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IJQRM
16,7 Productivity comparisons
between Canadian and US
TQM firms: an empirical
714
Received December 1998
investigation
Accepted May 1999 Damodar Y. Golhar and Satish P. Deshpande
Western Michigan University, Kalamazoo, Michigan, USA
Keywords Productivity, Canada, Performance, TQM, Automotive components industry
Abstract This empirical study investigates productivity performance of Canadian (n = 43) and
US (n = 95) manufacturers in the automotive parts industry (SIC 3714) that have implemented
the total quality management (TQM) philosophy. We identify three different categories of
productivity measures: financial, customer related, and internal business related. TQM firms
indicate improved performance on various productivity measures. Statistically significant
differences exist between the two countries on some of the measures. The correlation analysis
suggests that, to be customer oriented, a TQM firm must focus on improving internal business
processes. Unlike the US sample, the Canadian sample did not show a significant positive
correlation between financial measures, and the customer oriented or internal business related
measures.

Introduction
Since the USA and Canada entered into a free trade agreement in 1989, the
bilateral trade between the two countries has doubled to over $387 billion
dollars (Canada Quarterly, July, 1998). The USA sold more than 22 percent of
its foreign merchandise exports to Canada in 1997, making it the USA's largest
trading partner. Free trade between the two countries coupled with global
competition has forced Canadian and the US manufacturers alike to produce
quality goods at a low cost. As a result, many firms in these countries are
seeking ways to improve productivity and quality. One such way is through
the implementation of the total quality management (TQM) philosophy.
A major thrust of TQM implementation is on customer focus, continuous
improvement, and employee participation. TQM firms attempt to meet or
exceed customer expectations by providing quality products at reasonable
price. To achieve these objectives, the firms seek employees' participation in
finding ways to improve their business operations continuously (Ahire et al.,
1995). While adopting changes advocated by the TQM philosophy may not be
easy, the resulting payoffs could be enticing (Krantz, 1989; Erickson, 1992;
Baum, 1990; Lee and Ebrahimpour, 1985; Garvin, 1986). Pioneering firms, such
as Xerox, General Motors, Ford, and Motorola have enhanced their
productivity and regained their positions as industry leaders through TQM
International Journal of Quality & implementation (Kano, 1993; Price and Chen, 1993).
Reliability Management,
Vol. 16 No. 7, 1999, pp. 714-722.
# MCB University Press, 0256-671X This research was funded by the 1997-98 Faculty Research Grant of the Government of Canada.
 TQM implementation requires investment of time and capital, and many of Comparisons
the implementation attempts have resulted in a failure (Cole, 1993). According between TQM
to Tamimi and Sebastianelli (1998), several barriers to TQM implementation, firms
such as not linking employee compensation to achieving quality goals, lack of
employee training, lack of team-work skill exist. Critics of TQM have also
pointed out the financial difficulties faced by Baldrige Award winning firms.
However, a focus on short-term financial results of a firm to gauge its long-term 715
competitiveness may be misleading (Garvin, 1991). Hence, it is important to
identify appropriate financial, customer oriented, and internal business related
measures of productivity. It is also important to know how the quality-oriented
firms are performing across these measures. Although most of the published
research on productivity measures focuses on financial indicators, there is a
paucity of research that investigates performance of TQM firms on customer
oriented and internal business related productivity measures. No study has
examined the three measures concurrently as suggested by the General
Accounting Office Study (1990). The objectives of the proposed study are, then,
to:
. identify appropriate financial, customer oriented, and internal business
related productivity measures for a TQM manufacturing firm;
. compare the performance of Canadian and US TQM firms across
different measures identified above; and
. examine if any relationship exists between overall financial, customer
oriented, and internal business related productivity measures in
Canadian and US TQM firms.
In the following sections we first discuss the importance of the study, the
measures of performance, the survey instrument, and research methodology.
The last two sections describe the results and the conclusions of the study.

Importance of the study

Empirical studies that investigate productivity of quality-oriented firms focus
mainly on US manufacturing firms. However, given the differences in labor
laws, employees' work ethics and the overall work environment between the
two countries, a Canadian firm's experience with the quality improvement
efforts may be vastly different from that of a US TQM firm (Thompson, 1993).
It is, therefore, necessary to examine TQM experiences of Canadian
manufacturing firms by comparing their productivity performance with the US
TQM firms. Such a comparison will help Canadian and the US firms to identify
their strengths and weaknesses. The identification of their relative strength
may make the firms more competitive in the global market. Also, the
information will be useful to non-TQM firms in benchmarking their
performance with TQM firms; thus, forcing them to eliminate waste, improve
product quality and be more productive. Finally, the investigation of any
relationship between overall financial, customer oriented, and internal business
IJQRM related productivity measures will enhance the understanding of practitioners
16,7 and researchers about TQM implementation and its successes in North
America.

The measures of performance

A recent empirical study (Easton and Jarrell, 1998) compared financial
716 performance of TQM and non-TQM firms. The researchers reported an
improved financial performance for the TQM firms. However, many
researchers state that to be globally competitive, firms should not only use
productivity measures based on financial perspective (e.g. return on assets, and
return on sales), but should also view their operations from internal business
and customer perspectives (Kaplan and Norton, 1992; Raaum, 1992; The
General Accounting Office Study (GAO), 1990). Among these, the GAO Study
(1990) is the most comprehensive. It categorizes performance measures for a
manufacturing firm in three groups:
(1) financial measures;
(2) measures from customer perspective; and
(3) measures from internal business perspective.
The financial measures of performance according to the study are: market
share, sales per employee, return on assets, and return on sales. The measures
of performance from customer perspective are: overall customer satisfaction,
customer complaints, customer retention, order-processing time, defects
produced, reliability, and cost of quality. Finally, the measures of internal
business perspective are: employee satisfaction, attendance, turnover, safety/
health, and employee suggestions received.
Nanni et al. (1990) also consider financial indicators as efficiency measures
with limited usefulness in a global economy which ``seems to be moving toward
time-based competition''. According to these researchers, a performance
measurement system should complement a firm's strategic goals. Hence, the
last two categories (measures from customer perspective and measures from
internal business perspective) are needed to tie performance measures to
corporate strategies and long-term vision (Vitale and Mavrinac, 1995; Kaplan
and Norton, 1992). Vitale and Mavrinac (1995) suggest that, if performance
measures are not tied to the strategy adopted by a firm, they proliferate and the
efforts put into measuring performance are wasted. Further, too many
measures create confusion. Also, out-of-date measures disable a firm from
maintaining its focus and inspiring employees to achieve the desired goals, and
thus become counterproductive. These researchers state that appropriate
measurement systems ``allow a firm to focus attention on what is strategically
important, create visibility across functions and divisions ensuring
coordination and synergistic behaviors, inspire action, and enhance the
communication essential to learning''. As stated earlier, the basic tenets of a
TQM philosophy are: customer focus, continuous improvement, and employee
participation. Thus, for a firm implementing TQM philosophy, the last two Comparisons
measures of performance (measures from customer perspective and measures between TQM
from internal business perspective) become even more critical than financial firms
measures.

The survey instrument

A survey instrument was developed based on various issues identified by the 717
literature as important in a manufacturing environment. Some of the survey
questions were related to financial, customer related, and business related
productivity measures of a firm. This paper limits itself to these items (Tables I
to III present items for each measure, respectively). A five-point Likert scale

Canada USA
Construct n mean n mean t-value

1. Market share 45 4.33 95 3.95 2.45**

2. Sales per employee 45 4.31 95 4.13 1.27
3. Return on assets 45 4.2 92 3.85 2.11** Table I.
4. Return on sales 45 4.2 93 3.74 2.74*** Performance of the
Canadian and US firms
Notes: ***p < 0.01; **p < 0.05; *p < 0.10 on financial indicators

Canada USA
Construct n mean n mean t-value

1. Overall customer satisfaction 45 4.38 95 4.07 2.47**

2. Customer retention 45 4.07 95 3.94 0.89
3. Number of customer complaints 45 2.511 94 2.43 0.42
4. Order processing time 45 2.89 94 2.71 0.93
5. Number of defects per unit 45 1.96 95 1.94 0.13 Table II.
6. Reliability of product 45 3.89 95 4.06 ±1.43 Performance of the
7. Cost of poor quality 44 2.43 95 2.53 ±0.49 Canadian and US TQM
firms on customer
Notes: ***p < 0.01; **p < 0.05; *p < 0.10 related indicators

Canada USA
Construct n mean n mean t-value

1. Attendance 45 3.18 95 3.16 0.15

2. Number of accidents per year 45 2.2 94 2.22 ±0.14
3. Employee turnover 45 2.96 95 2.82 0.84
4. Employee satisfaction 45 3.6 95 3.47 0.78 Table III.
5. Number of suggestions per employee 45 3.44 93 3.57 ±0.84 Performance of the
6. Number of quality improvement projects 45 4.04 94 4.04 0.01 Canadian and US TQM
firms on internal
Notes: ***p < 0.01; **p < 0.05; *p < 0.10 business indicators
IJQRM was used to measure each item (1 = decreased significantly, 2 = decreased
16,7 somewhat, 3 = no change, 4 = increased somewhat, and 5 = increased
significantly). The CEOs/presidents of the manufacturing firms were asked to
indicate their views and perceptions on the performance of their firms on these
dimensions over the last five years.

718 Research methodology

We surveyed CEOs of manufacturing firms in automotive parts industry (SIC
3714) in the Province of Ontario in Canada and the State of Michigan in the
USA in 1997-98. We chose the automotive parts industry for the following
reasons: First, this industry is a pioneer in implementing progressive
management practices. Second, the industry represents a wide range of
production technologies, as well as labor-intensive operations and capital
intensive ones. Third, the breadth of product type spans different industries.
Also, the Province of Ontario and the State of Michigan are selected for this
study because both share a common border and have major trade links. Both
states do not have right-to-work laws, and these English speaking states have a
strong manufacturing base especially in the automotive parts industry.
The names and addresses of US and Canadian firms were obtained from the
Elm International, Inc. based in East Lansing, Michigan and Scott's Directories,
Don Mills, Ontario. The survey questionnaire was sent to the CEOs/presidents
of the 360 US and 358 Canadian firms in three waves spaced six weeks apart.
We received usable responses from 128 US and 72 Canadian firms. This
resulted in usable response rates of 35.5 percent and 20 percent for the US and
Canadian firms, respectively. Of these, 95 of the US and 43 of the Canadian
firms indicated that they implemented TQM. As in any empirical study, it is
possible that the responding firms may not represent the actual population.
Failure of firms, that have had problems with TQM implementation, to respond
to the survey may also cause a positive non-response bias.
The responding firms produced different types of products, such as
suspension systems, pumps, plastic automotive components, electronic
components, street rod chassis components, seats, heat exchangers, and axles.
Our respondents reported average annual sales over $400 million per year.
They employed more than 2,000 workers on an average. Sixty-two percent of
the US firms were unionized, while only 36 percent of the Canadian firms had a
unionized workforce. On an average, the US firms had been implementing
TQM since 1989. The Canadian responding firms, on the other hand, started
TQM implementation since 1994.

Results
Productivity comparisons across financial measures for the Canadian and US
respondents are presented in Table I. For each measure, Table I presents the
number of the Canadian and US respondents, the average values, the t score
and the level of statistical significance. The four financial performance
measures are: market share, sales per employee, return on assets, and return on
sales. Note that an average response value greater than three indicates an Comparisons
increase in the performance on a given measure over the last five years. between TQM
Averages of the responses for these measures indicate that both Canadian and firms
the US firms' performance has increased on these dimensions over the last five
years. These analyses show that TQM implementation is financially rewarding
to both American and Canadian manufacturing firms. To compare financial
performance of the US and Canadian firms, a two-tailed t-test was conducted. 719
The t-tests reveal that, for Canadian firms, the market share, return on assets,
and return on sales have increased statistically significantly (p < 0.05) greater
than their US counterparts.
Responses to performance measures from customers' perspective are
summarized in Table II. The average responses indicate that both the US and
Canadian TQM firms are performing as expected. For overall customer
satisfaction, customer retention, and reliability of products, the average values
are greater than three; while the average responses for customer retention, order
processing time, number of defects, and cost of poor quality are less than three
for firms from both countries. This shows that both the Canadian and US firms
perceive themselves as being customer oriented when they are increasingly
meeting customer expectations. Again, to compare performances of the firms
from the USA and Canada, a two-tailed t-test was conducted. Except for overall
customer satisfaction measure, no statistically significant differences were
observed between the two groups of firms. The t-test indicates that the Canadian
firms perceive their customers being more satisfied than the US firms (p < 0.05).
The firms responded to productivity measures used from an internal
business perspective: attendance, number of accidents/year, employee
turnover, employee satisfaction, number of suggestions per employee, and
number of quality improvement projects. The number of Canadian and US
respondents' average score, t values and the level of statistical significance are
presented in Table II. The average values indicate that during the last five
years, the responding firms from both countries have improved performance on
all of the dimensions. To find out if the level of performance between the USA
and Canadian firms varied significantly on these measures, a two-tailed t-test
was conducted. Results suggest that there were no significant differences
between the firms from the two countries.
We wanted to examine the relationship between overall financial, customer
oriented, and internal business related productivity measures in the two
countries. We first ensured that the items used to form the three overall
productivity constructs are reliable. The reliability of a construct is an
important issue in the use of any measurement method (Nunnally, 1978).
Cronbach's coefficient alpha was therefore calculated for the three productivity
measures. The Cronbach's coefficient alpha is an estimate of reliability based
on the average correlation among items that form a construct. It explains the
majority of the variation in the measurement error. The alpha for the financial,
the customer oriented, and the internal business related measures were found
to be 0.85, 0.73, and 0.65, respectively. Alpha values greater than 0.60 indicate
IJQRM internal consistency (Nunnally, 1978). Hence, high values of the coefficient
16,7 alpha associated with each of the three measures indicate that items being
considered in a construct have much in common.
Further, we examined the correlation between the three performance
measures (overall financial, customer oriented, and internal business related)
for the respondents in the two countries. Correlation coefficients for the three
720 measures are presented in Table IV. Values above the diagonal are for
Canadian firms. Values below the diagonal are for US firms. For the US sample,
the three measures of performance are significantly correlated. This suggests
that being customer oriented or improving internal business has a direct effect
on the financial performance of a US TQM firm. The Canadian sample
indicates a different experience with TQM implementation. On one hand, like
the US sample, Canadian firms reported a significant correlation between
customer related and internal business related measures (0.35, p < 0.000). This
suggests that to be customer oriented, a TQM firm must focus on improving
internal business processes. On the other hand, the Canadian sample indicates
a nonsignificant correlation between financial and internal business related
measures, and a significant negative correlation between financial and
customer related measures. This may be due to the fact that an average US
responding firm had a five-year lead in TQM implementation (1989 v. 1994)
over an average Canadian responding firm. Since a majority of the responding
Canadian firms are in their early stages of TQM implementation, they may not
have yet seen its impact on various financial measures. Hence, focussing on
financial performance alone to measure productivity may not be enough for a
Canadian TQM firm. It should commit itself to achieving higher levels of
customer satisfaction and internal business related processes. In due course,
financial performance productivity will follow.

Conclusions
A major finding of this study is that both the US and Canadian firms report
increased productivity on different dimensions since the implementation of the
TQM philosophy. Our results further substantiate the reported findings that
TQM implementation is financially rewarding (Easton and Jarrell, 1998).
Canadian firms report a statistically significant increase in the financial
measures of performance over the last five years compared with the US firms.

Internal business Customer related

Construct Financial measures measures measures

1. Financial measures 1.00 ±0.19 ±0.30**

2. Internal measures 0.20** 1.00 0.35***
3. Customer measures 0.21** 0.48*** 1.00
Table IV.
Correlation matrix for Notes: ***p < 0.01,**p < 0.05,*p < 0.10
Canadian and US firms Values above the diagonal are for Canadian firms. Values below the diagonal are for US firms
This may be due to the fact that the Canadian firms have started TQM Comparisons
implementation only recently. Hence, an increase in their financial performance between TQM
may be more noticeable. But the US manufacturers have greater experience firms
with TQM implementation and may have enjoyed its benefits for a longer
period of time. Although longer experience with TQM implementation has
helped the US manufacturing firms, our results show that both the US and
Canadian manufacturing firms report an increase in productivity as measured 721
by customer related and the internal business related indicators. This shows a
serious commitment from these manufacturing firms to implementing TQM
philosophy. The analysis also indicates an increased commitment to meeting
customer expectations as dictated by the TQM philosophy. Thus, the firms are
preparing themselves well to meet the challenges of global competition.
Of the three measures of performance, the financial measure had a
significant negative correlation with the customer-related measure and a
nonsignificant correlation with the internal business related measures in the
Canadian sample. This shows that being customer oriented or improving
internal business may not directly reflect on the financial performance of an
organization in the early stages of TQM implementation. Also an improvement
in financial productivity does not imply improved commitment to customers
and improvement in business processes; critical elements of TQM
implementation. Further, we find a statistically significant correlation between
customer oriented and internal business related measures for both groups.
Thus, instead of focusing on financial performance, a TQM firm committed to
meeting or exceeding customer expectations should measure its performance
on customer and the internal business related dimensions at least at the early
stages of TQM implementation.
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