Is total quality management enough for competitive advantage? The aim of this paper is to clarify the elements of TQM that are relevant for competitive advantages and to evaluate whether TQM is all that firms need to enjoy competitive advantages. The paper relies on a review of other literature and theoretical assumptions of competitive advantages provided by the Porter’s generic strategies and resource based view (RBV) theories.
The paper evaluated the link between differentiation strategies and use of internal firm resources to create differentiation at product quality and process quality levels within the firm. It shows that, for TQM to service its purpose of being a contributor to competitive advantages, its implementation has to follow the differentiation intent rather than the cost leadership intent in seeking competitive advantages. In addition, organizations must use TQM as a philosophy and this implies that they must adopt its principles and practices to all areas of the organization for them to realize full benefits. The associated cost of implementing such as change makes TQM an organization feature whose implementation must have support of top management leadership.
The issue of managing for results to satisfy shareholder demands and meet company operation goals have been a preoccupation of management staff for the last three decades. In this period, there have been many implementations of total quality management in different organization using diverse variations of the main tool. Companies implement TQM based on their industry and objectives of the firm.
The persistent reason for implementing TQM in various organizations remains its association with the gain of competitive advantages; where in some industry the advantage comes as a must-have property that allows firms to sustain their position in the industry. In some industries that are still developing, use of TQM can present a firm with distractive capabilities that allow it to sustain a competitive advantage in the medium to long term. Total quality management (TQM) is a business philosophy that promises to provide continuous improvement gains in internal organization operations. The philosophy is linked to leadership and management improvements.
Statement of the problem
When companies choose to gain mechanisms for delivering high quality services and products, they also have the potential to charge premium prices for their services. A firm can charge a higher per unit price only when quality of its products presents a differentiation perspective.
The key question that implementers of total quality management face is on the particular ways to adapt the concept to their respective organization so that it actually serves as a source of competitive advantage. This comes after realizing that the blind adoption of a business concept to an organization can only offer it minimum guaranteed advantages and this may come at a cost that is greater than the advantages gained. Therefore, finding a balance between the challenges of using the TQM approach and receiving most gains from the system is critical.
The aim of the paper is to find out, from research and current practice, the main features of TQM that lead to competitive advantage. The paper also seeks to explain strategies that firms use to develop internal competencies related to TQM adoption that go on to provide a sustainable improvement process in internal operations and the firm’s products and services.
Findings on TQM linkages to competitive advantage
According to Agus and Hassan (1661), TQM is a pervasive part of business thinking just like quarterly financial result is to a public corporation. However, the examination of TQM as a strategic resource remains scanty. Every case of implementing TQM leads to performance consequences for a business. The differences in performance witnessed in businesses implementing TQM come from the diversity in magnitude and measurement of performance gains from adopting TQM, and the recommendation by Agus and Hassan (1661) was for businesses and researchers to strengthen the TQM process especially when attached to production processes and when there is sufficient support from top management leadership. In general, businesses must approach TQM from as part of their strategic positioning endeavours for then to benefit from its associated improvements in the functioning of business units.
Al-Qudah (59) acknowledges that can be an administrative philosophy in a firm and its influences on customer focus result in the biggest impact in a firm’s competitive advantage. The origins of TQM are in micro-management philosophies and aims of constant improvement. Thus, for many organizations, the best definition for TQM is the commitment of all members of an organization to continuous improvement of its business process to meet customer requirements.
It includes rich analysis of processes and tools used to handle products, services, people, processes and environment of an organization to meet customer needs and to access upper limits of profitability (Al-Qudah 61). The definition of TQM adopted by various businesses already describes it in the context of gaining competitive advantages and serves as a critical point for evaluating effect of the approach to real life examples of TQM implementation.
The common practices of TQM are management promise, excellence management role, learning and training, employee participation, continuous progress, supplier’s collaboration, product/service design, quality data and reporting, communication for improvement of quality and customer fulfilment, quality reporting, and these practices can exist in different variations. For example, employee involvement may be practiced as employee satisfaction in other organizations (Al-Qudah 62).
The key to beating the competition is to have more customer value that the rival businesses do. Companies obtain competitive advantages because of their resources and capabilities, with the understanding that resources remain static and simple while capabilities are collective, dynamic and complex. Various business tools will define capabilities as assets or strengths. In a market based differentiation strategy, a firm seeks to separate from the competition by positioning its product and in an innovative-based differentiation strategy, a firm creates the latest and most attractive products by embracing quality, efficiency, design triumphs and style principles.
At the same time, when going with market indicators, companies that have a competitive advantage will appear to do better in their customer satisfaction, service quality, customer retention, and customer loyalty. In addition, when reviewing competitive advantage as shown by financial performance, the indicators would be sales revenue, cost of production, market share and profitability of a firm in relation to the performance of its sector.
Therefore, when attaching TQM to competitive advantage, the market and financial indicators will indicate the any gains made by a firm. In addition, when determining whether TQM will be successful in manufacturing or service firms, there should be no remarkable difference observed because TQM touches on the quality of particular practices and not leave out any business process. Moreover, the philosophy works on leadership, customer focus and human resources, which are present in any firm.
However, the nature of a firm can affect the ability to apply TQM and the results obtained from particular departments. Service firms are likely to apply TQM selectively because of the dominant resources they deal with are human resources. On the other hand, manufacturing firms have potential to apply TQM fully because they deal with intangible resources (Adde-Korankye 1299).
According to the resource based view (RBV) theory, the success of a firm does not depend on its environment, but on the firm. Any available production factor is a resource and a firm has to use appropriate strategies to mobilize the resources to gain differential knowledge, abilities and skills. These features arise out of collective learning of the organization and they determine the way the organization is able to deploy its resources, and set the foundation for developing and supporting its competitive advantages (Ruiz-Carrillo and Fernández-Ortiz 31).
There are two arguments presented by Prajogo and Sohal (36) regarding the need and effectiveness of TQM. The first argument sees TQM as an enabler of innovation because it establishes a system and culture that is necessary for organizations to innovate. The second argument sees the TQM approach as a hindrance to innovation because of its principles and practices that are rigid. Since many organizations are going to implement TQM practices and principles to achieve improved customer focus, they can end up relying too much on customer focus measurements in their quality approach and limit the business outlook to the prevailing customer concerns and demands. Consequently, such organization will miss novel situations as they are unable to focus on the underserved population in their markets can present innovative business ideas (Prajogo and Sohal 37).
There can be a customer orientation of TQM or a process orientation. In the first case, an organization is looking for market advantages and in the second case, the organization seeks to eliminate defects and wastes and therefore achieve higher profitability from its current market share. The second concept relates most to the Japanese philosophy of Kaizen, which refers to continuous improvement and elimination of waste (Prajogo and Sohal 37).
For companies pursing product innovation as a differentiation strategy for competitive advantage, results come from superior functionality of their products created by investments in research and development. Such firms will incur high costs of initial product but they are able to gain high unit profit margins. Therefore, attempting to use the TQM practices and principles for such firms will revolve around use of technologies and process that deliver superior product value.
However, as argued above, firms pursuing a cost leadership strategy will also likely use TQM to develop process innovations. Unfortunately, they are only able to pursue process innovations that adhere to their cost leadership strategy. This implies that the firms cannot implement process changes that will lead to significant cost increases and severely affect their profit margins. Many of such firms will rely on innovations made by other firms and will develop their systems as efficiently as possible to mimic success strategies of the innovating firms as the least cost possible (Prajogo and Sohal 38).
The adoption of TQM relies on firm’s differentiation strategies where the former can be a good source for achieving the goals of the latter. However, TQM and cost leadership have a weak relation and this could be attributed to the failure of TQM to deliver short-term results in financial performance, which is a key factor for companies that are pursuing cost leadership strategies. Therefore, cost of implementing TQM disqualifies it as a potential strategic tool for companies seeking cost leadership in their respective markets. TQM fails at this instance to deliver desired competitive advantages.
However, failure of TQM to deliver competitive advantages to low cost leadership strategy-based firms could be due to the lack of appropriate measurements for soft technologies gained in the process of implementing principles and practices of TQM.
When evaluating TQM success, it is important to distinguish between cost leadership as a product of competitive strategy and cost leadership as a competitive advantage. In the first case, a firm seeks to achieve cost leadership hoping that it will lead to the second case where the firm is enjoying competitive advantages because its products offer value to customers at lower prices than competitor’s products (Prajogo and Sohal 46).
In a product, quality is a testament of concern for customer needs and pursuit of futuristic and multi-dimensional thinking. Companies have to make quality products, and they need to do so with ease for them to sustain their abilities of making the products. The application of quality at an organization does not rely on a single authority. Every department has to contribute in equal measure to the quality pursuit. Therefore, the existence of a common quality approach that can be implemented throughout an organization provides firms with the opportunity to succeed at their pursuit of quality production, which should lead to improved performance in the market.
The need for quality arises from changes in business operating environments. Resource limitation requires businesses to make the best out of their resources and this does not always imply that they make the best quality products. The Porter’s generic strategies theory presents four key differentiation strategies that business can pursue to sustain their competitive advantages and some of them require business to focus on low cost products and low profit margins supported by high volume sales. In such cases, the quality approach will mostly be on the processes used by a business to ensure that products and service meet minimal consumer expectations and at the same time can be produced and distributed at lower costs than the competition (Kaynak 31).
Organizations seeking to sustain competitive advantages have to differentiate themselves from competition in cost and quality of products. Cost leadership differentiation is easy to copy than quality leadership differentiation. Therefore, when evaluating the strategy based on the resource based view of the firm, going with quality leadership should meet the value, rarity, imitability and organization attributes of the theory that are necessary for a form to sustain its competitive advantages.
Firms are looking for increased customer loyalty and reduced cost of product. They have to achieve these objectives by ensuring their staffs remain motivated and shareholders are satisfied with the short term and long-term performance results and strategies. Firms must also foster internal and external practices that promote positive recognition of their brand (Adde-Korankye 1296).
TQM is a philosophy and not just a tool. The significance of its being a philosophy comes from the idea that for organizations to enjoy full benefits of TQM, they have to embrace it wholesomely. Without implementation of the TQM practices and principles in an entire organization, benefits are likely to be less than expectations. However, full integration should lead to reduced wastage of limited resources such as employee skills and knowledge and it should lead to better adaptation of the firm to emergent market opportunities. The practices of continuous improvement and quality tools usage for measurement and reporting ensure that members of an organization have sufficient knowledge to make appropriate leadership and operational decisions.
The biggest attachment of TQM to competitive advantage is the human resource available at organizations. Human resources cannot be easily acquired as other factors of product, and the higher quality of human resources tend to be the most immobile and rigid in their adaptation to an organization such that successful exploitation of such resources is possible only in the most efficient and effective organizations at handling such resources to realize organizational objectives.
TQM is crucial for allowed firms that are pursuing a resource-based model to manage their internal capabilities and develop practices that are unique, efficient and more effective than their competitors are. The philosophy allows firms to transform their traditions and cultures to allow full manifestation of employee capabilities in different roles so that they are able to manage appropriately other tangible and intangible resources.
With TQM, a firm has to ensure that its leadership processes and outcomes embrace the philosophy as much as its customer service department, human resource department, manufacturing, product development and employee knowledge management departments do. In other words, the element of pursuing quality permeates all parts of the organization resulting to improvements and better integration to the overall fabric.
Looking at TQM in the view highlighted above, it is easy to see the way it translates to competitive advantages. Firms that are doing the right thing to sustain a position in their market will likely always have a product that has substantial demand in the market, and a supply network that ensures there are enough resources to make the product or deliver a service. The firm then operates through factor management to achieve its objectives. The inclusion of TQM in these activities and resources creates improvements that will ultimately show in the overall behaviour and quality of products by the firm. As a resource, the TQM will be delivering competitive advantages to the firm as analysed by the resource-based view. However, if the firm only implements TQM as a requirement of existing in its particular industry, then it is likely to use the least applicable measures for each practice or principles.
The least required effort will only lead to short-term benefits, and may provide an illusion of failure because many of the TQM practices and principles deliver changes to an organization in the medium term to long term. Thus, first taking a half-hearted approach are already losing as they take up TQM. On the other side, the firm that fully embraces the philosophy and goes out of its way to ensure that even the most insignificant part of the organization has TQM attributes will likely incur a lot of implementation costs and changes in the beginning.
However, after successful adoption, the firm will be in an excellent position of introducing new resources or capabilities to ride on the threshold successes that TQM is already providing. This way, TQM will be providing competitive advantages, while the firm’s leadership is advancing those strategies to gain additional capabilities that its competitors will be unable to copy in the long term. In this regard, TQM will deliver the ultimate competitive advantage that any firm is looking for.
Although TQM is widely praised as a business philosophy and strategic tool for gaining competitive advantage, there was no consensus on whether it serves as the only requirement for a firm’s success. The aim of the paper was to determine whether firms using TQM should expect competitive advantage without having to implement other practices and tools. The results and discussion show that TQM has great potential to deliver its promise, but all that depends on the approach used by a firm. At the same time, TQM appears to function only when organizations that are implementing it embrace a differentiation strategy from the onset of their quest to be dominant in their respective markets.
For firms that are already pursuing a cost-leadership differentiation strategy, TQM will only help in the basics of organization operations and a full integration will be impossible due to cost implications and the need to wait for the medium to long term for positive results. Firms embracing a cost leadership competitive strategy are keen on financial performance more than they show concern for market performance. Therefore, for firms with a market performance objective, TQM delivers its promise when it is fully integrated to every aspect of the organization.
Adde-Korankye, Alex. “Total Quality Management (TQM): A Source of Competitive Advantage. A Comparative Study of Manufacturing and Service Firms in Ghana.” International Journal of Asian Social Science 3.6 (2013): 1293-1305. Print.
Agus, Arawati, and Za’faran Hassan. “Enhancing Production Performance and Customer Performance through Total Quality Management (TQM): Strategies for Competitive Advantage.” Procedia – Social and Behavioral Sciences 24 (2011): 1650-1662. Print.
Al-Qudah, Kamal A. M. “The Impact of Total Quality Management on Competitive Advantage of Pharmaceutical Manufacturing Companies in Jordan.” Perspectives of Innovations, Economics and Business 12.3 (2012): 59-75. Print.
Kaynak, Hale. Total Quality Management and Just-In-Time Purchasing: Their Effects on Performance of Firms Operating In the U.S. New York: Routledge, 2013. Print.
Prajogo, Daniel I., and Amrik S Sohal. “The Relationship between Organization Strategy, Total Quality Management (TQM), and Organization Performance – The Mediating Role of TQM.” European Journal of Operational Research 168 (2006): 35-50. Print.
Ruiz-Carrillo, Jose Ignacio Castresana, and Rubén Fernández-Ortiz. “Theoretical Foundations of the EFQM Model: The Resource-Based View.” Total Quality Management & Business Excellence 16.1 (2005): 31-55. Print.