Firm characteristics, total quality management, and financial performance

Abstract This paper uses a sample of quality award winners to empirically test hypotheses that relate changes in operating income associated with effective implementation of total quality management (TQM) to various firm characteristics. The characteristics examined are firm size, the degree of capital intensity, the degree of diversification, the timing of TQM implementation, and the maturity of the program. We find that smaller firms do significantly better than larger firms. Firms that have won awards from independent award (a proxy for more mature TQM implementation) do significantly better than just supplier award winners. The evidence weakly supports the hypotheses that less capital‐intensive firms do better than more capital‐intensive firms, and more focused firms do better than more diversified firms. Finally, we do not observe any significant differences between the performance of earlier and later implementers of effective TQM. The key implications of these results are that many organizational characteristics moderate the benefits of TQM implementation. Although not all of these characteristics are controllable by managers, managers must set realistic expectations for the degree of benefits from TQM. The results for size and capital‐intensity validate the importance of TQM practices for smaller firms and environments that are more labor intensive. Investing to achieve a broader, deeper, and more mature TQM implementation (possibly by targeting an independent TQM award) should also result in higher benefits from TQM implementation. Furthermore, the results indicate that it is never too late to invest in TQM.