TQM PRACTICES & ORGANIZATIONAL ...

International Journal of Engineering & Technology IJET-IJENS Vol: 10 No: 04

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TQM PRACTICES & ORGANIZATIONAL PERFORMANCE: EVIDENCE FROM PAKISTANI SMEs SHAHAB ALAM MALIK1*，MUHAMMAD ZAHID IQBAL1, RAZIA SHAUKAT1 AND JIA YONG2 *E-mail: [email protected] 1

Department of Management Sciences, COMSATS Institute of Information Technology, Park-road, Chak Shahzad, Islamabad, Pakistan 2 School of Economy & Management, Harbin Institute of Technology, P.R.China

Abstract - The purpose of this study was to explore the impact of total quality management practices on non-financial performance of SMEs. Six determinants of TQM practices were identified and their impact was measured on performance of SMEs. The investigated determinants included top management commitment, customer focus, supplier relationships, employee involvement and empowerment, work environment and benchmarking. Sample size was comprised of 60 SMEs (both ISO-9000 certified and non ISO certified SMEs) from three renowned industrial cities of Punjab province. The findings indicate that TQM practices such as supplier relationship, benchmarking, top management commitment and customer focus are critical factors and have a positive impact on performance of SMEs. Besides in comparative analysis, performance of ISO-certified SMEs was found better than non-ISO certified SMEs. Keywords: TQM practices, non-financial performance, SMEs

ISO

certification,

TQM on organizational performance has not been explored so far. Importance of SME sector is vital for the industrial development of a country. SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40% approximately [8]. Owing to the tremendous contribution of SMEs can make in the industrial upbringing and overhauling of economic condition, this sector has been chosen so that plausible solutions could be suggested for the improvement in performance measures. According to SMEDA (Small and Medium Enterprise Development Authority, Pakistan), SMEs are defined as organizations having up to 250 employees, paid up capital of Rs. 25 million and annual sales of Rs. 250 million. Selection of SMEs for the survey was made on the basis of above definition. A total of 60 SMEs were selected and studied using both descriptive and quantitative analysis.

I. INTRODUCTION

II. LITERATURE REVIEW

The objective of this study is to explore whether or not SMEs of Pakistan are following the trends of the international standards of quality and if so, whether these measures are contributing towards organizational performance or otherwise.

The whole essence of this research was to get an understanding of the impact of TQM on the performance of SMEs. In order to get complete understanding of the theory and practice, various studies were analyzed and reviewed.

TQM is an approach for continuously improving the quality of goods and services delivered through the participation of individuals at all levels and functions of an organization [1]. In the last two decades, large quantity of literature and academic journals have been devoted to analyzing the essences of TQM and how it should be implemented in organizations [2-7]. Especially in the 1990s, a significant volume of research was performed to investigate the relationship between practices of TQM and organizational performance.

Anderson and Sohal [9] studied the impact of TQM and related improvement strategies on performance of Australian SMEs by using Australian Quality Awards framework to determine the relationship between TQM practices and business performance. They observed a positive correlation between TQM practices and organizational performance of the SMEs, reiterating the need for effective implementation of the TQM practices alongwith strategic decision making which will ultimately yield long-term fruitful results for SMEs.

This study will investigate the possible correlation and causal relationship between TQM practices and performance of organizations. Similar studies have been undertaken abroad but in Pakistan there are only very few studies available related to ISO certification and continuous improvement practices. But the impact of

Vincent K. Chong., Michael J. Rundus [10] explored the impact of TQM and market competition on organizational performance by studying filled acceptable questionnaires from 89 managers from manufacturing firms. Results showed that there is a positive correlation between market competition and TQM practices of

International Journal of Engineering & Technology IJET-IJENS Vol: 10 No: 04 customer focus, product design and organizational performance. Lee and Kelce [11] investigated the existing status of TQM practices in 112 SMEs (manufacturing firms) of China and its impact on their performance. It was found that manufacturing process of these small firms was not an obstacle to the implementation of TQM, instead it was the size of firm which posed as a threat for implementation. Research showed that majority of the firms were new to TQM practices and that it was initiated by their top management. A positive influence of TQM was observed on performance as waste, inventory and costs was reduced, and an increase in sales was observed. Impeding factors in TQM implementation were lack of top management commitment and lack of knowledge about TQM implementation, alongwith lack education and training and inadequate process control techniques. In the same manner, performance of SMEs was observed in Malaysia by Sohail and Hoong [12], in India by Mahadevappa, B. and Koreshwar, G. [13], in Portugal by Sousa, Aspinwall and Rodrigues [14], in Spain by Bou, and Beltrain [15] and in Turkey by Demirbag and Zaim [16]. All researchers were of the view that ISO certification should be acquired by the SMEs and ISO quality management systems should be integrated with TQM for continuous improvement of the overall business performance. In Pakistan, Alam and YeZhuang [17] studied the trend, status and scope of ISO certification in Pakistani industry and made comparative analyses with Spanish industry [18-19] and Chinese industry [20] to highlight the differences in approaches and the hurdles encountered in implementation. Earlier, Kamran Moosa [21] observed that maximum practice of quality management practices in ISO certified firms was in the production department, there was unawareness from usage of different quality tools for performance measurement and that TQM was properly practiced in only 5% firms among total. Jamshed H. Khan [22] proposed that for successful implementation of TQM in Pakistani organizations commitment of both top and middle level management is compulsory, that a right approach towards TQM implementation should be made, that TQM tools should be used step by step and that workers fears should be removed and a reward system should be introduced for better performance. Hayat M. Awan [23] studied the impact of ISO registration in sports industry of Pakistan. He also recommended that most critical factor in successful implementation of TQM is top management commitment and that necessary training of both upper and lower management is necessary along with workers through consultants. Benefits gained by these organizations were increase in sales (exports), increased customer satisfaction, better utilization of human and material resources and reduction in costs and wastage.

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Most of the above-mentioned studies were carried out in developed countries with few exceptions and in Pakistan there is scarcity of research on TQM except few examples cited above. This research will therefore fill a gap in the existing literature by investigating plausible relationship between TQM practices and non-financial performance of an organization.

III. RESEARCH METHODOLOGY 3.1 Research Objective and Hypotheses The principal aim of this study is to determine the correlation and causal relationship between TQM practices with non-financial organizational performance. A linear multiple regression model has been used here to assess the contribution of independent variables in predicting non-financial performance of SMEs. The following model is developed here for the study: N.P = β0+β1TMC+β2CF+β3SR+β4EIE+β5WE+β6BE+ε

Where N.P = Non-financial performance β0 = Constant of proportionality TMC = Top management commitment CF = Customer focus SR = Supplier relationship EIE = Employee involvement and empowerment WE = Work environment BE = Benchmarking ε = Error term A total of six hypotheses were developed related to six TQM practices and their impact was measured on non-financial performance. Furthermore, difference in performance of ISO-certified and Non-ISO certified is also investigated (H-7). H-1 = There is positive relationship between top management commitment and non-financial performance of an SME. H-2 = There is positive relationship between customer focus and non-financial performance of an SME. H-3 = There is positive relationship between supplier relationship and non-financial performance of an SME. H-4 = There is positive relationship between employee involvements and empowerment and non-financial performance of an SME. H-5 = There is positive relationship between work environment and non-financial performance of an SME. H-6 = There is positive relationship between benchmarking and non-financial performance of an SME. H-7 = Non-financial performance of ISO-certified SMEs is better than Non-ISO certified SMEs.

International Journal of Engineering & Technology IJET-IJENS Vol: 10 No: 04 3.2 Research Design and Analysis Techniques The study is a causal/correlational study which has been carried out as a field study in a non-contrived environment. Interference of the researcher was minimal. A sample of 75 SMEs was selected from three categories namely electrical, tools and machinery and surgical equipment from three industrial cities of Gujranwala, Gujrat and Sialkot. Unit of analysis are Small and Medium enterprises (SMEs) and convenience sampling technique has been used for the selection of sample. Primary data was collected through self-administered questionnaire and scale of measurement is Likert scale. Questionnaire was got filled from quality managers and supervisors of the SMEs. Response rate was 80% as 60 SMEs in total responded from these three cities, 20 SMEs from each city. Out of 60 SMEs, 45 were ISO-certified whereas 15 were non-ISO certified SMEs. Data collected from the non-certified SMEs provided an insight on how they implement TQM practices and to what extent. Out of 60 SMEs 45% were Fan manufacturers, 18% dealing in tools and machinery and remaining 37% were surgical equipment manufacturers. Questionnaire used in this study has been adapted from the one used in the study of Yahaya Yusuf [24]. Part A of questionnaire is related to general information about SME, part B encompasses general demographics of the SME, part C is related to TQM practices in which Likert scale is used having range 1-5, in which 1 means strongly disagree and to 5 showing strongly agree. Likewise, part D, E and F are concerned with problems faced in TQM implementation, usage of tools and its outcomes respectively. Part G is related to non-certified SMEs only. Data analysis has been done in three stages. SPSS has been used to analyze the data. In the first stage, reliability of the data has been checked by applying Cronbach’s Alpha which measures internal consistency or average correlation of items in a survey instrument to gauge its reliability. In second stage Pearson correlation analysis has been applied to assess the strength of relationship between dependant and independent variables. In third stage multiple regression analysis is applied to check association of variables with each other and also the extent of variance, which is determined by co-efficient of determination (R-square) in dependent variable. Finally ANOVA has been used to test the mean difference between two groups (H-7).

IV. RESEARCH FINDINGS 4.1 Reliability analysis The scale was tested for reliability by using Cronbach’s Alpha. Table-1 illustrates test results.

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Tab.1 Reliability Analysis No. of Alpha Reliability Variable items Coefficient Top management commitment 3 0.8725 Customer focus 3 0.8620 Supplier relationship 3 0.8497 Employee involvement & 3 0.9097 empowerment Work environment 3 0.8556 Benchmarking 3 0.8311 Performance (dependant variable) 17 0.8241

The overall values of Cronbach’s alpha for independent variables is above 0.8 which means that the constructs were reliable to measure the non-financial performance. Whereas alpha value of dependent variable ‘Performance’ is 0.8421 which is in acceptable range and means that individual constructs were reliable to measure the parameters of performance. 4.2 Descriptive analysis In demographic analysis of the data it was found that ISO-certified SMEs implemented TQM in all the departments whereas focus of non-ISO certified SMEs was only on production department. All the SMEs were using continuous production system. Training per season for an average employee is said to be 6-10 days by 72% SMEs and percentage of involvement of employees in TQM implementation is 100% claimed by 67% SMEs. Average qualification of 77% employee is intermediate. All the ISO-certified SMEs have having a separate quality assurance system. Part D of the questionnaire was related to problems faced in TQM implementation (Fig-1). It was found that 82% SMEs reported insufficient training facilities as the main hurdle in TQM implementation followed by insufficient knowledge information, insufficient performance measures and insufficient workers commitment. Tab.2 Profile of Respondent Companies n Percent Which production system is used by your business Continuous 60 100 Maximum days an average employee spends in training per season Less than 3 days 0 0 3-5 days 11 18.3 6-10 days 43 71.7 Above 10 days 6 10 Percentage of employees involved in TQM implementation Less than 10% 0 0 10-49% 15 25 50-90% 5 8.3 100% 40 66.7 Average qualification of employees 0 0 Primary 7 11.7 Matriculation 46 76.7 Intermediate 7 11.7 Bachelors Presence of a separate quality assurance system Yes 45 70 No 15 29

60

50

49 40

40

33

32

30

20

16 12 8

10

3 0 Insufficient trianing facilities

Insufficient knowledge information

Insufficient Insufficient Insufficient Unsupportive performance worker management culture measures commitment commitment

Time shortage

Lack of budget

Fig.1 Problems faced in TQM successful implementation

Part F of the questionnaire was related to tools used for performance appraisal (Fig.2). Out of 60 SMEs, 54 (90%) termed FMEA (Failure mode and effect analysis) as most important tool in TQM implementation, followed by other tools, QFD (Quality Function Deployment) and SPC (Statistical process control). Check sheets and 5S were considered least important tools by these SMEs. 60 54 50 44 40 34 30 22

Regression standardized predicted value


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Regression standardized residuals Fig.3 Scatter-plot of residuals

0.809 and 0.840 respectively. There is a weak positive correlation between employee involvement and empowerment. 4.4 Multiple regression analysis Regression is a generic term for all methods attempting to fit a model to observed data in order to quantify the relationship between two groups of variables. The fitted model may then be used either to merely describe the relationship between the two groups of variables, or to predict new values.

19

20

14 10

0 FMEA

Others

QFD

SPC

Check Sheets/ Graphs

5S

Fig.2 Tools used for performance appraisal/measurement

4.3 Correlation analysis Correlation provides answer to three basic questions about two variables or two sets of data in a research. First it tells whether there is any relationship between two variables and if so, what is the direction of relationship and subsequently, the magnitude of the relationship [25]. Value of the correlation coefficient (r) of dependent variable i.e., performance (PRF) with independent variable top management commitment (TMC) is 0.619 which means that both are positively correlated. In the same manner a strong relationship has been found between performance and customer focus and benchmarking in which value of correlation coefficient is

In regression analysis, the relationship between independent and dependent variables should be linear. It means that the mean response scores at each value of the predictor variable should fall on a straight line[26]. Figure-3 shows scatter plot of residuals and linear relationship. When there is high correlation among variables, there may be problem of Multicollinearity. To detect Multicollinearity, tolerance and VIF (variance inflation factor) is calculated. If VIF values are large and individual VIF is greater than 10, there exits multicollinearity. Likewise, if tolerance values are very small, close to zero and tolerance is less than 0.1, same problem may arise. Tolerance is the reciprocal of VIF [27]. In table 4, the values of tolerance are greater than 0.1 for each variable and VIF values are less than 10, showing that there is no multicollinearity exists. Results of multiple regression equation have been tabulated in tab.4 and 5.

Tab.3 Correlation Variable Title TMC CF SR EIE WE BE PRF

TMC

CF

SR

EIE

WE

BE

PRF

1 .529 .482 .000 .390 .545 .619

.529 1 .524 -.040 .547 .610 .675

.482 .524 1 .070 .625 .705 .809

.000 -0.40 .070 1 .302 .150 .183

.390 .547 .625 .302 1 .636 .720

.545 .610 .705 .150 .636 1 .840

.619 .675 .809 .183 .720 .840 1

Tab.3 Tolerance and VIF diagnostic for Multicollinearity Variable Tolerance VIF Top management commitment .630 1.588 Customer focus .507 1.972 Supplier relationship .433 2.312 Employee involvement & .830 1.204 empowerment Work environment .444 2.254 Benchmarking .372 2.689


Model 1

Tab.4 Model Summary R Adjusted R Square R Square 0.854 0.729 0.698

Durbin-Watson 1.798

The model summary table shows the results of entering six independent variables (predictors) against performance and R (0.854) is the correlation of the six independent variable with the dependent variable, after taking into consideration all the inter-correlations among the six independent variables. The above model shows value of R-square as 0.729 which means 72% variance in performance is explained by these six independent variables and substantiates our hypothesis and model. In present study, six hypotheses were developed regarding the positive relationship between TQM practices and non-financial performance of SMEs. Tab.5 shows the value of the best-coefficients of these predictor variables. The estimated regression equation is as under: N.P=1.027+0.143TMC+0.143CF+0.333SR+0.072EIE+ 0.139WE+0.342BE+ε The values of beta-coefficients of supplier relationship and benchmarking are significant which substantiate our hypothesis regarding these two variables whereas the values of beta-coefficients of top management commitment, customer focus and work environment also show significant results and we can infer that the estimates of column B can be considered as true except one variable i.e., employee involvement and empowerment where values of beta-coefficient are not significant proving this estimate unreliable and less contributable towards measurement of non-financial performance as compared to other independent variables. 4.5 Group Statistics In the present study, the data comprised of two types of SMEs, in which 45 were ISO-certified and 15 were non-ISO certified. In order to determine whether there exists a difference between performance of these two groups on the basis of TQM practices and ISO-certification, one-way ANOVA test has been applied which shows that there is a difference between performance of ISO-certified and non-ISO certified SMEs. Tab.5 Estimated results of multiple regression Variable Beta t (Intercept) -1.027 -2.418 Top management commitment .143 2.165 Customer focus .143 1.951 Supplier relationship .333 4.182 Employee involvement & .072 1.255 empowerment Work environment .139 1.767 Benchmarking .342 3.980

Tab.6 One-Way ANOVA F-ratio Top management commitment 16.784 Customer focus 26.295 Supplier relationship 71.686 Employee involvement & 5.992 empowerment Work environment 21.750 Benchmarking 203

.017 .000 .000

V. CONCLUSION In present study employed both descriptive and quantitative analysis and presented a positive correlation between independent variable (TQM practices) and dependent variable (non-financial performance of SMEs) and a causal relationship was determined between the two variables with the help of multiple regression analysis. Supplier relationship and benchmarking were found to be most critical determinants of non-financial performance followed by top management commitment and customer focus. The results validated the previous studies in which it was concluded that performance has positive relationship with TQM practices. SMEs act as a vital component of growing economy and contribute positively in development of economic development by creating employment for both urban and rural workforce and by providing much needed flexibility and innovation in the economy as a whole. If TQM policies and practices are applied in true essence in Pakistani SMEs, it will contribute in their performance in terms of quality and profitability.

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.215 .083 .000

Sig. .000 .000 .000

Tab.6 shows results of one-way ANOVA. Here all results regarding differences in performance are significant at 0.0001 level except Employee involvement and empowerment which is significant at 0.01. This implies that ISO-certified SMEs perform better as compared to Non-ISO certified SMEs.

[3] Sig. 0.19 0.35 0.56 .000

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