) or perceptual
measures developed by researchers themselves (Powel, 1995; Kaynak, 2003; Samson
and Terziovski, 1999; Prajogo and Sohal, 2006). Hendricks and Singhal (1996) studied
award-winning companies (as a proxy for TQM implementation) to establish a link
between TQM and stock price performance but found no evidence of long-term
abnormal performance. In contrast to the findings of Hendricks and Singhal (1996),
Easton and Jarrel (1998) found significant relationship between stock-price
performance and TQM implementation. A follow up study by Hendricks and
Singhal (2001) with a larger dataset revealed that in the post implementation period,
the sample of effective TQM implementers significantly outperformed the various
matched control groups. Douglas and Judge (2001) used perceptual measures of
financial performance (alongside with expert rated performance measures). Their
results indicated that the level of TQM implementation was positively and
significantly related to both perceived financial performance of a hospital and its
industry-expert rated performance. It appears that the degree to which the entire TQM
philosophy is implemented strongly correlated with financial performance perception
(Kaynak, 2003). When the firm size is taken into account, evidence seems to get mixed.
Some TQM advocates argue that TQM cannot produce consistent financial
performance for SMEs (Schmidt and Finnigan, 1992; Powel, 1995; Strubering and
Klaus, 1997), while others found some significant results in TQM implementations in
SMEs (Ahire and Golhar, 1996; Hendricks and Singhal, 2001). Hendricks and Singhal’s
(2001, p. 287) analyses indicate that smaller firms tend to benefit more from TQM as
compared to larger firms. This finding contradicts with some of the earlier arguments
that TQM is less beneficial to smaller firms. While in general the evidence seems
conflicting at least for SMEs, we expect that:
H1. TQM practices have a moderate positive impact on financial performance.

TQM practices and non-financial performance

Although financial performance is generally accepted as the ultimate aim of business
organizations, in the case of SMEs, non-financial performance indicators are also
equally important in implementing TQM principles. TQM practices may not only
affect financial performance directly (Kaynak, 2003), but also in some indirect ways
such as increasing innovation (Singh and Smith, 2004), changing organizational
culture (Irani et al., 2004), market competitiveness (Chong and Rundus, 2004), overall
organizational performance (Powel, 1995), market share and market share growth
(Kaynak, 2003); employee morale (Rahman and Bullock, 2005), productivity (Rahman
and Bullock, 2005; Kaynak, 2003; Rahman, 2001). Prajogo and Sohal (2001) report two
main arguments on the relationship between TQM and innovation where the first
argument suggests that TQM be positively related to increasing innovation capacity of
TQM practicing firms. The second argument, however, focuses on the negative
JMTM relationship between TQM implementation and innovative performance of firms.
17,6 The logic behind this argument is that customer focus and its principles may trap
organizations into captive markets where they focus only on existing customers, which
may result in ignoring the search for innovation and novel solutions (Prajogo and
Sohal, 2006). Samson and Terziovski (1999) found support for the relationship between
some non-financial measures (i.e. export growth, market share growth, innovation
834 growth, cost of quality, etc.) and implementation of TQM practices. In the case of
SMEs, however, the evidence is sketchy. Choi and Eboch (1998) argue that the strength
of positive relationship between plant performance, as influenced by TQM practices,
and customer satisfaction, is still far from being conclusive. Samson and Terziovski
(1999) noted negative relationship for smaller size firms in their survey, whereas Lee
(2004) reports that Chinese SMEs perceive positive relationship between TQM
practices and non-financial performance measures (i.e. production performance, cost
improvement and sales improvement). While there is no detailed analysis of the
relationship between TQM practices and non-financial performance for SMEs in the
prior literature (Ahire and Golhar, 1996), we rely on the argument of the first group of
researchers and assert the following hypothesis:
H2. TQM practices have a strong positive impact on non-financial performance.

Relationship between financial and non-financial performance

The relationship between financial and non-financial measures of organizational
performance has long been discussed in organization and strategy literature. Hackman
and Wageman (1995) provide an insightful account of conceptual and practical issues
in researching TQM implementation and change. York and Miree (2004) argue that
non-financial performance such as improved quality, innovativeness and increased
market share should actually reduce costs, and thus have a positive effect on measures
of financial performance. Increased quality helps SMEs to retain current customers
and create greater customer loyalty, which in return may increase market share and
financial performance (Rust et al., 1994). Although studies of SME performance and
TQM relations do not examine non-financial performance measures directly, evidence
from larger organisations supports the argument that operational performance
indicators are related to financial performance dimensions (Fuentes-Fuentes et al.,
2004). Some other studies also demonstrate positive relationship between operational
performance dimensions such as product quality (Larson and Sinha, 1995), innovation
and R&D (Prajogo and Sohal, 2001; Singh and Smith, 2004) employee performance
(Fuentes-Fuentes et al., 2004). Given the availability of conclusive evidence supporting
a relationship between the non-financial performance dimensions and financial
performance, we hypothesize that:
H3. Non-financial performance has a strong impact on financial performance.

Mediating effect of non-financial performance

Earlier studies of TQM implementation and financial performance treated TQM
elements as independent variables and tried to establish relationship between them. In
the case of SMEs, non-financial performance dimensions are equally significant and
may intermediate between TQM practices and financial performance (York and Miree,
2004; Rahman and Bullock, 2005) hence indicating effectiveness of implementation
(Prajogo and Sohal, 2006). Hackman and Wageman (1995) point out long-term versus TQM and
short-term performance issues in TQM implementing organisations. This argument organizational
also can be extended to cover TQM implementation in SMEs, where there may be time
lag between implementation and financial performance. Based on these arguments and performance
supporting evidence we expect that:
H4. TQM practices have a strong positive impact on financial performance with a
mediating effect of non-financial performance.
835
These theoretical discussions and proposed hypothesized relationships are delineated
in the following research model, as shown in Figures 1 and 2.

δ1 Q1

δ2 Q
2
F1 ε1
λ11 x

δ3 Q3 λ21 x
λ12 y
x F2 ε2
λ31
Financial λ22 y
Total Quality
δ4 Q4 λ41 x Management Y11 Performance
ξ1 η1 λ32 y
λ51 x
F3 ε3
z1 λ42 y
δ5 Q5 λ61 x

λ71 x F4 ε4
Figure 1.
δ6 Q
6 The structural
relationship between TQM
practices and financial
δ7 Q performance
7

δ1 Q1

δ2 Q2 ε1 ε2 ε3 ε4 ε5
F1 ε6
λ11x NF1 NF2 NF3 NF4 NF5

δ3 Q3 λ21x
λ11y λ 21y λ 31y λ 41y λ 51y λ62 y
F2 ε7
λ31x
Total Quality Non-Financial Financial λ72 y
δ4 Q4 λ41x Management Y11 Performance Y21 Performance
ξ1 η1 η2 λ82 y
λ51x ε8
ζ1 F3 Figure 2.
ζ2 λ92 y
δ5 Q5 λ61x The structural
λ71x
ε9
relationship between TQM
F4
δ6 practices and financial
Q6
performance with a
mediation of non-financial
δ7 Q7 performance
JMTM Research methodology
17,6 Survey instrument
The survey instrument used in this study was largely derived from the work of Saraph
et al. (1989) with the purpose of identifying critical factors of TQM in a business unit. In
the present questionnaire, the initial set of 30 items was reduced to 20. The basic
justification for this lies in the researchers’ impression (derived from the pilot study)
836 that the SMEs are in the “awakening” stage described by Crosby (1996). Our interviews
corroborated that management “recognized that quality management may be of value
but was not willing to provide money or allocate time to make it all happen, teams were
set up to attack major problems instead of soliciting long range solutions” and that
company quality posture could be summarized as “is it absolutely necessary to always
have problems with quality?” These signified a very close alignment with the
“awakening” stage of Crosby’s stages of maturity.
The original version of the questionnaire was in English. This questionnaire was
translated into the local language (Turkish). The local version was back translated until
a panel of experts agreed that the two versions were comparable. Each item was rated on
a five-point Likert scale, ranging from “very low” to “very high”. The questionnaire was
pre-tested several times to ensure that the wording, format, and sequencing of questions
were appropriate. The extent of TQM implementation and the level of organizational
performance on both financial and non-financial performance measures were
determined using judgmental measures based on managers’ perceptions of how the
organization was performing on each constituent item. As the percentage of missing
data was calculated to be relatively small, occasional missing data on variables was
handled by replacing them with the mean value. The measures of TQM practices and
organizational performance are provided in Appendices 1 and 2.

The sample
There is no consensus on the definition of SME, as variations exist between countries,
sectors and even different governmental agencies within the same country (Yusof and
Aspinwall, 2000). In line with small business research, this study adopted the number
of employees as the base for the definition of SME. An SME is identified as one that
employs fewer than 100 persons. The minimum of at least ten employees was also
chosen in order to exclude very minor firms that would not be suitable for the purposes
of this study. This range is consistent with the definition of an SME adopted by both
the Turkish State Institute of Statistics (SIS) and Turkish Small Business
Administration and also by a number of European countries such as Norway and
Northern Ireland (Sun and Cheng, 2002; McAdam and McKeown, 1999).
Data for this study were collected using a self-administered questionnaire that was
distributed to 500 SMEs in textile industry in the city of Istanbul in Turkey selected
randomly from the database of Turkish Small Business Administration (KOSGEB). As
of 2005, the KOSGEB database includes a total of 12,270 SMEs in Istanbul, which
accounts for nearly 28 per cent of all SMEs registered throughout Turkey. The
sampling frame consists of 2,482 SMEs operating in the textile industry in Istanbul.
The study focused on the textile industry including textile mill products and apparel
(SIC codes 22 and 23), since it has been a leader in implementing progressive quality
management practices in Turkey. The textile industry has also been the engine of
economic growth and generates the largest volume of export revenues. Although one
could argue that a focus on a single industry may make the results less generalizable, TQM and
we ensured a high level of internal validity. Furthermore, within the textile industry organizational
there exist several different manufacturing environments and product types making
the sample much more diverse than what could be expected for a homogenous sample. performance
It was requested that the questionnaire be completed by a senior officer/executive in
charge of quality management. The responses indicated that a majority of the
respondents completing the questionnaire were in fact members of the top 837
management. Of the 500 questionnaires posted, a total of 163 questionnaires were
returned after one follow-up. About 22 questionnaires were eliminated due to largely
missing values. The overall response rate was thus 28 per cent (141/500), which was
considered satisfactory for subsequent analysis. A comparison of the annual sales
volume, number of employees and sub-industry variation revealed no significant
differences between the responding and non-responding firms ( p . 0.1). Thus, the
responses adequately represented the total sample group.

Results
The data analysis is conducted at three steps:
(1) Performing an exploratory factor analysis (EFA) with varimax rotation to
determine the underlying dimensions of TQM.
(2) Testing of the measurement models for TQM construct using confirmatory
factor analysis (CFA) as well as the TQM context in order to determine if the
extracted dimensions in step 1 offered a good fit to the data.
(3) Measuring the impact of critical factors of TQM on business financial
performance.
These steps are discussed in the following subsections.

Exploratory factor analysis

EFA with varimax rotation was performed on the TQM criteria in order to extract the
dimensions underlying the construct. The EFA of the 20 variables yielded seven
factors explaining 78.6 per cent of the total variance. Based on the items loading on
each factor, these factors were labelled as “quality data and reporting” (factor 1), “role
of top management” (factor 2), “employee relations” (factor 3), “supplier quality
management” (factor 4), “training” (factor 5), “quality policy of top management”
(factor 6) and “process management” (factor 7). These items are shown in Table I.
The Cronbach’s alpha measures of reliability for the seven factors vary between
0.75 and 0.86, which are well above the traditionally acceptable value of 0.70, as shown
in Table I.

Confirmatory factor analysis

This stage is also known as testing the measurement model where TQM was tested
using the first order confirmatory factor model to assess construct validity. The results
consistently supported the factor structure for TQM that is shown by the EFA.
Table II summarizes the measurement models for TQM practices and shows the
standardized regression weight for each variable. The factor level analysis is a
separate analysis for each factor including only the indicators for that factor (i.e.
variables loading on that factor).
JMTM
Factors
17,6 Symbol Variables 1 2 3 4 5 6 7

Q2 Extent to which quality data are available to 0.80

managers and supervisors
Q1 Extent to which quality data are used as tools to 0.75
838 manage quality
Q4 Scope of the quality data includes process/service 0.74
performance
Q3 Extent to which quality data are used to evaluate 0.71
supervisors and managerial performance
Q5 Acceptance of responsibility for quality by major 0.76
department heads
Q6 Extent to which top management supports a long 0.76
term quality improvement process
Q7 Extent to which top management has objectives 0.73
for quality performance
Q8 Amount of feedback provided to the employees 0.76
on their quality performance
Q9 Degree of participation in quality decisions by 0.72
employees
Q10 Extent to which employees are recognized for 0.51
superior quality performance
Q12 Clarity of specifications provided to suppliers 0.81
Q13 Evaluation of performance of suppliers 0.80
Q11 Extent to which longer term relationships are 0.74
offered to suppliers
Q14 Training in advanced techniques 0.82
Q15 Training in statistical techniques 0.82
Q16 Specific work-skill training 0.67
Q17 Importance attached to quality by top 0.87
management in relation to cost/revenue
objectives
Q18 Degree to which top management considers 0.75
quality improvement as a way to increase profits
Table I. Q19 Importance of inspections, review or checking of 0.80
Exploratory factor work
analysis of TQM Q20 Amount of inspections, review or checking of 0.67
practices work

The standardized regression weights for all variables that are shown in Table II are
significant at the 0.05 level. The CFA showed a good fit. The x2 statistic was 177.3
(degrees of freedom ¼ 149, p , 0.05), with the x 2/df ratio having a value of 1.19 that
is less than 2.0 (it should be between 0 and 3 with lower values indicating a better fit).
The goodness of fit index (GFI) was 0.89 and adjusted goodness of fit (AGFI) index was
0.85. These scores are very close to 1.0 (a value of 1.0 indicates perfect fit). The
comparative fit index (CFI) was 0.98, Tucker-Lewis coefficient (TLI) was 0.92. All
indices are close to a value of 1.0 in CFA indicating that the measurement models
provide good support for the factor structure determined through the EFA. The model
parameters were estimated using the method of maximum likelihood. The average of
item scores for each factor in TQM construct was used as measures in the path model.
 TQM and
Regression
Symbol Description weight t-value organizational
Quality data and reporting
performance
Q2 Extent to which quality data are available to managers and 0.80 8.72
supervisors
Q1 Extent to which quality data are used as tools to manage quality 0.71 7.78 839
Q4 Scope of the quality data includes process/service performance 0.70 –
Q3 Extent to which quality data are used to evaluate supervisors and 0.90 9.59
managerial performance
Role of top management
Q5 Acceptance of responsibility for quality by major department 0.71 8.21
heads
Q6 Extent to which top management supports a long term quality 0.78 9.04
improvement process
Q7 Extent to which top management has objectives for quality 0.79 –
performance
Employee relations
Q8 Amount of feedback provided to the employees on their quality 0.70 7.42
performance
Q9 Degree of participation in quality decisions by employees 0.66 7.09
Q10 Extent to which employees are recognized for superior quality 0.75 –
performance
Supplier quality management
Q12 Clarity of specifications provided to suppliers 0.77 8.31
Q13 Evaluation of performance of suppliers 0.87 8.96
Q11 Extent to which longer term relationships are offered to suppliers 0.72 –
Training
Q14 Training in advanced techniques 0.81 8.11
Q15 Training in statistical techniques 0.88 8.45
Q16 Specific work-skill training 0.67 –
Quality policy
Q17 Importance attached to quality by top management in relation to 0.73 8.04
cost/revenue objectives
Q18 Degree to which top management considers quality improvement 0.92 –
as a way to increase profits
Process management
Q19 Importance of inspections, review or checking of work 0.70 – Table II.
Q20 Amount of inspections, review or checking of work 0.91 8.33 Confirmatory factor
analysis of TQM
Note: – Fixed for estimation practices

Unidimensionality tests of constructs in the path model

The validity and reliability of three constructs were assessed by checking
unidimensionality of each construct using three tools: Principal component analysis,
Cronbach’s a and Dillon-Goldstein’s r. As shown in Table III, all of the Cronbach’s a
values met the threshold value of 0.70. In line with the principal component analysis,
since the first eigenvalue score of the correlation matrix of the manifest variables of
each construct is larger than one and the second one is smaller than one then the
construct was considered as unidimensional. Similarly, Dillon-Goldstein’s r analysis
provides r values above 0.70 for each construct supporting unidimensionality.
JMTM Path model
17,6 The final step in the analysis was to test the path model as specified in Figures 1 and 2.
The hypothesized structural equation model was tested using LISREL software package
(Jöreskog and Sörbom, 1993). Model fit determines the degree to which the structural
equation model fits the sample data. Model fit criteria commonly used are chi-square
(x 2), GFI, AGFI and root mean square residual (RMS) (Schumacker and Lomax, 1996).
840 The goodness-of-fit indices for the first model (Figure 1) (Satorra-Bentler x 2 ¼ 54.89
with df ¼ 41; GFI ¼ 0.93; AGFI ¼ 0.89; NFI ¼ 0.92; CFI ¼ 0.98) and the second
structural model (Figure 2) (Satorra-Bentler x 2 ¼ 114.29 with df ¼ 95; GFI ¼ 0.91;
AGFI ¼ 0.87; NFI ¼ 0.90; CFI ¼ 0.98) are well within the generally accepted limits.
Hence, both models were accepted to fit the data.

Hypothesis test results

H1: Relationship between TQM and financial performance. Figure 3 shows the model
that is related to the first hypothesis and is provided in the following equations.

h1 ¼ g11 j1 þ z1

Fin ¼ 0:24 TQM þ z1

Number of Cronbach Dillon-goldstein’s First Second

Block indicators a r eigenvalue eigenvalue

Table III. TQM 7 0.860 0.894 2.787 0.635

Unidimensionality of NONFIN 5 0.856 0.899 2.701 0.420
constructs FIN 4 0.836 0.894 2.126 0.498

0.37 TQM1

0.37 TQM2
F1 0.23
0.67

0.34 TQM3 0.49

0.80
F2 0.10
0.65
Financial 0.76
Total Quality
0.36 TQM4 0.54 Management 0.24 Performance
ξ1 η1
0.69
0.65
F3 0.35
0.37
0.49 TQM5 0.44

Figure 3. 0.59 F4 0.53

Inner and outer regression 0.54 TQM6
weights for the structural
relationship between TQM
practices and financial
performance 0.27 TQM7
The first model has one endogenous variable (dependent variable), labelled as financial TQM and
performance and one exogenous variable (independent variable), which is labelled as
TQM. TQM explains almost 5.6 percent of the variation in financial performance.
organizational
The hypothesized relationship was tested using the associated t-statistics. The performance
standardized regression weight for H1 was found to be 0.24 ( p , 0.05). Although t
value is significant, TQM explains only a small percentage of the variation in financial
performance. Therefore, a good deal of support has been provided to H1 that TQM 841
practices have a moderate positive impact on financial performance.
H2: TQM practices and non-financial performance. The relationship between TQM
practices and non-financial performance that is shown in Figure 4 is presented in the
following equation.

Nonfin ¼ 0:67 TQM þ z1

The second model has one endogenous variable (dependent variable), which is
named Non-Financial Performance, and one exogenous variable (independent
variables), which is labelled as TQM. Nearly 45 percent of the variation in financial
performance was explained by TQM construct. With respect to the second hypothesis
(H2), it was found that TQM had a significant positive impact on non-financial
performance.
H3: relationship between financial and non-financial performance. The endogenous
variable of third model is Financial Performance and exogenous variable is
non-financial performance. Non-financial performance explains almost 40 percent of
the variation in financial performance. The standardized regression weight was found
to be 0.63 which is significant at 0.01 level indicating a strong support for H3 that
non-financial performance has a strong impact on financial performance, as shown in
Figure 4.
H4: mediating effect of non-financial performance. A good deal of support has been
found for H4 that TQM practices have a strong positive impact on financial
performance with a mediating effect of non-financial performance as shown in
equation (3) where it is obtained by substituting equation (1) in equation (2).

0.41 TQM1

0.41 0.36 0.39 0.38 0.34

0.37 TQM2
NF1 NF2 NF3 NF4 NF5 F1 0.32
0.64
0.30 TQM3 0.50 0.80 0.64 0.70 0.57 0.72 0.75
F2 0.088
0.67
Total Quality Non-Financial Non-Financial 0.80
0.32 TQM4 0.57 Management 0.67 Performance 0.63 Performance
ξ1 η1 η2 0.75 Figure 4.
0.69
F3 0.28 Inner and outer regression
0.42
0.43 TQM5 0.44 weights for the structural
0.54 relationship between TQM
F4 0.50
practices and financial
0.54 TQM6
performance with a
mediation of non-financial
0.32 TQM7 performance
JMTM Nonfin ¼ 0:67 TQM þ z1 ð1Þ
17,6 Fin ¼ 0:63 Nonfin þ z2 ð2Þ
Fin ¼ 0:422 TQM þ z1 ð3Þ

842 Conclusion and managerial implications

The findings of this study reveal that indirect effect of the critical factors of TQM on
financial performance mediated by non-financial performance has more influence than
direct effect of the critical factors of TQM on financial performance. These findings
indicate that financial performance measures such as revenue, net profits, return on
assets, and profit to revenue ratio are partially explained by the implementation of
TQM practices. On the other hand, TQM practices provide a better explanation on
financial performance through non-financial performance criteria such as market
development, market orientation and investment in R&D. In a similar vein, nearly forty
per cent of variation in financial performance is explained indirectly by quality
practices.
The most important quality practices were found to be training, employee relations,
and quality data and reporting. Hence, companies should be suggested to develop formal
reward and recognition systems to encourage employee involvement and participation,
support teamwork and provide feedback to the employees. There are many purposes for
gathering data in quality management. First, data can be collected to understand current
processes. Data also provide inspection, various test results and verification records.
They are used to analyse the process using various types of statistical process control
tools such as control charts, Pareto charts, cause and effect diagrams, check sheet,
histograms, and scatter diagram among others. These traditional quality tools are very
useful in monitoring and measuring progress and performance. Data analysis and
interpretation may also help SMEs to develop a learning environment, which may
enhance innovation and a better enterprise culture. Management by facts requires
management decisions to be based on relevant data and reports.
Based on the study’s findings, the least important factor was found to be the role of
top management. In fact, success of TQM applications hinges on strong leadership that
must be initiated by the top management. Quality improvement plans proposed by
several gurus strongly emphasize the commitment of top management. The top
management of the organization is directly responsible for determining an appropriate
organization culture, vision, and quality policy. Top managers should also determine
objectives, and develop specific and measurable goals to satisfy customer expectations
and improve their organizations’ performance. In order to enhance net profit and
revenue as well as to reduce cost of quality, managers must convey their priorities and
expectations to their employees. In SMEs, owner of the company usually does not
delegate adequate power and responsibility to top managers of the company. The basic
justification for this lies in the researchers’ impression (derived from the pilot study)
that the SMEs are largely in the “awakening” stage as described by Crosby (1996). This
appears to be a major weakness in TQM implementing SMEs, which may not be
unique only to Turkey.
While most SMEs in Turkey do not have an established quality department, many
of them have invested substantial resources in adapting and implementing TQM
programs to improve their performance. It is generally accepted that several SMEs did TQM and
not achieve any improvement and some only a little. Specifically, due to the presence of organizational
a multitude of barriers, many organizations utilize only a partial implementation of
TQM, and hence are unable to achieve continuous and systematic improvement. performance
If TQM plan is implemented properly, it produces a variety of benefits such as
understanding customers’ needs, improved customer satisfaction, improved internal
communication, better problem solving and fewer errors. The success of a TQM 843
program increases when its implementation is extended to the entire company. This
enables the reformation of the corporate culture and the permeation of the new business
philosophy into every facet of organization. The philosophy of doing things right must
be implemented with enthusiasm and commitment throughout the organization -from
top to bottom and the little steps forward the so-called “Kaizen” by the Japanese- must be
viewed as “a race without a finish”. Consequently, effective implementation of TQM is a
valuable asset in a company’s resource portfolio, one that can produce important
competitive capabilities and be a source of competitive advantage.
Performance is a multifaceted concept and this study tried to capture performance
dimensions from both financial non-financial perspectives. Number of other factors
(both internal and external to organisation) may also mediate TQM implementation
and performance relationship. Although this study establishes relationship between
TQM implementation and performance dimensions, other factors such as size, culture,
absorptive and innovative capacities and market orientation of sample firms may also
have some impact on organisational performance. Market orientation and innovation
(may be embedded in an organisational culture) seem to be highly relevant to TQM
implementation and performance which merit further research on SMEs.
It should also be acknowledged that the study is subject to some methodological
limitations. First, it would be highly suggested that the size and nature of the sample
must be enhanced to ensure variability and control for possible extraneous variation.
While the sample is restricted to only a single region and a single industry, it would be
strongly recommended that data should be gathered from various parts of Turkey
including both various manufacturing and service industries. Since, the data in this
study were collected from top managers of organizations on the basis of their
subjective evaluations, objective performance indicators should also be employed in
the analysis. Finally, neural network model could be utilized in the future studies to
gain additional insights in exploring the relationship between TQM and organizational
performance.

References
Ahire, S.L. and Golhar, D.Y. (1996), “Quality management in large vs small firms”, Journal of
Small Business Management, Vol. 34 No. 2, pp. 1-11.
Ahire, S.L., Golhar, D.Y. and Waller, M.A. (1996), “Development and validation of TQM
implementation constructs”, Decision Sciences, Vol. 27 No. 1, pp. 23-56.
Anderson, J.C., Rungtusanatham, M. and Schroeder, R.G. (1994), “A theory of quality
management underlying the Deming management method”, Academy of Management
Review, Vol. 19 No. 3, pp. 472-509.
Benson, G.P., Saraph, J.V. and Schroeder, R.G. (1991), “The effects of organizational context on
quality management: an empirical investigation”, Management Science, Vol. 37 No. 9,
pp. 1107-24.
JMTM Black, S.E. and Porter, L.J. (1996), “Identification of the critical factors of TQM”, Decision
Sciences, Vol. 27 No. 1, pp. 1-21.
17,6
Cagliano, R., Blackmon, K. and Voss, C. (2001), “Small firms under MICROSCOPE: international
differences in production/operations management practices and performance”, Integrated
Manufacturing Systems, Vol. 12 No. 7, pp. 469-82.
Choi, T.Y. and Eboch, K. (1998), “The TQM paradox: relations among TQM practices, plant
844 performance and customer satisfaction”, Journal of Operations Management, Vol. 17,
pp. 59-75.
Chong, V.K. and Rundus, M.J. (2004), “Total quality management, market competition and
organizational performance”, British Accounting Review, Vol. 36, pp. 155-72.
Crosby, P.B. (1996), Quality is Free, McGraw-Hill, New York, NY.
Dangayach, G.S. and Desmukh, S.G. (2005), “Advanced manufacturing technology
implementation: evidence from Indian small and medium enterprises”, Journal of
Manufacturing Technology Management, Vol. 16 No. 5, pp. 483-96.
Deming, W.E. (1986), Out of the Crisis, MIT Centre for Advanced Engineering Study, Cambridge,
MA.
Douglas, T.J. and Judge, W.Q. Jr (2001), “Total quality management implementation and
competitive advantage: the role of structural control and exploration”, Academy of
Management Journal, Vol. 44 No. 1, pp. 158-69.
Easton, G.S. and Jarrel, S.L. (1998), “The effects of total quality management on corporate
performance: an empirical investigation”, Journal of Business, Vol. 71 No. 2, pp. 253-307.
Flynn, B.B. and Saladin, B. (2001), “Further evidence on the validity of the theoretical models
underlying the Baldrige criteria”, Journal of Operations Management, Vol. 19, pp. 617-52.
Flyyn, B.B., Schroder, R.G. and Sakakibara, S. (1994), “A framework for quality management
research and an associated measurement instrument”, Journal of Operations Management,
Vol. 11, pp. 339-66.
Flyyn, B.B., Schroeder, R.G. and Sakakibara, S. (1995), “The impact of quality management
practices on performance and competitive advantage”, Decision Sciences, Vol. 26 No. 5,
pp. 659-91.
Fuentes-Fuentes, M.M., Albacate-Saez, C.A. and Llorens-Montes, F.J. (2004), “The impact of
environmental characteristics on TQM principles and performance”, Omega, Vol. 32 No. 6,
pp. 425-42.
Fynes, B. and Voss, C. (2001), “A path analytic model of quality practices, quality performance
and business performance”, Production and Operations Management, Vol. 10 No. 4,
pp. 494-513.
Gadenne, D. and Sharma, B. (2002), “An inter-industry comparison of quality management
practices and performance”, Managing Service Quality, Vol. 12 No. 6, pp. 394-404.
Garvin, D.A. (1987), “Competing on the eight dimensions of quality”, Harvard Business Review,
pp. 101-9, November/December.
Hackman, R.J. and Wageman, R. (1995), “Total quality management: empirical, conceptual and
practical issues”, Administrative Science Quarterly, Vol. 40 No. 2, pp. 309-42.
Hendricks, K.B. and Singhal, V.R. (1996), “Quality awards and the market value of the firm: an
empirical investigation”, Management Science, Vol. 42 No. 3, pp. 415-36.
Hendricks, K.B. and Singhal, V.R. (2001), “Firm characteristics, total quality management, and
financial performance”, Journal of Operations Management, Vol. 19, pp. 269-85.
Irani, Z., Beskese, A. and Love, P.E.D. (2004), “Total quality management and corporate culture: TQM and
constructs of organizational excellence”, Technovation, Vol. 24, pp. 643-50.
organizational
Jöreskog, K.G. and Sörbom, D. (1993), LISREL8: Structural Equation Modelling with the
SIMPLIS Command Language, Lawrence Erlbaum Association, Hillsdale, NJ. performance
Kanji, G.K. and Wallace, W. (2000), “Business excellence through customer satisfaction”, Total
Quality Management, Vol. 11 No. 7, pp. 979-98.
Kaplan, R.S. and Norton, D.P. (1996), The Balanced Scorecard: Translating Strategy into Action,
845
Harvard Business School Press, Boston, MA.
Kaynak, H. (2003), “The relationship between total quality management practices and their
effects on firm performance”, Journal of Operations Management, Vol. 21, pp. 405-35.
Larson, P.D. and Sinha, A. (1995), “The total quality management impact: a study of quality
managers’ perceptions”, Quality Management Journal, Vol. 2 No. 3, pp. 53-66.
Lee, C.Y. (1998), “Quality management by small manufacturers in Korea: an exploratory study”,
Journal of Small Business Management, Vol. 36 No. 4, pp. 61-7.
Lee, C.Y. (2004), “Perception and development of total quality management in small
manufacturers: an exploratory study in China”, Journal of Small Business Management,
Vol. 42 No. 1, pp. 102-15.
McAdam, R. and McKeown, M. (1999), “Life after ISO 9000: an analysis of the impact of ISO 9000
and total quality management on small businesses in Northern Ireland”, Total Quality
Management, Vol. 10 No. 2, pp. 229-41.
Madu, C.N., Kuei, C.H. and Jacob, R.A. (1996), “An empirical assessment of the influence of
quality dimensions on organizational performance”, International Journal of Production
Research, Vol. 34 No. 7, pp. 1943-62.
Mitra, A. (1987), Fundamentals of Quality Control and Improvement, Prentice-Hall, Englewood
Cliffs, NJ.
Montes, F.J.L.M., Jover, A.V. and Fernandez, L.M.M. (2003), “Factors affecting the relationship
between total quality management and organizational performance”, International Journal
of Quality & Reliability Management, Vol. 20 No. 2, pp. 189-209.
Powel, T.C. (1995), “Total quality management as competitive advantage: a review and empirical
study”, Strategic Management Journal, Vol. 16, pp. 15-37.
Prajogo, D.I. and Sohal, A.S. (2001), “TQM and innovation: a literature review and research
framework”, Technovation, Vol. 21, pp. 539-58.
Prajogo, D.I. and Sohal, A.S. (2006), “The relationship between organization strategy, total
quality management (TQM) and organization performance-the mediating role of TQM”,
European Journal of Operational Research, Vol. 168 No. 1, pp. 35-50.
Rahman, S. (2001), “A comparative study of TQM practice and organisational performance of
SMEs with and without ISO 9000 certification”, International Journal of Quality and
Reliability Journal, Vol. 18 No. 1, pp. 35-49.
Rahman, S. and Bullock, P. (2005), “Soft TQM, hard TQM and organizational performance
relationships: an empirical investigation”, Omega, Vol. 33, pp. 73-83.
Raymond, L. (2005), “Operations management and advanced manufacturing technologies in
SMEs”, Journal of Manufacturing Technology Management, Vol. 16 No. 8, pp. 936-55.
Rust, R.T., Zahorik, A.J. and Keiningham, T.L. (1994), Return on Quality: Measuring the Financial
Impact of Your Company’s Request for Quality, Probus Publishing Company, Chicago, IL.
JMTM Samson, D. and Terziovski, M. (1999), “The relationship between total quality management
practices and operational performance”, Journal of Operations Management, Vol. 17,
17,6 pp. 393-409.
Saraph, J.V., Benson, G.P. and Schroder, R.G. (1989), “An instrument for measuring the critical
factors of quality management”, Decision Sciences, Vol. 20, pp. 810-29.
Schmidt, W. and Finnigan, J. (1992), The Race without a Finish Line: America’s Quest for Total
846 Quality, Jossey-Bass, San Francisco, CA.
Schumacker, R.E. and Lomax, R.G. (1996), A Beginner’s Guide to Structural Equation Modelling,
Lawrence Erlbaum Associates, Mahwah, NJ.
Singh, P.J. and Smith, A.J.R. (2004), “Relationship between TQM and innovation: an empirical
study”, Journal of Manufacturing Technology Management, Vol. 15 No. 5, pp. 394-401.
Strubering, L. and Klaus, L.N. (1997), “Small business thinking big”, Quality Progress, Vol. 2,
pp. 23-7.
Sun, H. and Cheng, T.K. (2002), “Comparing reasons, practices and effects of ISO 9000
certification and TQM implementation in Norwegian SMEs and large firms”, International
Small Business Journal, Vol. 20 No. 4, pp. 421-40.
Taymaz, E. (1997), Small and Medium-Sized Industry in Turkey, SIS, Ankara.
UNCTAD (1993), Small- and Medium-sized Transnational Corporations, United Nations, New
York, NY.
Wilson, D.D. and Collier, D.A. (2000), “An empirical investigation of the Malcolm Baldrige
National Quality Award causal model”, Decision Sciences, Vol. 31 No. 2, pp. 361-90.
York, K.M. and Miree, C.E. (2004), “Causation or covariation: an empirical re-examination of the
link between TQM and financial performance”, Journal of Operations Management,
Vol. 22, pp. 291-311.
Yusof, S.M. and Aspinwall, E. (2000), “Total quality management implementation frameworks:
comparison and review”, Total Quality Management, Vol. 11 No. 3, pp. 281-94.
Zairi, M. and Ahmed, P.K. (1999), “Benchmarking maturity as we approach the millennium”,
Total Quality Management, Vol. 10 Nos 4/5, pp. 810-6.

Appendix 1. TQM practices

(1) Extent to which quality data are used as tools to manage quality
(2) Extent to which quality data are available to managers and supervisors.
(3) Extent to which quality data are used to evaluate supervisor and managerial
performance.
(4) Scope of the quality data includes process/service performance.
(5) Acceptance of responsibility for quality by major department heads.
(6) Extent to which top management supports long-term quality improvement process.
(7) Extent to which the top management has objectives for quality performance.
(8) Amount of feedback provided to the employees on their quality performance.
(9) Degree of participation in quality decisions by hourly/non-supervisory employees.
(10) Extent to which employees are recognized for superior quality performance.
(11) Extent to which longer term relationships are offered to suppliers.
(12) Clarity of specifications provided to suppliers.
(13) Assessment of performance of suppliers.
 (14) Training in advanced technique. TQM and
(15) Training in statistical technique. organizational
(16) Specific work skill training.
performance
(17) Importance attached to quality by top management in relation to cost/revenue objectives.
(18) Degree to which top management considers quality improvement as a way to increase
profits.
847
(19) Importance of inspection, review or checking of work.
(20) Amount of inspection, review or checking of work.

Appendix 2. Organizational performance

(1) Financial performance.
.
Revenue growth over the last three years.
.
Net profits.
.
Profit to revenue ratio.
.
Return on assets.
(2) Non-financial performance.
. Investments in R&D aimed at new innovations.
.
Capacity to develop a unique competitive profile.
.
New product/service development.
.
Market development; and
.
Market orientation.

Corresponding author
Mehmet Demirbag can be contacted at: m.demirbag@shef.ac.uk

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints