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An empirical study of US SMEs using TQM

Article in Total Quality Management and Business Excellence · October 2003

DOI: 10.1080/1478336032000090798

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TQM & BUSINESS EXCELLENCE, VOL. 14, NO. 8, OCTOBER, 2003, 839–847

An empirical study of US SMEs using TQM

H M. B & J G. L

College of Business and Economics, Radford University, Virginia, USA

 Total quality management is a managerial philosophy that has received great attention
in the business world during the past several years. There are many philosophical reasons as to why
companies should implement TQM. However, the main reasons why companies should consider
implementing TQM are increased profitability and competitiveness. As the result of a perception that
smaller firms do not have the resources necessary to implement TQM effectively, the focus of the
literature has been on large organizations. For this study, a survey instrument was developed to
evaluate the impact of TQM on small and medium enterprises in the United States. The results
provide useful insight into the manufacturing and service organizations that use TQM as compared
to those who do not.

Introduction
The ever-increasing global competitive nature of the business environment has forced
corporations to develop strategies to become low cost producers and to differentiate their
goods and services from their competition. Through customer-focused quality programmes,
quality lowers the cost and will become a powerful product differentiation to customers. In
order to be successful, firms must view quality as an essential part of their strategic process.
During the 1980s, major US corporations were greatly impacted by international
competitors that produced better quality products at lower cost. Since then, the literature’s
focus has been on quality issues and programmes that involve large corporations. In recent
years, however, more attention has been given to the integration of quality programmes such
as TQM in small and medium-sized businesses (Kuratko et al., 2001). In the era of
competitive global environment and advances in technology, quality is a critical success factor
for any organization regardless of its size. In fact, many large organizations rely on small and
medium-sized businesses to produce their products and services.
Total quality management (TQM), as a management tool to improve quality on a
continuous basis, has become a topic that is often seen in the business literature. TQM is
the integration of all functions within an organization in order to achieve continuous
improvement of the quality of goods and services. Three principles are emphasized by TQM:
customer satisfaction, employee involvement, and continuous improvement. In addition,
TQM involves process design, supplier relationship, benchmarking, and statistical tools as
well as product and service design. Total quality management is a start-to-finish process that
integrates interrelated functions such as design, planning, production, distribution and service

Correspondence: H. M. Beheshti, College of Business and Economics, Radford University, Radford, Virginia
24142-6954, USA. E-mail: hbehesht@[Link]

ISSN 1478-3363 print/ISSN 1478-3371 online/03/080839-09 © 2003 Taylor & Francis Ltd
DOI: 10.1080/1478336032000090798
840 H. M. BEHESHTI & J. G. LOLLAR

at all levels. The measurement of success is customer satisfaction and the way to achieve it
is through continuous improvement.

The nature of small and medium-sized enterprises

One of the problems in conducting SME research is that there is not a universally accepted
method to distinguish clearly between small, medium, and large firms. However, some
methods that are used to differentiate between SME and large enterprises include the number
of employees, sales volume, and value of assets. Although the most common differentiation
method used is by the number of employees, there lacks an exact threshold that make a
distinction between SMEs and large businesses based on the number of employees in the
United States. However, small and medium-sized companies are often considered to have
less than 500 employees (Hakserver, 1996; Wiele & Brown, 1998). Some of the characteristics
that separate small and medium-sized businesses from large organizations are (Hakserver,
1996): ownership, management and organizational structure; capital resources; objectives;
markets; and customers.
Implementation of any quality management programme and especially total quality
management poses a number of challenges for small and medium-sized firms (Price & Chen,
1993).
(1) Senior managers tend to micro-manage all aspects of a small firm. This tendency to
micro-manage must be overcome for TQM to work. This is one of the hardest
cultural changes for small firms to make.
(2) All teams, not just product development, manufacturing, and quality improvement,
must be empowered equally.
(3) Due to a lack of resources, some of the quality issues may not resolve quickly, thus
leading to frustration and scepticism among the employees.
(4) It is difficult to motivate employees in the early activities when results cannot be
shown quantitatively.
(5) Training is best conducted in class sizes of 10 or more. Small firms may be unable
to continue daily operations when such a sizeable portion is attending class.
Successful implementation of total quality management requires techniques that are
tailored to the unique needs of the firm, and it is dependent on the commitment by top
management and cooperation among employees.

Quality and TQM implementation

Quality is essential for success in both large and small manufacturing and service organiza-
tions. While everyone understands and knows the concept of quality and various definitions
of quality exist, there is no agreement on a consensus definition among the experts. In
general, the experts’ definitions of quality fall into two (level one and level two) categories
(Hoyer & Hoyer, 2001).
(1) Level one quality is a simple matter of producing products or delivering services
whose measurable characteristics satisfy a fixed set of specifications that are usually
numerically defined.
(2) Independent of any of their measurable characteristics, level two quality products
and services are simply those that satisfy customer expectations for their use or
consumption.
 US SME USING TQM 841

The firm’s definition of quality drives its competitive strategy as well as its improvement
efforts. To be successful in utilizing a quality programme and to achieve its objectives,
management must understand the firm’s definition of quality and make every effort to ensure
that each employee knows and understands how the organization defines equality (Tamimi
& Sebastianelli, 1996).
The review of literature shows that studies have been conducted to demonstrate the
barriers to total quality management (Tamimi & Sebastianelli, 1998) or the reasons why
TQM does not work (Harari, 1997). However, several studies provide support for TQM
and provide examples of companies who have benefited from total quality management
implementation (Hendricks & Singhal, 1999; Struebing & Klaus, 1997; Wiele & Brown,
1998).
Supporters of total quality management often argue that ineffective implementers
obscure the impact of TQM and offer numerous reasons why TQM in some corporations
has not been successful. Some of these reasons include: incorrect TQM implementation,
unrealistic expectations from TQM, and a quick fix mentality toward TQM. When total
quality management has not delivered the implied results, it has been labelled a failure. TQM
should not be blamed for many of the problems associated with TQM. Rather, the approaches
to implementing TQM, and the mentality toward TQM, among others, should be blamed
for much of the lack of success from TQM.
If total quality management is successful, it can lead to several benefits for an organiza-
tion, including fewer defects, reduced rework and scrap, lower inventory levels, higher
flexibility and increased employee and customer satisfaction. In addition, effective imple-
mentation of TQM can produce significant financial benefits. Financial gains can be the
most important reason why corporations should invest time and capital in a total quality
programme that is suited to their needs (Hendricks & Singhal, 1999).
In order to benefit fully from TQM, managers of small and medium-sized businesses
should be aware of the weaknessess and strengths that their firms have when implementing
TQM. Some of the strengths that SMEs possess in implementing TQM include better
knowledge of customer needs, easier communication inside the firm, employee involvement
and empowerment, flexibility, quicker implementation and results. Some of the weaknesses
of SMEs that could create problems in implementing TQM include lack of financial and
human resources, employee resistance, and loss of momentum that may occur during the
implementation process (Struebing & Klaus, 1997).
While many SMEs lack financial resources for a successful TQM programme, a successful
quality programme could actually reduce costs and reward the firm with a substantial return
on investment. In fact, lack of adequate resources might actually help a company implement
quality by focusing on the key business drivers.

Research methodology and objectives

The purpose of this research is to investigate the impact of quality management as well as
total quality management in small and medium enterprises, focusing on the effect of quality
management and the role of executives and managers in the success of quality management
programmes. To meet the objectives of the study, selection of the corporations for the study
was not limited to a single industry or sector but rather was made to try to gain a representative
sample of the SME’s industries. The population is 500 randomly selected companies having
between 10 and 499 employees. A three-page questionnaire was mailed to the CEO/owner,
quality manager/manager of these companies with a cover letter explaining the following
objectives of the study:
842 H. M. BEHESHTI & J. G. LOLLAR

Ω To collect data on the impact of quality management on several performance goals of

SMEs.
Ω To find if the survey companies had implemented a total quality management
programme.
Ω To determine the relative degree of importance of quality management on various
factors in the organization.
Ω To find the degree of management support given to quality management and continu-
ous improvement efforts.
Ω To determine the degree of quality management integration in the corporate strategy.

After a mail follow-up, the total number of responses was 117. However, 98 usable
responses (16.9%) provided data for analysis.

Profile of the respondents

From the 98 respondents, 77% were service organizations and manufacturing, 23% manufac-
turing, 73% classified themselves as domestic and 27% as global. Total quality management
was used by 26% of the respondents; however, the remaining 74% indicated they have a
quality management programme but not TQM.
The majority of the respondents, 47%, reported that the CEO/owner initiated the
implementation of their quality programme, 45% management, and 8% other (consultants,
employees, customers, suppliers). Of the total respondents, 86% indicated that continuous
support for their quality management was given by the CEO/owner, 12% managers, and 2%
other. The average number of employees was 211.
Commitment from top management is critical to the success of any quality strategy
within a firm. Quality must be included in the corporate vision and mission. Active
participation by top management in the quality improvement process facilitates the inclusion
of quality into the corporate strategy and helps employees to understand their roles during
the transition to a quality management programme. Survey results show that top management
has played an important role in the implementation of quality management and has provided
continuous support to ensure the success of a quality strategy that requires a change from
old to new cultures of business.

Quality management in manufacturing firms

During the 1970s and 1980s, the quality of many products manufactured overseas, particu-
larly in Japan, exceeded that of the United States, causing US manufacturers to lose
significant market shares to their global competitors. The loss of market share was primarily
the result of US manufacturers’ focus on making quality a technical (production according
to statistics) as opposed to a managerial function. Because of consumer pressure, loss of
competitiveness, and advances in technology, manufacturing firms began to view quality as
a total system and a managerial approach that is not limited to a specific group or function,
rather a system that encompasses the entire organization. The transition to a total quality
approach in manufacturing has caused major changes in manufacturing operations that are
evident today in such areas as product design, customer service, supplier relationship, and
product quality.
The survey and analyses provide many useful insights into the impact and importance
of quality management programme, TQM versus non-TQM, in the manufacturing firms.
Total quality management was used by 37% of the respondents; however, the remaining 63%
 US SME USING TQM 843

Table 1. The impact of quality management in manufacturing

Mean rating (1–5)

Performance TQM Non-TQM

Improved product quality 4.50 4.20

Increased efficiency 4.75 4.20
Improved customer service 4.50 4.80
Resulted in cost reduction 4.25 4.00
Improved decision making 4.50 3.80
Resulted in less defects 4.00 3.60
Encouraged teamwork 4.50 3.00
Increased productivity 3.75 3.28
Composite index 4.34 3.86

indicated that they had a quality management programme in place. The majority of the
respondents (55%) were global companies and 45% were domestic firms.
Survey participants were asked to rate the impact of their quality programme in eight
different performance goals on a scale ranging from 1 (no impact) to 5 (highest impact). The
highest impact in TQM firms was given to efficiency (4.75) and non-TQM firms to customer
service (4.80) as shown in Table 1. Given that total quality management involves the entire
workforce and emphasizes continuous improvement, it is not surprising to see that TQM
firms gave the highest rating to the improvement of efficiency.
In every other category, the TQM practising firms scored higher than the non-TQM
firms. It is interesting to note that the score given to teamwork was significantly higher in
TQM firms (4.50) as compared to non-TQM firms (3.00). Also, in the area of decision
making TQM firms rated higher (4.50) than their counterpart (3.80). This is expected
since total quality management encourages employee empowerment, team building, and
involvement in the decision-making process. John Akers (1991), former chairman of IBM,
stated, ‘Empowering our employees and inculcating a sense of that everyone owns his or her
piece of the business not only unleashes the talent and energy of our people, but also flattens
the organization and reduces stifling bureaucracy.’
Organizations that engage in company-wide quality control, focusing on the customer,
continuous improvement, and employee participation and teamwork, are more successful in
sustaining their competitive advantage. Clearly, the results demonstrate that manufacturing
firms using total quality management have a better overall rating (4.34) than those who do
not (3.86).
The survey questionnaire also asked respondents to score the degree of importance of
the firm’s quality management strategy with regard to profitability, market share, employee
training and development, pricing, competitiveness, value-added activities, and strategy, as
shown in Table 2. Scores ranged from 1 (not important) to 5 (very important).
Companies committed to quality management programmes must invest in quality
training and development of their employees in order to realize the full benefits of their
quality programme. In fact, two of Deming’s 14 points are dedicated to the training and
development of employees. Employee development is one of the largest costs in a TQM
initiative and often companies attempt to measure the benefits against costs. Traditional cost-
justification techniques used in business are useful when such tangible factors as labour
savings, equipment costs, and increased profits are evaluated. However, these methods, in
general, fail to measure the benefits that are intangible and long-term. Thus, cost-justification
844 H. M. BEHESHTI & J. G. LOLLAR

Table 2. Importance of quality management in manufacturing

Mean rating (1–5)

Factor TQM Non-TQM

Profitability 4.75 4.57

Increased market share 4.75 4.57
Employee training and development 5.00 4.50
Premium price 3.25 2.57
Gaining competitive advantage 3.75 3.71
Value-added 3.75 3.71
Corporate strategy 4.00 3.00

Composite index 4.18 3.80

of employee training and development is not appropriate. Empowered employees need new
knowledge and skills that are essential in performing their functions. Therefore, it is not
surprising to observe that the TQM firms provided a score of 5 and non-TQM a rating of
4.5 to the importance of training and development in their quality-based programme.
The manufacturing firms that use TQM principles consider quality as a very important
determinant of business profitability and increased market share. The second highest scores
(4.75) were given to these two categories by TQM firms. The non-TQM firms also assigned
the highest scores (4.57) to these two areas. It is obvious that all the manufacturing firms
participating in the study subscribe to the notion that a product’s value in the marketplace is
determined by its quality. Improving the perceived value of the product can improve the
quality reputation of the company, allowing the company to increase its market share.
The lowest scores by both groups were given to the importance of quality to charging
premium price for their product (3.25 and 2.57 for TQM and non-TQM companies,
respectively). This could be due to the fact that these companies, for competitiveness, do not
find it necessary to command higher prices for their products since improved quality leads
to lower manufacturing costs through savings in scrap, rework, and warranty expenditure.
Most firms recognize that a corporate strategy driven by quality can result in significant
market advantages. The survey results show that TQM firms exhibit a better understanding
of the importance of the integration of quality into corporate strategy (4.0) than non-TQM
(3.0). However, it should be noted that complete integration of quality management into
corporate strategy takes time and is evolutionary in nature.
Total quality management is a company-wide effort that requires top management to
take charge of leading quality initiatives and provide support for training and development of
employees in managing quality at all levels. Therefore, it is not surprising to observe that the
overall score for categories listed in Table 2 was higher for TQM (4.18) than non-TQM
(3.80) firms.

Quality management in service organizations

In service organizations, as compared to manufacturing firms, the emphasis is on conformance
to customer expectations as opposed to manufacturing activities where the focus is on
conformance to specifications. The very nature of service requires that the business must
respond to the expectations of the customer. In addition, customer expectations and perfor-
mance standards are normally difficult to measure because customer expectations vary from
one to another. It should be recognized that customers are often involved in the service
 US SME USING TQM 845

Table 3. The impact of quality management in service

Mean rating (1–5)

Performance TQM Non-TQM

Improved product quality 4.00 4.57

Increased efficiency 4.88 4.57
Improved customer service 4.63 4.48
Resulted in cost reduction 4.00 2.90
Improved decision making 3.63 3.57
Resulted in less defects 3.05 2.25
Encouraged teamwork 3.35 2.88
Increased productivity 3.72 3.56
Composite index 3.91 3.60

process and may require a higher degree of customization than does manufacturing. In
addition, services are more labour intensive and employee behaviour and performance are
the key factors in the perception of service quality by customers. Although all of these issues
are important in manufacturing, they have a particular significance in services.
The majority of respondents (82%) were domestic corporations and only 18% reported
doing business globally. Total quality management was implemented by 22% of the survey
participants and 78% indicated they have implemented a quality management but not TQM.
Respondents rated how they believed each of the eight categories listed in Table 3 were
impacted by their quality management programme on a scale of 1 (no impact) to 5 (highest
impact). TQM service organizations rated efficiency as the area receiving the highest impact
from quality management with a score of 4.88 out of a maximum of 5.0. Non-TQM
organizations rated both quality and efficiency as the highest impacted areas by their
company’s quality management with a score of 4.57 for each.
The second highest ratings in both TQM (4.63) and non-TQM (4.48) were given to
improved customer service. The results show clearly that service organizations have realized
the value and the role of quality management in customer service. These high scores in service
to customers indicate that managers in both TQM and non-TQM organizations have realized
the basic service mission of their business. However, there is a significant difference between
TQM (4.0) and non-TQM (2.90) organizations where cost reduction was concerned. This is
not surprising since TQM organizations are the beneficiaries of company-wide improvements.
In the areas of less defects (3.05) and teamwork (3.35), TQM rated higher than non-
TQM organizations, which scored 2.25 and 2.88 for less defects and teamwork respectively,
demonstrating that TQM principles encourage teamwork more than other quality manage-
ment programmes. Finally, the composite score showed a higher score for the TQM (3.91)
than non-TQM (3.60) organizations.
The importance of quality in service organizations cannot be underestimated. Successful
implementation and utilization of a quality management programme requires leadership by
top management and the inclusion of the employees in the programme. Informed employees
understand the importance of quality in every aspect of their daily activities. In order to
assess the importance of quality with respect to seven factors listed in Table 4, the surveyed
organizations were asked to rate these factors on a scale between 1 and 5. Table 4 shows the
importance of these factors.
Effective training and development of all employees is essential to the success of a quality
management programme. The highest rating in TQM organizations (4.65) and the second
highest (4.0) in non-TQM firms were given to employee training and development.
846 H. M. BEHESHTI & J. G. LOLLAR

Table 4. Importance of quality management in service

Mean rating (1–5)

Factor TQM Non-TQM

Quality is critical to profitability 4.52 3.89

Quality increased market share 4.45 4.22
Employee training and development 4.65 4.00
Charge premium price 3.86 3.56
Quality is a competitive advantage 3.69 3.11
Value-added 3.89 3.00
Corporate strategy 3.50 3.30

Composite index 4.08 3.58

The highest score (4.22) for non-TQM and the third highest score (4.45) for TQM
organizations was increased market share. Although TQM firms rated increased market share
as the third highest, it is worth noting that their score was higher than non-TQM organiza-
tions, thus, showing that TQM is a more effective method of managing quality and
competitiveness. This is also true with regard to the firm’s profitability, TQM organizations
ranked better (4.52) than non-TQM firms (3.89). This is expected since TQM stresses the
importance of quality integration throughout the organization, enabling the firm to achieve
its cost-cutting objectives.
Quality improvement efforts must be integrated in the firm’s strategic business plan.
Viewing quality as a strategic operating policy allows the firm to respond to increasing
competition and growing consumer expectations. TQM and non-TQM organizations gave a
score of 3.50 and 3.30 respectively, to the importance of quality in corporate strategy.
Although higher scores may be expected for this area, it should be noted that incorporation
of quality into the overall strategic plan is long-term and these companies have recognized
the importance of linking quality to corporate strategy.
The results, once again, draw attention to the fact that the TQM firms scored higher,
for charging premium price (3.86) for their products and considering quality as a competitive
advantage (3.56), than non-TQM, who scored 3.56 and 3.11 for charging premium price
and considering quality as a competitive advantage, respectively. In addition, TQM organiza-
tions scored higher (3.89), when asked about the importance of quality with respect to the
value-added activities involved in the work processes, than non-TQM firms (3.0).
It is noteworthy that TQM organizations scored higher in each area specified in Table 4
than non-TQM firms, resulting in an overall rating of 4.08 for TQM and 3.58 for non-TQM
companies. Clearly, the survey results show that service organizations with TQM are
benefiting more from their quality improvement efforts than non-TQM firms.

Conclusions
In today’s competitive business environment, top management should play a proactive role
in the development and implementation of quality strategy and involve employees at all levels
to get the highest results from the quality system. Commitment to quality management
begins with management and spreads to all areas of business. Managers should emphasize
that work should be done right the first time and that there is always room for improvement.
The commitment to the pursuit of excellence should be communicated to every employee.
The study found strong commitment by top management in quality initiatives and
 US SME USING TQM 847

support for continuous improvement efforts of SMEs in both manufacturing and service.
The survey results indicated that companies that invest in quality programmes in general,
and total quality management in particular, experience significant returns and improvements
in performance. TQM firms achieved higher improvement in product and service quality,
increased market share, improved efficiency and productivity, greater customer service, and
better employee relations. TQM firms, especially manufacturing, exhibited better teamwork
and decision making than non-TQM firms.
The analysis has obvious relevance to organizations planning to move toward a total
quality management approach. It is also relevant for top management in evaluating their
decisions to invest in a total quality management programme. Similar studies can focus on
the differences, such as geographic location, industry type, and the length of TQM practices,
in SMEs as well as the influence of larger client firms on quality management programme of
SMEs.

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