Validation of A Model of Total Quality Management Performance Measurement Systems in the UK

Asia Pacific Management Review (2002) 7(3), 349-380 Validation of A Model of Total Quality Management Performance Measurement Systems in the UK Hsin Hsin Chang * and Dave A Sinclair ** (received January 2002; revision received March 2002; accepted May 2002) The research design based on the grounded theory approach of total quality management (TQM), and using 14 case studies analysis, was found to be appropriate in studying performance measurement (PM). The validation of a model based on the actual performance measurement systems in use at 115 TQM and non-tqm organizations in the UK. Performance measurements in TQM organizations suggest that must be widened to include concepts such as TQM performance assessment, the measurement of team performance, information technology challenge, suppliers-customers satisfaction and relationship, and reward and recognition. Future research is needed to clarify the definitions used, and to gain input from academics and practitioners in the fields of organizational behavior, technology management, strategic management, and all associated disciplines. Keywords: Deming Cycle (PDAC Cycle), Total Quality Management, Performance Measurement System, Technology Challenge, Reward and Recognition 1. Introduction Performance measurement (PM) has been identified as a key agent in any attempts to manage organizational change [1, 6, 12, 18, 35, 38, 45, 63, 68]. Since the introduction of total quality management (TQM) frequently requires a change in organizational culture and management style, PM can be seen to either inhibit or facilitate the introduction of TQM. Several authors have suggested the need for research into PM [6, 7, 15, 24, 36, 41, 66]. There has, been little empirical research into PM. Research into PM commonly involves manufacturing and service organizations of the development of case studies and surveys [12, 20, 22, 23, 29, 42, 48, 51, 57, 70, 71]. Several authors suggest that TQM is one of a range of factor influencing the need for PM systems to meet the specific demands of organizations, which have implemented TQM [6, 8, 18, 39,65, 68]. * Corresponding author: (1) Department of Business Administration, National Cheng Kung University, Tainan City (2) Graduate School of Business Administration, National Chiayi University, Chiayi City +886-911751861; e-mail: hhc@cs.ntust.edu.tw ** Management Centre of Bradford, England, UK 349

The model developed on the basis of the analysis of the case study data needed to be validated for its practical applicability. It was decided that this would be best achieved by the use of a postal survey of both TQM and non- TQM organizations in the UK. All previous fieldwork had involved the study of TQM based PM. The aim of the survey were: (1) The abbreviations of TQM organizations that have implemented TQM, and non-tqm organizations have not yet implemented TQM. (2) Any model of TQM based PM systems should provide clears linkages between PM, benchmarking, and quality costing. However, no such model of TQM based PM exists in the literature, and neither has there been any empirical research into the nature of TQM based PM in the UK organizations. (3) The model is tested a survey for this study, in order to confirm that the model is in use at organizations that have implemented TQM from Chang et al [9] in the previous research represents an exploratory study of PM in TQM organizations. (4) The literature on PM in services is less well developed than that for manufacturing. This study concentrates on the development of PM system suitable for manufacturing and services on TQM and non-tqm organizations. (5) Since the majority of the respondent organizations in the survey would probably not be described as best practice, the survey would show how widely applicable the model is to TQM organizations. It may also suggest a two-tier approach to PM within TQM organizations best practice as opposed to partial integration of TQM. (6) Compare PM in TQM and non-tqm organizations. This would allow some conclusions to be drawn about the changes made in PM systems when organizations implement TQM. 2. Total Quality Management and Performance Measurement Systems 2.1 Total Quality Management (TQM) Deming encouraged the Japanese to adopt a systematic approach to problem solving and continuous improvement, which he called the Shewhart cycle, but is more commonly know as the PDAC (Plan, Do, Check, Act) or Deming cycle. Deming also gave the Japanese Fourteen Points of Management, and identified four deadly sins. Hutchins [38] suggests that 350

Deming s contribution to Japanese industry was to present the ideas in a simple way which could be meaningful right down to production worker levels. The Japanese recognized Dr Deming s contribution to their quality efforts, and in 1951 established the Deming Prize, the most prestigious quality control award in Japan [38, 44,52]. TQM is a management philosophy that has developed incrementally over time, and continues to do so. TQM has been adopted by many companies and appears to have gained widespread acceptance in both the academic and business communities [5, 13, 20, 33, 46, 70]. Several authors suggest that PM can play a major role in the success or failure of organizational change programs [6, 12, 19, 39], and TQM in particular [3, 37, 65, 66]. As a consequence, PM is commonly included in literature on TQM [16, 25, 54, 62]. There are several different gurus, and many disciples and consultants offering advice on implementing TQM. It is vital to develop a company specific approach since TQM can only be planned and driven by senior management of the organization [3, 4, 43, 53, 55, 57, 67]. In the following section, the development and core concepts of PM are discussed. 2.2 Performance Measurement (PM) Systems McNair et al [52] state that the purpose of PM systems is to integrate organizational activities across various managerial levels and functions. The need to integrate measures is also suggested by Hronec [37], who defines a PM system as a tool for balancing multiple measures (cost, quality, and time) across multiple levels (organization, processes and people). Meyer [51] states that the design of any PM system should reflect the basic operating assumptions of the organization it supports. Fizgerald et al [23] and Gregory [29] suggest that an effective PM system should consist of not only the traditional financial and cost accounting criteria used by upper management, but also tactical performance criteria that are used to assess the firm s current level of competitiveness and direct its efforts in attaining a desired competitive position. Easton and Jarrell [20] stress the need for PM systems to focus attention on continuous improvement. Green et al [30] suggest that PM systems should target the value-added activities of the company. The link between between strategies, actions and measures, developed by Brockett [6], Dixon et al [19], Kueng [45], Roethlein [60], Scott [64], and, Zhang [71] suggest that unless companies adapt their measures and measurement systems to facilitate the introduction of TQM, implementation will fail to reap the 351

expected benefits. PM is thus a potential obstacle to TQM. 2.3 A Framework of TQM Based Performance Measurement The developed a framework expands the concept of measurement, both in terms of the areas within the management of organizations that are covered, and also in the inclusion of aspects of the management process that may appear to be unrelated to the concept of measurement by Chang et al [9]. This study includes 14 companies of PM, and each case study organization has implemented TQM, although the level of integration of TQM in each case varies in the UK. The case studies were therefore divided into two groups manufacturing and service achievement of organizational objectives. Of these organizations: (1) Seven are manufacturers organizations: Elida Gibbs, ICL, BOC UK Gases, Aeroquip, Coca Cola Schweppes Beverages, Kodak, and Shell Chemicals UK Limited. (2) Seven are service organizations: NatWest Life Assurance, MercuryCom, BC Related Services, Girobank, American Express in the UK, N&P Building Society, and Royal Mail. In order to facilitate analysis, the case studies are further sub-divided via a subjective assessment of the overall effect of PM on their organization, determined by the interviewees. As stated in Chang et al [9], measurement must form part of a wider management process, since measurement data that is collected. The five elements of a framework of TQM based organizations PM from 14 case study organizations in the UK that have been identified in Figure 1 and as follows: (1) Strategy development and goal deployment: including mission/vision, strategic, critical success factors (CSFs) and key performance indicators (KPIs). (2) Process management and measurement: including input, in-process and output measures, process management, performance reviews, management control systems, performance measures, continuous improvement management of internal and external customer-supplier relationships, the use of management control systems, and target setting. (3) Performance appraisal and management: including performance appraisal and performance management. (4) Break-point performance assessment: including internal and external benchmarking, self-assessment against quality award criteria, and quality 352

costing. (5) Reward and recognition of individuals, teams and external supplier. The first three elements of the model correspond to the levels of PM suggested by Globerson [28] and later by Ahire [1], Davidson et al [18], Hamada [34], Killingsworth [43], Roethlein [60], and Rummler and Brache [61]. Reward and recognition systems are not developed in the same way as the rest of the model because: (1) reward and recognition is the result of PM in the first three levels of the model (i.e. is an out of PM); (2) the processes of reward and recognition were not clearly identified in the case studies. Reward and recognition has been identified as a separate aspect of the PM system model, it is an integral output of PM. 1. TQM Strategy Development and Goal Deployment - Strategic Management - Communication - Performance Measure 2. Process Performance and Management - Process Management - Customer- Supplier Relationship - Performance Reviews - Management Control Systems - Performance Measures - Target Setting - Continuous Improvement 3. Performance Appraisal and Management 4. Break-Point Assessment 5. Reward and Recognition of TQM-PM Systems Figure 1. A Framework of TQM Organizations Performance Measurement (Adopt from Chang et al [9]) 3. Definition of TQM Performance Measurement System Terms from Case Study Organizations Definitions of TQM and PM have been chosen as the most appropriate of those found in the literature [1, 6, 9, 12, 23, 24, 29, 33, 39, 42, 45, 46, 51, 54, 58, 65, 67] have been developed where no appropriate definition exists. The following terms are specific to each level of the model of TQM performance measurement systems: 353

3.1 Level 1: Strategy Development and Goal Deployment The case organizations use similar approaches in strategy development and goal deployment. The main differences between the organizations appear to lie in the detail and clarity of the strategic plans developed, and how well they are deployed throughout the organization. Of key importance in the deployment process appears to be the clear assignment of responsibility for the implementation of action plans, and performance against CSFs and KPIs. This proved successful at Kodak, Mercury and NatWest Life. (a) CSFs are for any business, the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization [54, 59]. (b) KPIs are the actual measures used to quantitatively assess performance against the CSFs. There should be at least one KPI for each CSF. In Figure 2, the approach to PM at the organizational level identified at the case study organizational and integrated to form Level 1 of the TQM performance measurement system model is similar to those identified by other authors. The prime differences in the TQM model concern the nature of the measurements, and the recognition of the strategy development and goal deployment process as a PDCA cycle (or Deming cycle). The use of a PDCA cycle at the organizational level fits into the TQM approach of continuous improvement. Continuous improvement at the organizational level concerns the improvement of strategic planning and management of the organization as a whole. A final point about PM at the organizational level relates to the use of IT. The use of EIS, ERP, SCM, and CRM systems at the organizational level has suggested by many authors (for example Chase et al [10], Choi and Eboch [12], Davidson et al [18], Easton and Jarrell [20], Lummus and Robert [47], Samson and Terziovski [62], and Sommerville [65]). The use of information system was associated with quick response for measurements frequency and reporting for example at Coca Cola and American Express. NatWest Life Assurance had implemented EIS and CRM systems at the time of the survey. 354

Stakeholders: Customers Employees Shareholders Community Identify Stakeholder Requirements Identify Critical Success Factors (CSFs) Assign Responsibility Performance Management and Appraisal Reward and Recognise Performance Develop Mission/ Vision Statemenet Analysis Organiza. and Environm. Compare Require. and Capability Set Targets for KPIs Develop Action Plans: Straegic and Operation Implement Action Plans (Manage Processes) Measure Performance vs KPIs Identify Organizational Capability Define Key Performance Indicators (KPIs) Feedback 1 (Based on Meaurement Frequency) Feedback 2 (Annual Review) Figure 2. Performance Measurement System Model Level 1: Strategy Development and Goal Deployment 3.2 Level 2: Process Management and Measurement Process management and measurement is suggested that process PM should include measures of inputs, process, and outputs. In Figure 3, outputs from a supplier (internal or external) form the inputs to the next customer. It is therefore only necessary to define process and output measures: (a) Process measures monitor the activities of a process and motivate people within a process. [37, 65, 70] (b) Output measures report the results of a process, often to management, and are used to control resources [8, 33, 37] The key difference between process and output measures are that process measures relate to activities, whilst output measures relate to the results of activities. At the case study organizations there were great differences between the levels of management of processes, as opposed to management of functions. Cross-functional PM is vital component of the removal of functional silos, and the consequent potential for sub-optimization and failure to take account of customer requirements [8, 32, 56, 70]. The success of PM at process level was depend on the degree of management of process with crossfunctional teams set up to manage process improvement, and the degree of clarity of the deployment of strategic of information technology and management objectives. 355

CUSTOMERS Assign Management Systems Reward and Recognise Performance Identify Customer Requirements Assign Redponsiblity Core Business Processes Develop Mission/ Vision Statemenet Indentify Key Process Activities Compare Require. and Capability Define Process Performance Measures (PPMs): Inputprocessoutput Develop process Action Plans Set Targets Operate Process Measure Performance vs PPMs Identify Organizational Capability Feedback 2 Feedback 1 Deploy Deploy Deploy Deploy Sub-Processes Figure 3. Performance Measurement System Model Level 2: Process Management and Measurement 3.3 Level 3: Performance Appraisal and Management In Figure 4, the aim of performance appraisal and management is to develop an integrated approach to the management of individuals and teams. Performance appraisal and management includes the two linked elements of performance management and performance appraisal: (a) Performance management is a systematic, data-oriented approach to managing people at work that relies on positive reinforcement as the major way to maximize performance. [17, 55] Performance management refers to the management of individuals and teams on a frequent and ongoing basis (daily time period). (b) Performance appraisal is the process by which organizations establish measures and evaluate individual employees behavior and accomplishments for a finite period of time. [35, 60] Performance appraisal refers to the formal planning and review of activities of activities and behavior of individuals, usually on an annual basis, with a view to deterring compensation and promotion. The performance appraisal system was probably the least successfully implemented element of the PM system model so far discussed. Appraisal systems appear to motivate individuals to achieve process and personal development objectives, but not to perform in teams. One of the key problems the appraisal process is the frequency of measurement, which could 356

be increased, but no organizations suggested that they would do so. Assign Responsibility Process and/or Organizational Perform Tasks Plan Tasks Asses Performance Give Feedback Performance Management System Identify Requirements - Process - Personal Performance Appraisal System Define KPIs Analyse Job Activities Compare Skill and Requirement Identify Current Skills - Process -Personal Set Targets Plan Activities Perform Tasks (Process and Development) Measure Performance vs KPIs (Performance Appraisal) Reward and Recognise Performance Feedback Figure 4. Performance Measurement System Model Level 3: Performance Appraisal and Management 3.4 Level 4: Break-Point Performance Assessment Break-point performance assessment can be defined as the measurement of any performance criteria that is intended to identify significant gaps in current performance, and thereby motivate activities to improve performance so as to reduce or eliminate the gap. Break-point assessment techniques generate targets for future performance, and also identify activities that should be taken to meet the target. Break-point assessment includes both internal (within the organization) and external (involving sources outside the organization) measurement techniques. In Figure 5, the use of break-point assessment techniques varied greatly amongst the case study organizations. It is hypothesized that the difference between TQM and non-tqm organizations is the desires of TQM organizations to use such innovative techniques in order to achieve breakthroughs in performance improvement. The use of the techniques as outlined differs from most authors in two respects: (a) The integration of break-point assessment techniques into the overall performance management process. (b) The recognition that such techniques can move from being break-point 357

techniques to being simple another measurement technique at the organization or process levels. This was the case with for example benchmarking at ICL, quality costing at Barclays CRSD, and customer satisfaction and relationship surveys at all case study organizations. CHOOSE ASSESSMENT TECHNIQUE: Measure Performance vs KPIs - Organization -Process Internal Cost of Quality Activity-Based Costing Internal Benchmarking Self-assessment Business Process Re-engineering Identify Need for Assessment Choose Assessment Mode Perform Assement FEEDBACK RESULTS INTO PLANNING AND TARGET-SETTING PROCESS CHOOSE ASSESSMENT TECHNIQUE: External External Assessnebt Competitive Benchmarking Competitor/Market Analysis Customer Surveys Quality Fnction Deployment Figure 5. Performance Measurement System Model Level 4: Break-Point Performance Assessment 3.5 Level 5: Reward and Recognition System Reward and recognition are the financial and non-financial consequences given as a result of superior performance. Reward or recognition must be based on measured superior performance. Both reward and recognition can be awarded to individuals, teams, department, processes or an organization a whole. (Daniels and Rosen [17], Kanji [39], and Samson and Terziovsk [62] refer to as positive reinforcement ) (a) Rewards are the financial consequences given as the result of measurably superior performance. (b) Recognition includes all non-financial consequences given as the result of measurably superior performance. Recognition includes the use of awards, publicity, and congratulation. The reward and recognition systems within the case study organizations were generally neither clearly documented nor integrated into an overall system. Thus whilst parts of the systems may be documented (e.g. awards to suppliers, appraisal system financial rewards, and ICL s reward system), there appeared to be a lack of clarity and coordination of the approaches. 358

This is perhaps surprising, giving the emphasis placed on such approaches in TQM. Reward and recognition is included in the TQM performance measurement system model, since it would appear that all the case study organizations have attempted to innovate in this area. 4. Research Design 4.1 Survey Design The level of PM system model for TQM organizations developed in section 3. It was decided that, in order to maximize the response rate, respondents would be asked questions requiring the minimum level of data entry. The aim survey were: (1) To identify those aspects of performance perceived as being of long-term competitive importance in TQM organizations. It was assumed that the goal of TQM meeting and exceeding customer requirements by the effective management of processes. (2) To identify those aspects of performance, which in the opinions of the respondents, are most emphasized in their organizations current PM systems. It was hypothesized that the implementation of TQM would be reflected in organization s emphasis on TQM objectives in their PM systems. (3) To identify whether in fact organizations that have implemented TQM have made changes to the measures of performance emphasized in their measurement systems, such that there is a match between the communicated goals of TQM, and the measures of performance used. This research has been designed 8 sections including: (1) Background Information (2) Development of the PM System, (3) Process Management, (4) Uses of PM, (5) PM and Performance Appraisal, (6) No-Financial PM Techniques, (7) Opportunity Identification and Management, and (8) Future plans. 4.2 Sample Selection Postal survey of performance measures this survey, based on the work of Dixon et al [19], and later replicated by Gregory [29], involved a survey of the effectiveness of PM for TQM. Validation of the PM system model this involved the use of a postal questionnaire to survey the elements of PM systems. The sample of questionnaires were sent to 500 manufacturing and service organizations in the UK, and use the corporate membership of the 359

European Foundation for Quality Management (EFQM) by sample selection. Analysis of the data from this survey allowed the model will be refine in the light of evidence from a wider sample of firms for future research. It was not possible to ensure that the sample of organizations included a balance of TQM and non-tqm organizations, since this information is not documented. It should also be remembered that there is little agreement on which organizations can truly be defined as total quality even then they claim to have implemented TQM. Postal surveys are not ideally suited to the study of PM, given the wide range of areas of measurement within organizations, and the consequent difficulty in finding any one individual who will have all the requisite knowledge to complete the questionnaire. Ahire [1], Brockett [7], Chang et al [9], Davidson et al [18], Kanji [40], Killingsworth [44], and Zhang [71] were suggested that quality managers, with their organization-wide viewpoint, would prove to be the most knowledge individuals in the field of PM. Consequently it was decided to address the questionnaires to the quality manager. However, in the introductory letter, it was suggested that the respondent should be someone with sufficient knowledge of PM to complete the questionnaire. This obviously has implications for introducing bias into the respondent sample, since it can be argued that TQM organizations are such more likely to have positions such as quality manager. However, it was decided that he need to achieve a high response rate, and ensure of the questionnaire required such individuals to be chosen. 4.3 Respondent In total 115 usable responses were returned, giving a response rate of 23%. Of these 99 organizations (86%) had implemented TQM, whilst 16 (14%) had non-tqm process. The division between manufacturing and services was almost even, with 58 manufacturers and 57 services responding. Table 1 shows the division of respondents by use of TQM and by industry sector. The division of TQM and non-tqm organizations by industry was almost even. Of the 99 TQM organizations, 51 (44%) were manufacturers, and 48 (42%) were services. The average experience of use of TQM was 10 years. The vast majority of organizations (77 or 81%) had more than five years experience of TQM, although 30 organizations had at least ten years experience of TQM. Manufacturers had on average 4 more years more experience of TQM than services, with 15 years compared to 11 years. Of 360

the 16 non-tqm organizations, 7 (6%) were manufacturers, and 9 (8%) were services. Table 2 shows the responses by respondent position. Since the questionnaire was addressed to the quality manager, it is not surprising that the majority of respondents (77 or 67%) represented the quality function. At TQM-organizations 65 (65.7%) of respondents represented quality, and 12 (75%) of non-tqm organizations were represented by quality managers. This is suggests that the a priori assumption about bias in the sample was not true in terms of the respondent population. The only group of respondents not represented in both TQM and non-tqm organizations was human resources, all of who represented TQM organizations. Table 1. Responses by Industrial Sector Industrial Sector TQM Non-TQM Total Manufacturers 51 (44%) 7 ( 6%) 58 (50%) Services 48 (42%) 9 ( 8%) 57 (50%) Total 99 (86%) 16 (14%) 115 (100%) Table 2. Responses by Respondent Position Position TQM Non-TQM Total Sales/Marketing 5 ( 5%) 1 ( 6%) 6 ( 5%) Production/Operations 9 ( 9%) 2 (12%) 11 (10%) Quality 65 (66%) 12 (75%) 77 (67%) Human Resource 8 ( 8%) 0 ( 0%) 8 ( 7%) Other 12 (12%) 1 ( 6%) 13 (11%) Total 99 (86%) 16 (14%) 115 (100%) 5. TQM Performance Measurement System from Data Analysis 5.1 Level 1: Strategy Development and Goal Deployment In the first section of the questionnaire, respondents were asked to identify which of a number of strategic management practices had been implemented by their organization. The hypothesis was that TQM organizations were likely to have implemented a wider range of the formal strategic management practices identified at the case study organizations. Responses were in the form of done (organization has completed this activity) planned (organization plans to undertake this activity) and no plans organization has no plans to undertake this activity). The results are summarized in Table 3, shows that from the production of a mission/vision statement, TQM-organizations in the sample are approximately twice as 361

likely as non-tqm organizations to have implemented the strategic planning practices identified in the case study organizations. Table 3. Strategic Planning Activities by Use of TQM Strategic Activities Industrial Sector TQM Organizations (%) No Done Plan Plans Non-TQM Organizations (%) No Done Plan Plans Overall (%) Done Plan No Plans Mission Manufacturer 98 2 0 89 11 0 97 3 0 Service 91 4 4 91 0 9 91 4 5 Strategy Mfg. 78 22 0 44 33 22 72 24 3 Service 74 13 13 36 36 27 67 18 16 Action plans Mfg. 65 29 6 44 22 33 62 28 10 Service 65 20 15 30 40 30 59 23 18 CSFs Mfg. 61 20 18 33 22 44 57 21 22 Service 57 22 22 20 30 50 50 23 27 Measures for CSFs Mfg. 47 27 27 22 22 56 43 26 31 Service 40 31 29 20 30 50 36 31 33 Targets for CSFs Mfg. 49 29 22 22 22 56 45 28 28 Service 36 31 33 10 20 70 31 29 40 Responsibility for Mfg. 49 27 25 33 11 56 47 24 29 CSFs Service 51 22 27 10 20 70 44 22 35 Cascade Strategic Mfg. 59 29 12 22 22 56 53 28 19 Objectives Service 53 29 18 40 20 40 51 27 22 Key: Mfg.: Manufacturer Mission: Developed a publicized mission statement Strategy: Developed a strategic plan to achieve the mission Action Plans: Developed action plans to implement strategy Critical Success Factors (CSFs): Developed set of CSFs Measures for CSFs: Defined measures for each CSF (KPIs) Responsibility: Defined responsibility for CSFs Cascade strategic objectives: Cascaded strategic objectives throughout the Organization. The figures for TQM manufacturers and services are very similar. For non-tqm companies, manufacturers are more likely to have developed a strategy, action plans and CSFs, but services are more likely to cascade strategic objectives. Respondents were then asked to give more details about the CSFs used by their organization. Respondents were first asked to identify the factors included in tier organization s set of CSFs. Factors included are shown in Table 4. The sample size was much lower for the questions related to CSFs, since only 54% of all organizations had developed a set of CSFs. Seventyone TQM organizations responded to both of these questions, and 8 non- TQM organizations. This compares to 56 TQM organizations and 5 non- 362

TQM organizations to have actually developed CSFs. The other respondents (15 TQM organizations and 3 non-tqm organizations) represent organizations that have planned to develop a set of CSFs. The majority of TQM manufacturers include all CSFs, although flexibility, innovation, social/environmental performance and safety are included by between 70 and 80% of the companies. All other variables are included by at least 87% of TQM manufacturers. Non-TQM manufacturers show a similar pattern, despite the small sample size (5 companies). TQM services show a similar pattern to manufacturers, although productivity is included by less than 70% of companies. All CSFs apart from customer satisfaction are similar TQM manufacturers and service. Again non-tqm services show a similar pattern, despite the very well small sample size (3 companies). The emphasis placed on each CSF by the respondent organizations. The small sample size of non-tqm (8 in total) makes it difficult to draw conclusions about the differences between TQM and non-tqm organizations. TQM organizations emphasize customer satisfaction and relationship, delivery and employee development more highly then non-tqm organizations. Non-TQM organizations emphasize financial performance, flexibility, innovation and safety more highly than TQM organizations. Emphasis on quality, productivity and social/environmental performance is similar in TQM and non-tqm organizations. For manufacturing organizations, the ranking of CSFs in order of emphasis is quite similar for both TQM and non-tqm organizations, with customer satisfaction and relationship, quality and financial performance going in the top three for both groups. For services, the ranking is somewhat different between TQM and non-tqm organizations. Only delivery occurs in the top three of both sets of organizations. As for TQM manufacturers, TQM service rank customer satisfaction and quality in the top three most emphasized CSFs. Non-TQM services place less emphasis on customer satisfaction and quality, these being replaced by financial performance and delivery. 363

Table 4. Strategic Activities: Inclusion, Emphasis, and CSFs (ANVOA) Strategic Activities Industrial TQM Non-TQM Overall Sector Num. Rati. P-Value Num. Rati. P-Value Num. Rati. P-Value Quality Mfg. Services 25 28 4.6 4.7 0.041 * 0.023 * 5 3 4.6 4.7 0.044 * 0.000 ** 40 31 4.6 4.7 0.050 * 0.020 * Customer Satisfaction/ Relationship Mfg. Services 35 33 4.8 4.8 0.000 ** 0.000 ** 5 3 4.6 4.3 0.000 ** 0.000 ** 40 36 4.8 4.8 0.000 ** 0.000 ** Financial Performance Mfg. Services 35 31 4.8 4.2 0.026 * 0.445 5 3 4.8 5.0 0.000 ** 0.000 ** 40 34 4.8 4.4 0.011 * 0.036 Productivity Mfg. Services 33 22 4.5 4.0 0.011 ** 0.603 5 2 4.4 4.0 0.001 ** 0.071 38 24 4.5 4.0 0.010 ** 0.203 Delivery Mfg. Services 36 29 4.4 4.6 0.000 ** 0.041 * 5 1 4.2 5.0 0.115 0.002 * 41 30 4.4 4.6 0.034 * 0.021 * Flexibility Mfg. Services 27 21 4.0 4.0 0.026 * 0.367 4 1 4.3 5.0 0.091 0.392 31 22 4.0 4.0 0.026 * 0.177 Innovation Mfg. Services 29 20 4.0 3.3 0.025 * 0.000 ** 4 2 4.5 3.0 0.000 ** 0.012 ** 33 22 4.1 3.2 0.018 * 0.001 ** Social/Environmental Performance Mfg. Services 26 16 3.5 3.4 0.572 0.661 4 1 3.5 4.0 0.464 0.280 30 17 3.5 3.4 0.582 0.481 Employee Development Mfg. Services 32 28 3.8 4.1 0.471 0.059 * 5 3 3.6 3.3 0.271 0.173 37 31 3.7 4.0 0.921 0.062 Safety Mfg. Services 28 24 4.2 4.2 0.040 * 0.031 * 4 3 4.5 4.7 0.061 0.004 ** 32 27 4.2 4.2 0.340 0.104 * Num.: Number of organizations, Rati.: Rating, *: Significant (95%), **: Very Significant (99%) ANVOA (analysis of variance) was conducted to examine the relationships between composite variables representing strategic activities to TQM and non-tqm in manufacturers and services, as show in Table 4. The variables significantly related to integration in TQM and non-tqm organizations, include the quality, customer satisfaction and relationship, and innovation, but not for social Performance, environmental performance, and employee development. Respondents were then asked to identify the purposes for which PM is used in their organization. The use varied from measurement of organizational performance to measurement of individual performance. Overall, in Table 5 TQM organizations use measurement more widely for most of the purposes than non-tqm organizations. TQM organizations use measurement significantly more widely in the areas of overall company performance, process/functional performance, continuous improvement, and benchmarking and opportunity identification. Use of measurement for tem performance, individual performance and goal alignment are similar for TQM and non-tqm organizations. TQM manufacturers use measurement more widely for all purposes shown in Table 5 then non-tqm manufacturers. TQM manufacturers particularly use measurement more widely for measuring process and 364

individual performance, goal alignment, continuous improvement, benchmarking and opportunity identification. TQM and non-tqm manufacturers use measurement similarly for measuring overall company performance and team performance. TQM service use measurement more widely than non-tqm services for measuring overall company and process/functional performance and benchmarking, but similarly for the other possible uses. In TQM organizations, both manufacturers and services use PM similarly, expect for continuous improvement and benchmarking, for which PM is used more by manufacturers than service. In non-tqm organizations, the differences between service and manufacturers are more marked. Manufacturers use measurement at the company and process/functional levels and benchmarking more than services. Non-TQM services use measurement more than manufacturers for performance management, goal alignment, continuous improvement, and opportunity identification. ANVOA was used to examine the relationship between the composite use of non-financial measurement variables and TQM use and non-tqm. The results of ANVOA for manufacturing and service are shown in Table 5, including overall company performance, process and function performance, and continuous improvement. Only goal alignment was significant in TQM but not in non-tqm use. Table 5. Uses of Non-Financial Performance Measurement Use of Non-Financial Industr. TQM Use Non-TQM Use Overall Use Measurement Sector Num. (%) P-Value Num. (%) P-Value Num. (%) P-Value Overall Company Mfg. 33 (65) 0.014 * 6 (86) 0.042 * 42 (72) 0.022 * Performance Services 36 (78) 0.027 * 5 (56) 0.046 * 38 (67) 0.038 * Process/ Function Mfg. 40 (78) 0.010 ** 5 (71) 0.045 * 45 (78) 0.039 * Performance Services 34 (71) 0.031 * 5 (56) 0.050 * 39 (68) 0.035 * Team Performance Mfg. 30 (59) 0.078 5 (71) 0.281 35 (66) 0.145 Services 26 (54) 0.095 6 (67) 0.275 32 (56) 0.100 Individual Mfg. 32 (63) 0.357 4 (57) 0.166 36 (62) 0.154 Performance Services 31 (64) 0.880 7 (78) 0.730 38 (67) 0.631 Goal Alignment Mfg. 29 (57) 0.023 * 2 (29) 0.330 31 (53) 0.045 * Services 23 (48) 0.026 * 6 (67) 0.276 29 (51) 0.024 * Continuous Mfg. 41 (80) 0.000 ** 3 (43) 0.008 ** 44 (76) 0.001 ** Improvement Services 28 (58) 0.025 * 5 (56) 0.044 * 33 (58) 0.039 * Benchmarking Opportunity Mfg. 27 (53) 0.030 * 3 (43) 0.039 * 30 (52) 0.022 * Services 15 (31) 0.091 2 (22) 0.138 17 (30) 0.131 Mfg. 41 (80) 0.660 5 (71) 0.520 46 (79) 0.619 Identification Services 35 (73) 0.005 ** 8 (89) 0.035 * 43 (75) 0.044 * Num.: Number of organizations, Rati.: Rating, *: Significant (95%), 365

**: Very Significant (99%) 5.2 Level 2: Process Management and Measurement Respondents were asked to identify which aspects of processes have been identify which aspects of processes have been identified, defined and documented. Responses where are in the form of done, planned, and no plans. The results are shown in Table 6. TQM organizations are more likely to have mapped and documented all aspects of processes than non- TQM organizations. This is particularly the case in manufacturing. Table 6. Process Documentation and Identification Process Definition Industrial Sector Non-TQM TQM Orgs. (%) Overall (%) Orgs. (%) No Done Plan Plans Done Plan No Plans Done Plan No Plans Core Processes Mfg. 84 14 2 67 0 33 81 12 7 Service 78 9 9 82 9 9 79 9 12 Sub- Processes Mfg. 74 14 12 33 11 56 67 14 19 Service 47 33 20 50 10 40 47 29 24 Process owners Mfg. 74 20 6 56 11 33 71 19 10 Service 56 27 18 60 10 30 56 24 20 Suppliers and customers Mfg. 61 27 12 44 22 33 59 26 16 Service 48 30 23 20 30 50 43 30 28 Customer Require. Mfg. 67 25 8 56 11 33 66 22 12 Service 66 18 16 40 40 20 61 22 17 Measure. Point Mfg. 71 22 6 56 11 33 69 21 10 Service 51 29 20 50 0 50 51 24 14 Key Process Measures Mfg. 71 16 12 56 11 33 69 16 16 Service 60 22 18 40 30 30 56 24 20 Measure. Frequency Mfg. 71 20 8 56 11 33 69 19 12 Service 42 36 22 30 30 40 40 35 25 Performance Target Mfg. 74 22 4 67 22 11 72 22 5 Service 60 22 18 40 20 40 56 22 22 Feedback Loops Mfg. 61 27 12 56 11 33 60 24 16 Service 62 24 13 60 0 40 62 20 18 The differences between TQM and non-tqm services are less marked. Identification of core and sub-processes, process owners, measurement points and feedback loops is very similar in TQM and non-tqm services. TQM services are more likely to have identified customers and suppliers, customer requirements, performance measures, frequency of measurement and performance targets than non-tqm services. TQM manufacturers have identified all aspects of processes except for customer requirements and feedback loops more widely than TQM services. In non-tqm organizations, services have more widely identified core and 366

sub-processes, process owners and feedback loops. Respondents were asked to identify those individuals responsible for developing measures, setting performance targets, and for actually measuring performance. It should be noted that the responses are not mutually exclusive, is different people can be responsible for the same aspect of PM (perhaps for different measures). The results are shown in Table 7. TQM organizations responsibility for defining measures and measuring performance rests with process owners and their immediate superiors to a greater extent than for non-tqm organizations. In non-tqm organizations, responsibility of measurement rests to a greater extent with higher management. In both TQM and non-tqm organizations, third parties are rarely responsible for any aspects of non-special PM. The results suggest the development of PM at TQM organizations is a more bottom-up, participative process than at non-tqm organizations, where the process appears to be more top-down. Table 7. Responsibility for performance measurement Responsibility TQM Organizations Non-TQM for PM Deve. (%) Target (%) Meas. (%) Deve. (%) Target (%) Meas. (%) Process owner 44 (48) 26 (29) 52 (57) 5 (28) 3 (17) 7 (39) Immediate superior Higher management 37 (41) 45 (50) 39 (43) 4 (22) 6 (33) 6 (33) 33 (37) 53 (59) 26 (29) 11 (61) 10 (56) 7 (39) Third party 11 (12) 9 (10) 13 (14) 1 (6) 0 (0) 2 (11) Deve.: Development, Meas.: Measurement 5.3 Level 3: Performance Appraisal and Management Respondents were asked to identify which of a range of performance management techniques are used in their organization. It should be noted that this includes the use of PM in the reward and recognition of teams and individuals, since it was decided that this was the most appropriate section of questionnaire to include reward and recognition. The results are shown in Table 8. TQM organizations use PM in performance appraisal, performance management, and linking people and processes more widely than non-tqm organizations. TQM and non-tqm organizations use PM in team management and reward and recognition in similar proportions. Manufacturers and service use PM for all techniques in similar proportions. TQM manufacturers us PM for all purposes more widely than non- TQM manufacturers, expect for reward and recognition, which is more 367

frequent at non-tqm manufacturers. TQM services use PM more frequently than for all purposes except for team management, for which PM is used more frequently by non-tqm services. Table 8. Performance Management Techniques Performance TQM Organs. (%) Non-TQM (%) Overall (%) Indust. Management Sector No No No Techniques Done Plan Done Plan Done Plan Plans Plans Plans Performance Mfg. 85 9 7 64 9 27 81 9 11 Appraisal Service 84 10 6 78 11 11 83 10 7 Performance Mfg. 25 4 71 13 13 75 23 5 72 Management Service 27 7 67 10 20 70 24 9 67 Team Management Mfg. 43 29 29 25 13 63 40 26 33 Service 46 28 26 60 0 40 48 23 29 Reward and Mfg. 45 22 33 63 25 13 47 23 30 Recognition Service 57 7 37 40 0 60 54 5 41 Link Process and Mfg. 49 29 22 13 25 63 44 28 28 People Service 37 22 41 20 20 60 34 21 45 5.4 Level 4: Break-Point Performance Assessment 5.4.1 Internal Techniques Respondents were asked to identify which of a range of break-point assessment techniques were used by their organization. The techniques chosen are amongst those suggested in the literature [10, 18, 31, 47], and also those found at the case study organizations [3, 8, 37]. Table 9 shows the internal break-point assessment techniques used. TQM organizations generally use the range of internal break-point assessment techniques more widely than non-tqm organizations, particularly quality costing, selfappraisal, business process reengineering, and process capability analysis. Activity-based costing is used in similar proportions by TQM and non-tqm organizations. Quality costing and process capability analysis is more widely used by manufacturing companies and services. The other techniques are used in similar proportions by manufacturing and services. TQM manufacturers use activity-based costing and self-appraisal in similar proportions to non-tqm manufacturers, but use the other techniques much more widely. TQM services use all techniques except for process capability analysis more wield than non-tqm services. 368

Table 9. Internal Break-Point assessment Techniques Break-Point TQM Organs. (%) Non-TQM (%) Overall (%) Indust. Assessment Sector No No No Done Plan Done Plan Done Plan Techniques Plans Plans Plans Activity- based Mfg. 56 33 11 49 29 22 50 29 21 costing (ABC) Service 60 20 20 59 30 11 59 29 13 Cost of quality Mfg. 44 22 33 27 53 20 29 48 22 Service 90 0 10 46 24 30 54 21 27 Self- appraisal Mfg. 67 33 0 35 31 35 40 31 29 Service 80 10 10 44 28 28 50 25 25 Business process Mfg. 68 22 11 47 27 27 50 24 26 reengineering Service 80 10 10 61 26 13 64 23 13 Process capability Mfg. 63 67 22 11 16 20 28 55 17 analysis Service 15 60 20 20 11 74 71 16 13 5.4.2 External Techniques Table 10 shows the external break-point assessment techniques used by the respondent organizations. As for internal techniques, TQM organizations generally use all external break-point assessment techniques more widely than non-tqm organizations. Manufacturers use all techniques apart from customer surveys more widely than services. TQM manufacturers use all techniques part form competitor/market analysis more widely than non-tqm manufacturers. TQM services use all techniques more widely the non-tqm services. Table 10. External Break-Point assessment Techniques Break-Point TQM Organs. (%) Non-TQM (%) Overall (%) Indust. assessment Sector No No No Done Plan Done Plan Done Plan Techniques Plans Plans Plans Competitor/market Mfg. 84 8 8 89 0 11 85 7 9 analysis Service 54 15 30 20 20 60 48 16 36 Benchmarking Mfg. 43 35 22 22 0 78 40 30 31 Service 30 28 41 20 10 70 29 25 26 Customer surveys Mfg. 67 18 14 56 0 44 66 16 19 Service 67 9 24 60 0 40 66 7 27 Quality function Mfg. 25 20 55 0 11 89 21 19 60 deployment Service 11 11 78 0 0 100 9 9 82 5.4.3 Level 5: Reward and Recognition System In order to get a picture of the measurement culture within the respondent organizations, respondents were asked to rate how strongly they agreed with a range of statements on PM, when applied to their organization. The results are shown in Table 11. Respondents agreed more widely with 369

all statements that non-tqm organizations. Manufacturers and services rate all aspects similarly, except for the need for measurement to trigger improvement, which manufacturers rated as much more important than services. TQM manufacturers rated people involvement, the need to link measurement to processes, the need to link measurement to goal development, the need to have a mixture of team and individual elements, and the need for relative not absolute measurement more highly then non-tqm manufacturers. TQM-services, rated all elements similarly to non-tqm services, apart from the need to include both hard and soft aspects of measurement, which they rated as more important than non-tqm services. Table 11. Perceptions of performance measurement Performance measurement Industrial TQM Non-TQM Overall (PM) Sector Rating P-Value Rating P-Value Rating P-Value People involvement Mfg. 4.5 0.019 * 4.0 0.140 4.4 0.034 * Service 4.5 0.037 * 4.5 0.026 * 4.5 0.047 * Linked to processes Mfg. 4.7 0.010 ** 4.3 0.007 ** 4.6 0.016 ** Service 4.5 0.051 * 4.3 0.029 * 4.4 0.031 * Trigger improvement Mfg. 4.7 0.089 4.6 0.031 4.7 0.078 Service 4.2 0.095 4.0 0.165 4.1 0.095 Linked to goal development Mfg. 4.3 0.120 3.7 0.597 4.2 0.357 Service 3.9 0.330 4.0 0.610 3.9 0.810 Mix of individual and team Mfg. 4.1 0.437 3.7 0.800 4.0 0.329 elements Service 4.0 0.528 4.0 0.746 4.0 0.541 Include both hard and Mfg. 4.0 0.001 ** 4.0 0.000 ** 4.0 0.000 ** soft aspects Service 3.9 0.024 * 3.5 0.033 * 3.9 0.025 * Relative not absolute Mfg. 4.0 0.014 * 3.4 0.022 * 4.0 0.050 * Service 3.9 0.050 * 3.6 0.062 3.8 0.091 *: Significant (95%), **: Very Significant (99%) Respondents were asked to rate the effectiveness of PM within their organizations the level of goal alignment at different hierarchical levels, and the degree of support of PM in achieving organizational objectives. The results are shown in Table 12. TQM organizations rated higher on all aspects of effectiveness than non-tqm organizations, and manufacturers rated all aspects slightly higher than services. The only significant difference appears to be in the difference between YQ and non-tqm organizations overall rating of PM. Composite PM was calculated by perceptions and rating and the importance of the PM. ANVOA was used to examine the relationship between the composite use of perceptions and rating of PM variables and TQM use and non-tqm. The results of ANVOA for manufacturing and 370

service are shown in Tables 11 and 12, including People involvement, Linked to processes, and Include both hard and soft aspects significant relationship to PM, but not relative absolute for the service in non-tqm organizations. Table 12. Rating of performance measurement Performance Industrial TQM Non-TQM Overall measurement Sector Rating P-Value Rating P-Value Rating P-Value Individual goals aligned Mfg. 4.2 0.078 4.0 0.357 4.1 0.023 * with processes Service 4.5 0.095 3.7 0.880 4.1 0.026 * Sub-processes aligned with Mfg. 4.2 0.000 ** 3.5 0.014 * 3.8 0.000 ** core processes Service 4.0 0.026 * 4.0 0.027 * 4.0 0.028 * Core processes aligned with Mfg. 4.5 0.023 * 4.0 0.010 ** 4.3 0.030 * mission Service 4.2 0.029 * 4.0 0.031 * 4.1 0.048 * Overall rating of Mfg. 4.0 0.030 * 3.4 0.078 3.9 0.660 performance measurement Service 3.7 0.118 3.2 0.081 * 3.6 0.045 * *: Significant (95%), **: Very Significant (99%) 6. Development A Model of TQM Performance Measurement System The use of a PDCA (Deming) cycle at the organizational level fits into the TQM approach of continuous improvement. Continuous improvement at the organizational level concerns the improvement of strategic planning and management of the organization as a whole. The overall PM system model can be shown as a series of complementary PDCA cycle, as shown in Figure 6. The actual linkages between the levels of the model are shown in the discussions of each level individually. It should be remembered that each cycle operates at a different frequency, and within each cycle there will be individual cycles for each measure. The frequency of the cycle is dependant on organizational level, frequency and criticality of the measurement. 6.1 Level 1: Strategy Development and Goal Deployment Analysis of the data on PM related to the strategy development and goal deployment level of the PM system model identified clear differences between TQM and non-tqm organizations. TQM organizations are more likely to have formal strategic management processes based on the use of CSFs and associate KPIs then non-tqm organizations. It should be remember that in Bemowski and Stratton [4], Chang et al [9], Kanji [40], and Samson and Terziovski [62], it was found that such formal strategic control processes were associated with more effective PM systems. The tentative conclusion that can be drawn from the above analysis is therefore that OM systems in TQM organizations are likely to be more effective than in non- 371

TQM organizations. 6.2 Level 2: Process Management and Measurement The overall conclusions from the data at the process/functional level are that TQM organizations are more likely to manage and measure process performance, and use a wider range of measures of performance than non- TQM organizations. There appears to be some measurement of flexibility, innovation and time-based performance, quality, delivery and customer satisfaction remain the most widely used performance measures. This agrees with the findings of Choi and Eboch [12], Longenecker [46], Owlia [55], and Zemke and Wood [70] suggest that quality and customer satisfaction will continue to be the primary basis of competition in the 1990s. 6.3 Level 3: Performance Appraisal and Management TQM organizations appear to use PM more widely than non-tqm organizations in the management of individuals. This supports the findings from case study organizations [9], and also those found by Bemowski and Stratton [4], Chase et al [10], Hackman and Wagerman [37], Kanji [39], and Schneir et al [63], who suggest that performance management is of vital importance in the management of TQM organizations. 6.4 Level 4: Break-Point Performance Assessment In Tables 9 and 10 show that TQM organizations use break-point assessment techniques more widely than non-tqm organizations. The case study organizations appeared to be innovate in their use of break-point assessment techniques, driven by identified requirements to improve performance, as shown by PM at the organizational and process levels. 6.5 Level 5: Reward and Recognition System All groups of organizations rated overall effectiveness of PM lower than alignment at each level. This suggests that the effectiveness of PM cannot simply measure by goal alignment. In fact the model itself shows the effectiveness of PM us due to a wide range of factors. 372

Level 1: Organization Goal and Strategy Act Check Plan Do Level 2: Process Management and Measurement Act Plan Act Plan Check Do Check Do Level 3: Performance Appraisal and management Level 4: Break-Point Assessment Techniques Act Plan Check Do Level 5: Reward Recognition and Systems Figure 6. Development A Model of TQM Performance Measurement 7. Conclusion The model developed was based on best practice PM identified by the case study organizations. The key finding of the research was the development of a PM system model that should be implemented by organizations that have introduced TQM. The model reflects an amalgamation of the approaches used by a range of TQM organizations in PM: (1) Strategic management and goal deployment appeared to be the identification of a set of CSFs and associated KPIs. These factors 373

should be derived from the organization s mission, and represent a balanced mix of stakeholders. Action plans over both the short and long term should be developed, and responsibility clearly assigned for performance. (2) Successful PM at the process level is the identification and translation of customer requirements and strategic objectives into an integrated set of process and strategic objectives into an integrated set of process performance measures. (3) PM at the individual level was found to be a combination of performance appraisal and performance management. A major drawback with performance appraisal systems was found to be the lack of integration of performance appraisal with other aspects of the PM process. (4) Break-point performance assessment techniques are used by TQM organizations to identify improvement opportunities, and to motivate performance improvement. TQM organizations use a wide range of such techniques due to their innovation in PM, and the drive for continuous improvement. (5) Reward and recognition of PM systems were found to be less well understood than other aspects of the model. It was found, that rewards were commonly given on the basis of performance appraisal, despite the acknowledged weaknesses in many appraisal systems. TQM organizations were found to provide non-financial recognition to suppliers, departments, teams and individuals based on measured superior performance. The survey was designed to examine some elements of the model. Despite the lack of statistical significance due to the small number of non- TQM organizations responding in PM at TQM and non-tqm organizations: (1) TQM organizations use a wider range of formal strategic management techniques than non-tqm organizations. In fact TQM organizations appear to use non-financial PM much more widely than non-tqm organizations at the organizations level. (2) TQM organizations mange processes more than non-tqm organizations. (3) TQM organizations use a wider range of performance measures at the process level than non-tqm organizations. (4) TQM organizations use a wider range of break point assessment techniques than non-tqm organizations. (5) TQM organizations use non-financial PM for more purposes than non- TQM organizations. As such they generally use fact-based management more widely than non-tqm organizations. (6) PM in TQM organizations appears to be more effective than in non-tqm organizations. 374

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