A Study of the Impact of TQM on the Financial Performance of Firms (Report‪)‬

INTRODUCTION Total Quality Management (TQM) is one of the most popular management philosophies in practice today. One survey found that over 74% of manufacturing firms have tried to implement a TQM program, with varying results (Conference Board, 1989). Some firms, such as Motorola, Harley-Davidson, Xerox, and Intel, have used TQM to become leaders in their fields. Other firms, however, have reported that their TQM initiatives have not significantly reduced costs, improved their financial standing, or increased quality (Sharman, 1992; "The Straining of Quality," 1992; Jacob, 1993; Eskildson, 1994; Wiggins, 1995). For example, a survey by the consulting firm Arthur D. Little of 500 American manufacturing and service companies found that only one-third felt their total-quality programs were having a "significant impact" on their competitiveness ("The Cracks in Quality", 1992; Schaaf, 1993). In addition, a similar study by A.T. Kearney found that 80% of the firms surveyed felt that their TQM programs had not produced "tangible results" ("The Cracks in Quality", 1992; Schaaf, 1993). Sixty-three percent of firms that responded to an American Electronic Association survey stated that their TQM programs had failed to reduce internal defects by 10% or more, despite having been in effect an average of 2.8 years (1992). One firm (Wallace Company, Inc.) even went bankrupt following the implementation of a TQM program (Ivey, 1991; Wiggins, 1995). Analysts and other experts have differed over whether the problem is that companies have not been implementing TQM correctly, or if TQM, even when properly executed, does not improve financial performance (see, for example Goodman et al., 1994; Eskildson, 1995; Hoover, 1995). This paper will analyze whether a successfully implemented TQM program improves the financial performance of a firm.