Relationship between quality management practices and competitive performance: Japanese quality award perspective

This paper presents the results of an empirical study on the relationship between quality management practices and competitive performance based on our framework to analyze the evaluation criteria for the Japanese Quality Award (JQA).

The Journal ol.l.ipancse Operations Management and Strateg\' Vol 2 No I pp 16-'7 201 i

RELATIONSHIP BETWEEN QUALITY MANAGEMENT PRACTICES

AND COMPETITIVE PERFORMANCE: JAPANESE QUALITY

ABSTRACT

This paper presents the results of an empirical study on the relationship between quality

management practices and competitive performance based on our framework to analyze the

evaluation criteria for the Japanese Quality Award (JQA) Path analysis technique is applied

to test the proposed framework using data gathered from 163 manufacturing plants, and the

result indicates that the data fit well with the JQA model Multiple regression analysis is used

to determine the path coefficient, which is decomposed into direct and indirect effects

Competitive performance is significantly explained by process management In addition, top

management leadership, information analysis, customer relationship, and workforce

management are found to indirectly relate with competitive performance Our findings

suggest that JQA model should be adopted as a framework for the self-innovation in business

organizations to gain the competitive advantages

Keywords: Quality Management, Japan Quality Award, Empirical Study

INTRODUCTION

In an era of globalization, quality management is regarded as a key factor in gaining

competitive advantage From a perspective of competitive strategy, quality is often seen as a

source of differentiation The interrelationship among quality management practices and their

effect on competitive performance has been investigated in many empirical studies such as

Flynn et al (1995), Anderson et al (1995), Forza and Flippini (1998), Choi and Eboch (1998),

Dow et af (1999), Kaynak (2003), and Yeung et al (2005) These have produced mixed'

results, probably because of utilization of different analytical frameworks, measurement

constructs, and methodologies (Sousa and Voss, 2002; Nair, 2006) Recently, national quality

award models such as the Malcolm Baldrige National Quality Award (MBNQA) and the

European Quality Award (EQA) and international standards like ISO 9000 quality

management system became widely used to study quality management (Khoo and Tan, 2003;

Flynn and Saladin, 2006; Schniederjans et al., 2006) The effects of quality management

practices on business performance appeared differently across these studies Therefore,

further research is needed to clarify the relative importance and interplay between core and

infrastructure practices of quality management and their impact on business performance in

various organizational contexts (Sousa and Voss, 2002; Zhao et al., 2004) Responding to this

1

Phan and Matsui: Reluiinnshtp between Quality Management Practices and Competitive Performance

need, this study focuses on the Japanese quality management approach to investigate the effects of qualit> management practices on multi-faced competitive performance ot

manufacturing plants Our study aims to answer the following research questions:

• What is the relationship among quality management practices?

•■ Which quality management practices are directly related to competitive performance?

• Which quality management practices are indirectly related to competitive performance? Based on the Japan Quality Award (JQA) concepts and model, we propose an empirical framework of quality management practices including six components: top management leadership, strategic planning, information analysis, workforce management, customer relationship, and process management Path analysis technique is used to analyze survey data collected from one hundred and sixty-three manufacturing plants belonging to three industrial fields: electrical & electronic, machinery, and automobile in five countries: Germany, Italy, Japan, Korea, and the United States Multiple regression analysis is used to determine the path coefficient, which is decomposed into direct and indirect effects The results show that competitive performance is directly related to process management In addition, customer relationship, information analysis, workforce management, strategy planning, and top

management leadership are indirectly related to competitive performance While the great effect of process management on competitive performance is detected, our analysis suggests

that managers should build a strong infrastructure for quality management, based on

workforce management, information analysis, and top management leadership The good fit between the collected data and the proposed framework indicates that our proposal can be

used for further studies on quality management

The structure of this paper is organized as follows The next section reviews the JQA model and the empirical studies on the interrelationship among quality management practices and their effects on the competitive performance The third section proposes an analytical framework of the study along with hypotheses on relationship among quality management practices and competitive performance The fourth section refers to the data collection and measurement test The fifth section presents the results of hypotheses testing We present the main findings, implications, and limitations of this study in the sixth section The last section presents the final conclusions of this study

LITERATURE REVIEW

Studying the relationship between quality management and competitive performance has received a high degree of attention in the literature Several research papers attribute superior firm performance to adoption of quality management practices Our review of the literature indicated that the quality, management studies differed in the conceptualization of quality management practices and firm performance Several studies operationalized quality

management as a multi-dimensional construct (Anderson et al., 1995; Flynn et al., 1995; Powell, 1995; Forza and Flippini, 1998; Rungtusanatham et al., 1998; Samson and Terziovski, 1999; Das et al., 2000; Wilson and Collier, 2000; Cua et al., 2001; Matsui, 2002; Kaynak,' 2003) while others conceptualized it as a single construct (Choi and Eboch, 1998)

Competitive performance has been also conceptualized in different ways across studies (Nair, 2006) Some studies considered operational performance measured in terms of product quality, time performance, and inventory performance (Flynn et al., 1995; Choi and Eboch, 1998; Forza and Flippini, 1998: Dow et al., 1999; Samson and Terziovski, 1999; Kaynak' 2003) and financial performance measured in terms of growth in market share, profitability

17

Phan and Matsui: Relationship between Quality Management Practices and Competitive Performance

return on assets (Das et al., 2000; Wilson and Collier 2000; Kaynak, 2003) Meanwhile, other studies considered customer satisfaction measures (Anderson et al., 1995; Choi and Eboch, 1998; Forza and Flippini, 1998; Rungtusanatham et al., 1998; Wilson and Collier, 2000; Das

et al, 2000) to capture performance benefits acquired from quality management practices In some studies, a multidimensional operationalization of performance is considered (Das et al., 2000; Wilson and Collier, 2000) while others considered performance as a single construct (Anderson et al., 1995; Rungtusanatham et al 1998)

The papers also differ in terms of the level of analysis and research methodology used to test hypothesized relationships between quality management practices and competitive performance Generally, it is observed that most of the studies have either focused on

manufacturing plant-level data or on firm-level data for investigating the relationshipbetween quality management practices and firm performance

The methodologies considered for research investigations include path analysis (Anderson

et al., 1995; Flynn et al., 1995; Rungtusanatham et al., 1998); regression analysis (Samson and Terziovski, 1999), correlation analysis (Powell, 1995), discriminant analysis (Cua et al., 2001), canonical analysis (Matsui, 2002), and strucmral equations modeling (Choi and Eboch, 1998; Forza and Flippini, 1998; Dow et al., 1999; Das et al., 2000; Wilson and Collier, 2000; Kaynak, 2003) These diversities exist in research methodologies, reflecting the variations in sample characteristics and hypothesized relationships

JQA was established in 1995 by the Japan Productivity Center for Socio-Economic

Development (JPC-SED) It was modeled after the self-assessment theory of the Malcolm Baldrige National Quality Award (MBNQA) in the United States, and modified to

accommodate Japanese management practices The award is presented to Japanese companies displaying excellent overall management qualities These are companies that continue to create new values through the continuous process of self-innoVation to transform their overall management systems into more customer-oriented structure Since its inception, 162

companies have applied and 24 companies have received the award (Japan Quality Award, 2009) Four concepts have been introduced by JQA: customer focus, distinctive capabilities, valuing employees, and harmony with society These concepts refer to the fundamental values, attitudes, beliefs, and standards embedded in the Japan Quality Program (JQP) that aims for innovations and developments to realize management excellence Based on these core

concepts, seven core values have been introduced: customer-driven quality, leadership, process-oriented, creating "intelligence" through dialog, agility, partnership, and fairness These core values refer to what organizations should proactively think about when dealing with major management concerns and challenges that emerge, reflecting ongoing changes to business environment To help the business organizations realize the organizational

objectives; JQP introduces an assessment criteria model, which is shown in Figure 1

The JQA model consists of eight categories, which identify the "ideal sharp" and values, as well as customers, competition, management resources and the future direction of innovation Table 2 summarizes the main characteristics of the JQA model in comparison with Deming Prize (DP), MBNQA, and European Quality Award (EQA) Overall, these programs

exemplify customer driven quality through streamlined processes, product design, leadership, human resource development and customer focused strategic plans All of the awards' criteria are updated periodically by award administrators in order to represent the most current

understanding of organizational quality practice and improvement Throughout the criteria, customer, employee and community satisfaction are emphasized (Vokurka et al., 2000)

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Phan and \latsui: Relaiionship between Quality Management Practices and Compefllive Performance:

Japanese Quality Award Perspective

3 Understanding and Responding to Customer and Market Need (100)

Direction and Driving Force

5 Improving Employee and • Organizational Capabilities (100)

6- Customer Value Creation Processes(120)

Results

8 Activity Results (400)

7 Information Management (50)

Figure I -Japan Quality Award Model (Japan Quality Award Committee Administration, 2008)

The different between JQA and DP is that DP does not provide a model framework for

organizing and prioritizing criteria Unlike JQA that focuses on continuous improvement and self-innovation, the DP is more concerned with company-wide quality control for product

manufacturers MBNQA and EQA include in their framework the importance of fostering a culture of entrepreneurial challenges and of harnessing new technology, as well as in

employing diversity to create competitiveness and business, while JQA management

philosophy focuses on building consensus (shared vision), aligning people with processes, and forming cooperation with suppliers to achieve excellent quality (Khoo and Tan, 2003).

RESEARCH FRAMEWORK

Empirical research refers to the research that makes use of data that is derived from naturally occurring field-based observations, taken from industry Recently, empirical research on quality management is an area becoming increasingly important for both practitioners and

academicians because it provides the type of understanding needed to achieve excellent

quality in a global economy (Flynn et al., 1990).

As more and more practitioners use JQA as a tool for self-assessment and continuous

quality improvement, the JQA framework becomes so imperative that the JQA concept,

model, and constructs be tested and validated (Calingo, 2002) In this study, we would like to adopt the JQA perspective to empirically study quality management because the JQA

framework specifies the cause and effect of quality initiatives, implying which practices will lead to various desired outcomes From our intensive literature review, we focus on a set of

six quality management practices, which reflect six JQA categories: Top management

leadership, Information analysis, Customer relationship, Strategic planning Workforce

22

Phan and Matsui: Relationship between Quality Managemenl Practices and Competitive Performance-

Japanese Quality Award Perspective _

management, and Process management {Social responsibility of management is not included

in this study because the data is not available) In the quality management literature, these practices have been also highlighted as critical components for achieving excellent quality In this study, six constructs are developed to measure those six key quality management

practices, based on the JQA concept Table 3 summaries the relevance between these six underlying constructs and the JQA evaluation criteria The JQA approach to these quality management practices, their interrelationship, and their impact on competitive performance as discussed in the quality management literature are summarized as follows.

Top management leadership

JQA emphasizes that top management is an important driver for developing quality

management system Top management leadership is a critical requirement for effective and efficient quality management because it encourages the practices and behaviors that lead to quality performance throughout the organization Top management leadership is expected to have impact on all of the aspects of quality management Particularly, top management leadership strongly relates to the development and deployment of manufacturing strategy throughout the plant, the analysis and utilization of quality information in the shop floor, and development of customer and supplier relationship for quality improvement This argument has been supported by such empirical studies as Anderson et al (1995), Flynn et al (1995), Samson and Terziovski (1999), Das et al (2000), Wilson and Collier (2000), and Kaynak (2003).

Information analysis

The quality improvement strongly depends on how the plants collect, analyze, and utilize the quality information JQA emphasizes that information analysis provides the input for several managerial activities such as strategic planning, workforce management, process management, and customer relationship Because it links to every aspect of quality management,

information analysis needs the support and leadership by top management This argument is supported by such empirical studies as Flynn et al (2005), Choi and Eboch (1998), Kaynak (2003), and Yeung et al (2005).

workforce management as the employee's training and involvement depend on the

establishment of the long-term strategy In another side, the effective strategic planning process is influenced by information analysis.

Workforce management

JQA indicates that organizational capabilities would be enhanced by (1) respecting the opinion and actions of employees, (2) involving employees in quality improvement and innovation, (3) providing organizational support to employees though training, and (4) improving the working environment In the same line, several empirical literatures (Flynn et

23

Phan and Matsui: Relationship between Quality Management Practices and Competitive Performance:

Japanese Quality Award Perspective

al., 1995; Choi and Eboch, 1998; Samson and Terziovski, 1999) report the importance of workforce management to quality improvement It includes the promotion of employees' skills and attitudes by providing skill training programs and involving them into continuous improvement programs These workforce management activities are moderated by the plants strategy The plants with long-term and quality-based competitive strategy should focus on developing skills, attitude, and quality mindset of their employees The effectiveness of workforce management is exposed in production processes The properly trained workers improve product quality by conducting several activities such as statistical process control (SPC), 5S, and preventive maintenance

JQA emphasizes the value interaction with customers and suggests companies to review the intended values from the customer's point of view Managing the close relationship with customer allows manufacturing plants to identify and clarify their customers' requirements that will be translated into product and process specifications Thus, the strong relationship with customers should directly relate with process management The contribution of customer relationship to plants performance and its linkage with process management are reported in many empirical literatures such as Flynn et al (1995), Samson and Terziovski (1999), Cua et

al (2001), Kaynak (2003), Yeung et al (2005), and Parast et al (2006)

Process management

Process management refers to the techniques and tools applied to a process to improve its effectiveness, hold the gains and ensure its integrity in fulfilling customer requirements As JQA indicates, effective process management depends on several requirements concerning with human aspects, quality information analysis, and customer relationship management In manufacturing plants, process management contributes to plant performance by reducing the variability of process, which leads to reduction in scraps and reworks Better product quality allows the manufacturing plants to gain the higher competitive position in terms of cost, delivery and flexibility, because the better product quality with less scraps and reworks allows the plants to achieve lower manufacturing cost The lesser defective products are associated with the shorter cycle time because the plants do not need to waste their times on repairing and reworking This enables the plants to achieve on-time delivery and to change their production volume easily (volume flexibility) In brief, process management improves different dimensions of competitive performance This argument is supported by such

empirical studies as Flynn et al (1995), Anderson et al (1995), Forza and Flippini (1998), Choi and Eboch (1998), Dow et al (1999), Kaynak (2003), Yeung et al (2005), and Phan and Matsui (2009)

We visualize and summarize the arguments on the relationship among quality management practices and competitive performance as discussed above into a framework presented in Figure 2 The boxes describe six quality management practices and competitive performance The cause-and-effect relationships between two boxes are presented by arrows It is expected that:

• Top management leadership directly links to Strategy planning Information analysis, and

Customer relationship

• Information analysis directly links to Strategy planning Workforce management Process

management, and Customer relationship

• Strategic planning directly links to Workforce management

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Phan and Matsui: Relationship between Quality Management Practices and Compefitive Performance:

Japanese Ouality Award Perspective

• Workforce management Information analysis, and Customer relationship directly link to

Process management

• Process management and Customer relationship directly link to competitive performance

Based on the JQA approach and the quality management literature as discussed above, we establish the hypotheses on the interrelationship among quality management practices and their impact on competitive performance as follows:

Hypothesis Hj: Information analysis is directly related to Top management leadership Hypothesis H2: Customer relationship is directly related to Top management leadership and

Information analysis

Hypothesis H3: Strategic planning is directly related to Top management leadership and

Information analysis

Hypothesis H4: Workforce management is directly related to Information analysis, Strategy

planning, and Top management leadership

Hypothesis H5: Process management is directly related to Workforce management,

Information analysis, and Customer relationship; and indirectly related to Top management leadership and Strategy planning

Hypothesis Ha: Competitive performance is directly related to Process management and

Customer relationship; and indirectly related to Workforce management Information analysis Top management leadership, and Strategy planning

To measure the conceptual constructs underlying the JQA categories, a set of eleven measurement scales is selected from High Performance Manufacturing (HPM) Project

database We use four individual scales to measure Top management leadership, Information

analysis Strategic planning, and Customer relationship respectively Workforce management

is the first super-scale that is constructed from three individual measurement scales: Task-

related training for employees, Small group problem solving, and Employee suggestions The

second super-scale, Process management is constructed from four individual measurement scales: Cleanliness and organization, Process control, Preventive maintenance, and Supplier

quality involvement

Competitive performance refers to the ability of a business organization to survive in a competitive marketplace by providing products or services that satisfy its customers For manufacturing companies, the competitive performance would be achieved by developing cumulative capabilities regarding quality, cost, delivery, flexibility, and time (Schroeder and

Flynn, 2001) In this study, competitive performance is measured by: Unit cost of

manufacturing, Conformance to product specifications, On-Time delivery performance, Fast delivery Flexibility to change product mix, Flexibility to change volume Inventory turnover, Cycle time (from raw materials to delivery), New product development lead time, Product capability and performance, On-time new product launch, Product innovativeness, and Customer support and service Those performance indicators have been identified in quality

management literature as the key performance of manufacturing companies (Shroeder and Flynn, 2001; Cua et al., 2001; Phan and Matsui, 2009 and 2010; Naor et al., 2010)

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