The impact of quality management principles on business performance. A comparison between manufacturing and service organisations

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1 The impact of quality principles on A comparison between manufacturing and service organisations by Åsa Rönnbäck* and Lars Witell** *Division of Sciences, Chalmers University of Technology, SE Göteborg, Sweden, , **Service Research Center, Karlstad University, SE Karlstad, Sweden, , Keywords Management, Principles, Category: Literature Review Introduction is widely discussed in the literature and can be seen as philosophy characterized by its principles, practices and techniques which emphasises among other things continuous improvement, increased employee involvement and teamwork, process orientation, competitive benchmarking, committed leadership, constant measurement of results and closer relationships with suppliers. Most empirical studies on quality have been conducted in the manufacturing sector, while research on companies in the service sector has been sparse. The characteristics of services (intangibility, coproduction, inseparability, heterogeneity) and the fact that service industries have grown to dominate the economy, resulted in the development of new quality principles for service organisations of delivering high-quality service to customers. There are several research studies that have been made with the purpose to examine the impact of quality on ; e.g. Hendricks and Singhal (2001). There are also a number of research studies that aim at investigating the impact of quality principles on with a comparison between manufacturing and service organisations, e.g. Nilsson et al, (2001), Sun (2001), Solis et al (1998), Singh et al (2006) and Powell (1995). These studies are intended to aid managers to implement quality more effectively by giving recommendations to which quality

2 principles to adopt depending on if the organisation produces products or services. Going through these studies a number of inconsistencies in the recommendations these studies make to managers are identified. To provide an example, Beaumont (1997) concludes that there are no relationship between quality and in either manufacturing or service organisations, while Lagrosen and Lagrosen (2003) conclude that quality and has a stronger relationship for manufacturing organisations in comparison to service organizations. In the study by Woon (2000) no significant difference between manufacturing and service organisations except for one principle which is in favour for manufacturing organisations can be found. To conclude, the studies mentioned above all study the same research issue but come to complete different results - how is that possible? Instead of living up to the intention of identifying systematic differences between manufacturing and service organizations concerning the relationship between quality and results, these studies have provided us with inconsistencies that have given managers a lot of frustration concerning what principles are most important in different organizational contexts. Since there are inconsistencies in previous research, the aim of our paper is to perform a literature review and compare the results of 14 empirical studies published between 1988 and 2006 that focus on the differences related to quality between manufacturing and service organisations. In particular we are interested in the relationship between individual quality principles and. Our results provide guidance to managers concerning what recommendations that are consistent across the studies and what the reasons may be for the identified inconsistencies in previous research. is a philosophy or a company ideal. Several attempts have been made to define quality, total quality, total quality control and similar terms. Hellsten & Klefsjö (2000) define TQM as a system in continuous change, which consists of values, methodologies and tools, and the aim of which is to increase external and internal customer satisfaction with a reduced amount of resources. view quality as an approach to that can be characterized by its principles, practices and techniques, see Table 1. Each principle is implemented through a set of practices, which are simply activities such as collecting customer information. The practices are, in turn, supported by a wide array of techniques to make the practices effective. According to Dean and Bowen (1994) most of what has been written about quality is based on three principles: customer focus, continuous improvement and teamwork. Advocates of the quality movement include more principles in their conceptualizations of quality. awards or so called excellence models are built on a large number of values, similar to the underlying principles in the quality movement. The Swedish quality award, established in 1992, and based on the SIQ model, has 13 core values. As can be seen in the review of principles of quality, the suggested principles differ more or less between different authors; also the number of principles differ. The range of the number of principles presented above is three to 13, which contributes to the different perspectives on quality.

3 Table 1: The building blocks of quality. Concepts Definitions Examples Principles Practices Techniques A set of underlying assumptions of how to view the organization and its relation to customers, competitors and suppliers. Activities performed to display and embody the principles Guidelines and infrastructure of how to perform certain activities. The economic value of quality Customer focus, Continuous improvement, Teamwork Collecting customer information, Conduct a customer survey Voice of the customer tables, Function Deployment According to quality advocates, quality produces value through a variety of benefits: improved understanding of customers needs, improved customer satisfaction, improved internal communication, betters problem-solving, greater employee commitment and motivation, stronger relationships with suppliers, fewer errors and reduced waste. Most existing empirical studies conclude that quality has a relationship to ; see e.g. Hendricks and Singhal (2001). The strongest support for such a relationship is provided by a series of papers by Hendricks and Singhal where they investigate the financial effects of implementing a TQM program. By making comparisons between quality award winners and other companies in the same industries, the authors conclude that the award-winning firms outperform their competitors on operating-income based measures. In addition, the authors show that the improvements of profitability are not a result of winning the award but of the improvements of quality principles within the firm. Most studies investigating the relationship between quality principles and have focused on a single industry. However, some studies, such as Powell (1995), Woon (2000), Badri et al (1995), Quazi et al (1998), Nilsson et al (2001) and Huq and Stolen (1998) have studied quality principles in both manufacturing and service organisations. As an example Powell (1995) investigates the correlation between twelve factors of quality and. The study concludes that there are differences between service and product organizations, such as supplier relationships are vital for a product organization, while process improvements are more important for a service organization. To conclude, a quality principle might have a different role in a manufacturing and a service organization. Products and services That a quality principle might have a different role in a manufacturing and a service firm might depend on the service logic (IHIP), i.e., intangibility, heterogeneity, inseparability, and perishability (Zeithaml, Parasuraman and Berry, 1985). Given the goods-to-service continuum, there are many tangible products which possess one or more of these factors. It is only in the extreme that tangible products are highly tangible; they are closely controlled for variance, produced at a distance from customers, and stockpiled. The empirical investigations of quality in manufacturing and service organizations suggest that the relationship between quality and results is different for manufacturing and service organizations. The research is also full of inconsistencies, which is an indication that what quality dimensions that have been included in a study might have influenced the results of the different empirical investigations. Due to the service logic, an individual quality principle might have a different role in a

4 manufacturing and a service organization. Based on this assumption we identify the following research questions 1. Is there a relationship between quality and in manufacturing and service organisations? 2. Does the relationship between individual quality principles and look different in manufacturing and service organisations? Methodology During the last couple of years some literature reviews have been performed on the relationship between quality and results. Suosa and Voss (2002) focus on the 5 most cited studies and go into detail investigating them In contrast, Sila and Ebrahimpour (2002) identifies and reviews 347 survey-based empirical studies of quality. In contrast to these two studies, we aim to do a contribution by going through the studies that empirically have investigated both goods and service firms. This meta-analytic study critically examines the literature and evaluates implications of adoption of quality principles in manufacturing and service organisations. The literature review used the databases of Emerald, ASQ and Scirus and the main keywords used were Management, and Products and services. Papers of interest were also found by using snowball sampling of identified studies. Altogether we identified 14 research papers that had been published in English and that focused on the relationship between quality (either the overall relationship or the principle level) between quality and. For each of the studies we tried to identify sample size, methodologies, which quality principles that have been analyzed, the results, if the data is subjective and/or objective, which type of study (overall quality in relation to and/or on principle level) and what conclusions can be drawn from the different papers in relation to our research questions. An overview of the studies included in our literature review is provided in Table 2. Results and Analysis First, concerning the overall relationship between quality and results, Beaumont (1997) shows no relationship between quality and in either manufacturing or service organisations, while Lagrosen and Lagrosen (2003) conclude that quality has a stronger relationship to results in manufacturing than in service organisations. There are inconsistencies in previous research and the relationship between quality and is traditionally lower for service organisations but there has been a progress in recent years in the adoption of quality in the service sector. Second, concerning the relationship between different quality principles and results Quazi et al (1998) conclude that there is a relationship between certain principles and and that manufacturing organisations show a higher mean score than service organisations in each principle. In contrast, Huq and Stolen (1998) show significantly lower scores for service organisations in 10 out of 19 principles, while Woon (2000) shows no significant difference between manufacturing and service organisations except for one principle for which manufacturing organisations outperforms service organizations.

5 Table 2: An overview of empirical studies comparing manufacturing and service organizations. Paper Sample Method/test quality principles Results Type of study Conclusions /objective Nilsson et al (2001) 360 product, 122 service Lagrosen and Lagrosen (2003) Sun (2001) Beaumont et al (1997) Sharma and Gadenne (2002) Solis et al (1998) 187 product, 54 private service, (26 public) 180 product, 85 service 313 product, 105 service 62 product, 58 service 131 product, 109 service Structural equation modelling T-test ANOVA Chi-square Correlation analysis T-test Factor analysis, alpha, correlation analysis Chi-square, Nonparametric tests Factor analysis, alpha, MANOVA T-tests, Employee, Process orientation, Customer orientation Customer satisfaction, Process orientation, Participation of everybody, Leadership commitment, Continuous improvement, Management by facts Leadership, Information and analysis, Strategic, Human resources, Process, Supplier relationship, Customer focus Product: Value chain integration, Efficiency improvement, Customer liaison, Employee involvement, Office efficiency, Employee training, Open organisation, and Top executive commitment to quality Service: Value chain integration, Employee efficiency, Supplier quality cooperation, Executive involvement, Customeremployee cooperation, Efficiencytransparency, Emphasis on overall quality, and Defects reduction leadership, Strategic quality planning, information and analysis, Human resource development, assurance, Supplier quality, Customer orientating, citizenship Customer satisfaction, Process improvements; positive and negative effects (internal and external) Return on total assets Total + objective + objective Principles lead to and principles results Principles lead to Service: Employee improvements Service: Process orientation customer satisfaction Product: Customer orientation customer satisfaction Product: ( ) processes improvements Product: quality improvements. All principles influence improvements Service: Leadership, process and customer orientation effect improvements. Only correlation to external is significant. No relationship between and Service: results: Supplier quality cooperation results improvements, Defects reduction results improvements Objective results: Value chain integration improvements, Supplier chain cooperation improvements Product: results: Value chain integration improvements, Open organisation results improvements, Top executive quality commitment improvements Objective results: None Product: quality improvements (significantly on Customer orientation, citizenship, results and assurance) Service: leadership Parasurama n, Varadarajan (1988) 35 product, 39 service T-test Future emphasis on product/service quality Future emphasis on HR strategies Financial strategies Not applicable Principle level Comparison between future level of principle Differences between product and service concerning quality practices can only be found for certain employee issues

6 Badri et al (1995) Quazi et al (1998) Huq and Stolen (1998) Woon (2000) Singh et al (2006) Powell (1995) Benson et al (1991) 196 product, 228 service 13 product, 20 service 18 product, 18 service 129 product, 111 service 160 product, 149 service 24 product, 15 service 79 product, 152 service Factor analysis, Correlation, alpha Factor analysis, alpha Correlation Chi-square alpha, Correlation, ANOVA, ANCOVA, alpha Nonparametric statistic alpha, Correlation Mancova Top leadership, Role of quality department, Training, Product design, Supplier quality, Process, data reporting, Employee relations Management leadership and quality policy, Role of the quality department, Training, Product/service design, Supplier quality, Process, data and reporting, Employee relations mission statement, Customer focus, Management commitment, Worker empowerment, Communications in company, Performance appraisal system, Satistical evidence of quality, Familiarity with TQM, Measures of costs of quality, Causes of quality variation, Customer feedback, Commitment for continual improvement, Problem solving approach, Activities to remove barriers for consensus, Comparison of actual with planned, Education and training, Supplier development, circles/quality improvement teams, Applications of advanced analysis techniques, Leadership and quality culture, Use of information and analysis, Strategic planning, Human resource development and, Management of process quality, and operational results, Customer focus Top leadership, Customer focus, Supplier relationships, Employees, processes Executive commitment, Adopting the philosophy, Closer to customers, Closer to suppliers, Zero defects mentality, Training, Open organisations, Benchmarking, Employee empowerment, Flexible manufacturing, Process improvement, Measurement Management leadership, Role of the quality department, training, product/service design, supplier quality, process, quality data and reporting, employee relations Customer satisfaction Not applicable Principle level Principles lead to customer satisfaction and quality Association between product and service: Training, Product/service design, Supplier quality and Employee relations. Negative agreement with regard to the Role of quality department and data reporting Product: Have a higher mean score in each factor than service companies. Identifies relationship between all principles and. Not included Principle level Service: Apply quality principles selectively (focus on human interactions and processes) Product: Apply quality totally (favour scientific) Not included Not applicable Principles lead to and principles and principles influenced by context 10 out of 19 principles were found to be significantly lower in the service organizations No significant difference between the mean scores for service and manufacturing organisations except for Management of process quality, which is higher for manufacturing organisations. Differences between service and manufacturing companies concerning Customer loyalty, Employee morale, Response to customer needs, Market share, and Flexibility to change the volume of production, which is higher for service organisations. Differences between service and product organisations; Product: Supplier relationships are more important Service: Process improvements are more important Level of quality is lower in service firms. Product: influenced by both internal and external factors. Service: influenced by internal factors.

7 Sun (2001) shows that manufacturing firms outperform service firms in most quality principles. conducted a similar investigation and they found that manufacturing organisations are more advanced in six of the eight investigated quality principles compared to service organisations, the exceptions being quality leadership and supplier quality. Even though the empirical results of the studies are quite different, in general terms we can argue that manufacturing firms to a higher extent have adopted quality. But our literature review shows no systematic difference between manufacturing and service organisation to what individual quality principles they have adopted. Discussions A number of inconsistencies concerning the fundamental relationship between quality and results have been identified. Such differences in research results are frustrating both for researches designing new studies and practioners that seek advice on how to implement quality. In the following text we will discuss what role differences in research design might have to explain the identified differences in results. First, some of the studies lack rigor concerning the chosen sample and what methods have been used. Some studies use small samples when making their analyses and conclusions; e.g. Powell (1995), Parasuraman, Varadarajan (1988), Quazi et al (1998) and Huq and Stolen (1998). Some results concerning the relationship between principles and are based on correlations, such as Badri et al (1995) and Huq and Stolen (1998). Their results do not take the multicollinearity between different quality principles in to account. As a result, these studies provide an overestimation of the role of quality principles in organizations. In addition, in certain studies some of the survey questions have been adapted to manufacturing organisations; e.g. Solis et al (1998) and Beaumont et al (1997). In the next step of the study the same questions have been used to survey service organisations. This may lead to an underestimation of the level of quality in service organizations. When investigation the relationship between different quality principles and it is important to keep in mind that the principles are not distinct from another, instead all principles are interrelated. If quality principles are interrelated, some direct and some indirect; e.g. top commitment, which attention to a quality initiative in an organisation might lead to increased customer orientation, which in turn can lead to increased quality and customer satisfaction. This example emphasises the importance for a quality model to include not only quality principles but also the relationship between them. The study indicates that some quality principles can be more appropriate for manufacturing companies than service companies and vice versa, but the two sectors can learn from each other and include techniques from other sectors. Many manufacturing industries begin to adopt more service attributes in their offerings and could by this learn more about customer satisfaction techniques and service quality in general, and service companies could learn more about methods from manufacturing companies and maintain a balance between customer satisfaction and internal productivity and profitability.

8 References Badri, M.A., Davis, D., Davis, D. (1995). A study of measuring the critical factors of quality. International Journal of & Reliability Management, Vol. 12, No. 2, pp Beaumont, N.B., Sohal, A.S., Terziovski, M. (1997). Comparing quality practices in the Australian service and manufacturing industries. International Journal of & Reliability Management, Vol. 14, No. 8, pp Benson, G., Saraph, J., Schroeder, R. G. (1991). Effects of Organizational Context on Management: An Empirical Investigation. Management Science, Vol. 37, pp Dean, J. and Bowen, D. (1994). Management Theory and Total : Improving Research and Practice through Theory Development. Academy of Management Review 1994, Vol.19, No 3, Hellsten, U. & Klefsjö. B. (2000). TQM as a system consisting of values, techniques and tools. The TQM Magazine, 12(4), Hendricks, K.B., Singhal, V.R (2001). Firm characteristics, Total quality, and financial. Journal of operations 19 (2001) p Huq, Z., Stolen, J.D. (1998). Total Management contrasts in manufacturing and service industries. International Journal of & Reliability Management, Vol. 15, No. 2, pp Lagrosen, S & Lagrosen, Y. (2003). Management of service quality differences in values, practices and outcomes. Managing Service. Vol. 13, No. 5, pp Nilsson, L., Johnson, M.D., Gustafsson, A. (2001). The impact of quality practices on customer satisfaction and results: product versus service organizations. Journal of Management, Vol. 6, pp Parasuraman, A. & Varadarajan, P. (1988). Future strategic emphases in service versus goods es. The Journal of Service Marketing, Vol. 2, No. 4. Powell, T.C. (1995). Total Management as Competitive Advantage: A Review and Empirical study. Strategic Management Journal, Vol. 16, No.1, pp Quazi, H.A., Jemangin, J., Kit, L.W., Lee, C. (1998). Critical factors in quality and guidelines for self-assessment. The case of Singapore. Total Management, Vol. 9, No. 1, pp Sharma, B. & Gadenne, D. (2002). An inter-industry comparison of quality practices and. Managing Service, Vol. 12, No. 6, pp Sila, I. & Ebrahimpour, M. (2002). An investigation of the total quality survey based research published between 1989 and International Journal of and Reliability Management, Vol. 19, No. 7, pp Singh, P.J., Feng, M., Smith, A. (2006). ISO 9000 series of standards: comparison of manufacturing and service organisations. International Journal of & Reliability Management, Vol. 23, No. 2, pp Solis, L.E.., Rao, S.S., Raghu-Nathan, T.S., Chen, C-Y., Pan, S-C. (1998). practices and quality results: a comparison of manufacturing and service sectors in Taiwan. Managing Service, Vol. 8, No. 1, pp Sun, H. (2001). Comparing Management practices in the manufacturing and service industries. Learning opportunities. QMJ, Vol. 8, No. 2, pp Sousa, R. and Voss, C. (2002). Management re-visited: a reflective review and agenda for future research. Journal of Operations Management, Vol. 20, pp Woon, K.C. (2000). TQM implementation: comparing Singapore s service and manufacturing leaders. Managing Service, Vol. 10, No. 5, pp Zeithaml, V.,Parasuraman, A., and Berry, L. L. (1985), Problems and Strategies in Services Marketing, Journal of Marketing, Vol. 49 Spring, pp

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