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Quality
Quality management, innovation management
capability and firm performance and innovation
capability
Empirical insights from Indian
manufacturing SMEs
Saumyaranjan Sahoo Received 1 April 2019
Jaipuria Institute of Management, Jaipur, India Revised 30 May 2019
Accepted 16 July 2019

Abstract
Purpose – Many organizations are facing competitive challenges due to the rapid pace of technological
changes. Both quality management (QM) and innovation are the competitive factors that are intensely
embedded into organizational products, services and processes. In order to achieve higher firm performance,
manufacturing firms are needed to adopt QM practices as well as develop innovation capability. Therefore,
the purpose of this paper is to examine the relationship among QM, innovation capability (IC) and firm
performance under both mediation and moderation models using structural equation modeling.
Design/methodology/approach – The approach of this study is quantitative. The data used to test the
hypotheses were gathered from Indian small- and medium-sized enterprises (SMEs) interviewing senior
managers with a structured questionnaire. These hypothesized relationships are tested with data collected
from 134 Indian manufacturing firms by using SPSS and AMOS statistical software.
Findings – Overall, the findings clearly show that QM through the firm’s IC is indirectly associated with a
firm’s business performance. It supported the notion that QM practices encourage the definition of innovation
strategies of products and processes within a manufacturing setup, which positively affected different
aspects of firm performance. More importantly, this study supports the findings of past studies that
questioned the role of QM practices in improving a firm’s IC.
Research limitations/implications – Some limitations of this study include: although a cross-sectional
survey has been applied, the research does not permit us to account for the lag between implementation and
performance. It also brings the opinion of a limited number of senior managers of Indian manufacturing
SMEs, and hence both the sample size could be increased and the nationality of the respondent/responding
firms could be expanded for future research.
Practical implications – In light of the obtained results, several recommendations were introduced to
assist decision makers in manufacturing companies. The paper contains suggestions for improving
manufacturing firm’s performance through developing IC and adopting QM practices.
Originality/value – This paper extends theoretical contribution in production and operations management
literature, highlighting how QM practices and firm’s IC have to interact in determining an organization’s
success and sustaining its global competitiveness.
Keywords Quality management, Firm performance, Innovation capability
Paper type Research paper

1. Introduction
Small- and medium-sized enterprises (SMEs) play a significant role in economic
development by being one of the major contributors to economic growth (Saad et al.,
2017). In competitive global environments, innovation is a key not only to survival but is
also about seizing new opportunities, protecting knowledge assets and creating competitive
advantage in the market (Hurmelinna-Laukkanen et al., 2008; Teece, 2000; Samson and
Gloet, 2014). The ability to develop and launch innovative new products by using the latest
technology quickly before global competitors, or soon thereafter, is a key factor in gaining
first-mover advantages, achieving product success, capturing market share, increasing
return on investment and long-term viability (Allocca and Kessler, 2006; Çakar and Ertürk,
2010). To become innovative, an organization has to develop its innovation capability (IC)
(Saunila and Ukko, 2012). Innovation is an evolutionary process within an organization to The TQM Journal
adopt any change pertaining to a device, system, policy or service that is new to the © Emerald Publishing Limited
1754-2731
organization (Calantone et al., 2002; Saunila and Ukko, 2013). Thus, innovation can be DOI 10.1108/TQM-04-2019-0092
TQM regarded as an organizational capability, because it is an act that deploys resources with a
new ability to create value (Yang et al., 2006; Saunila and Ukko, 2013).
The importance of innovation has motivated researchers to identify various driving
forces of innovation (Becheikh et al., 2006; Kim et al., 2012). Some researchers contend that
quality management (QM) practices could be one of the prerequisites of innovation (Hoang
et al., 2006; Perdomo-Ortiz et al., 2006; Kim et al., 2012). The implementation of QM tools and
techniques enables an organization to reduce costs, increase the productivity of human and
physical assets and improve the quality of their products (Sila, 2007; Silva et al., 2014). QM
practices contribute to operational and financial performance, allowing a firm to achieve
competitive advantage (Lagrosen and Lagrosen, 2005; Kaynak, 2003; Kim et al., 2012).
Equally important, IC has significant importance for superior quality performance, and this
characteristics of market research and development capability contribute companies to get a
competitive advantage because of its nature of triggering the success of new innovation
(Zehir et al., 2015). Hence it is not surprising that many innovative manufacturing and
service firms around the world (e.g. Xerox, Ford, Motorola and Federal Express)
have adopted QM practices over the last few decades (Kim et al., 2012; Rahman, 2004;
Powell, 1995).
Quality and innovation management are increasingly high-profile activities for all kind of
firms and are usually associated with gaining a competitive advantage (López-Mielgo et al.,
2009; Kumar and Sharma, 2017; Psomas et al., 2018). Both can be considered as organizational
dynamic capabilities based on learning, improvement and change (López-Mielgo et al., 2009).
However, managers frequently emphasize they find substantial conflicts between quality and
innovation activities. Unsurprisingly, these conflicts have caught the attention of academics
(López-Mielgo et al., 2009; Silva et al., 2014). QM is about consistency, standardization and
control, whereas innovation is about change, difference and accepting failure (Silva et al.,
2014). Adding to the dilemma previous studies concluded contradicting results. Some found
QM has a positive influence on innovation (López-Mielgo et al., 2009; Martínez-Costa and
Martínez-Lorente, 2008; Prajogo and Hong, 2008; Sarkees and Hulland, 2009; Hoang et al.,
2006; Antunes et al., 2017; Kim et al., 2012; Sadikoglu and Zehir, 2010; Schniederjans and
Schniederjans, 2015; Kanapathy et al., 2017), while others found it has no impact on innovation
(Pekovic and Galia, 2009; Santos-Vijande and Álvarez-González, 2007; Hoang et al., 2006;
Martínez-Costa and Martínez-Lorente, 2008; Prajogo and Sohal, 2006; Moura and Abrunhosa,
2007). Thus the gap still remains and debate still continuing concurrently with researches
investigating the role of QM practices on the development of IC and vice versa. Indian
manufacturing SMEs are increasingly looking for ways to enhance their ability to innovate
effectively. Also, the existence of innovative and internationally competitive SMEs is a critical
requirement for a countries’ future growth. To the best of knowledge of the researcher, as the
research related to the influence of QM practices on IC and their impact on firm performance
has never been done in the context of Indian manufacturing SMEs and research on the impact
of moderating effect of organization age on such relationships being even rarer; therefore, this
study attempts to fulfill various research gaps in operation management literature, which is
discussed in detail in the literature review section. The research questions at the heart of this
study are:
RQ1. Is there a positive effect of QM practices on the development of IC of the firm?
RQ2. To what extent firm age may moderates the influence of QM and IC on firm
performance?
Understanding these issues will shed light in finding answer to whom QM support and IC
development program should be emphasized, either young or old SMEs. Findings of this
study may help policy makers to channel the funds to the appropriate target groups to
ensure a profitable return on investment in the future. Therefore, the objective of this study
is to investigate the relationship between QM practices, firm’s IC and performance measures Quality
in a small–medium manufacturing industry setting and to examine the indirect effects of management
firm’s IC on the relationship between QM practices and firm performance. and innovation
2. Theoretical background and hypotheses
capability
2.1 Strategic resource-based view of the organization and the notion of dynamic capabilities
In recent years, there has been an increased emphasis on the use of theory in operation
management research (Choi and Wacker, 2011; Hitt et al., 2016; Ketchen and Hult, 2011).
Among these are the resource-based view theory, transaction cost theory, dynamic
capabilities, knowledge-based view, system theory, resource dependence theory,
organizational learning and social network theory, among others (Choi and Wacker, 2011;
Hitt, 2011). Also, since the mid-1980s, the strategic resource-based view (SRBV ) of
organizations has enhanced the study of innovation (Samson and Gloet, 2014). Developing
from the resource-based view of the firm (Wernerfelt, 1984), SRBV characterizes an
organization as a collection of resources and capabilities (Samson and Gloet, 2014). The
SRBV theory offers a compelling framework for explaining the development of a firm’s
competitive advantage and linking it to organizational performance (Barney, 1991;
Wenerfelt, 1984); the theory conceptualizes organizations as bundles of resources and
capabilities that include both tangible and intangible assets that firms use to conceive and
implement their strategy (Amit and Schoemaker, 1993; Barney and Arikan, 2001) and gain
competitive advantage (Eisenhardt and Martin, 2000). SRBV theory connects competitive
advantage and higher average returns to the business resources and capabilities and takes
them to the forefront of businesses to create their future strategies which are accepted as the
basic management philosophy (Zehir et al., 2015). The broad applicability of SRBV to
multiple disciplines, and these extensions and complementary theoretical approaches, has
led to the increasing use of this theory in operations management research (Hitt et al., 2016).
SRBV theory also theorizes that firms are able to create and sustain their competitive
advantages through the collection and integration of rare, valuable, inimitable and non-
substitutable resources (Wenerfelt, 1984; Hitt et al., 2016). The value and rarity of resources
allow firms to create new economic value, while inimitability and non-substitutability
provide the isolating mechanism that locks in rents associated with those resources (Nason
and Wiklund, 2018). The literature highlights knowledge as a valuable strategic
organizational resource (Acedo et al., 2006; Armstrong, 2007; Lockett et al., 2009), where
success depends on the ways in which organizations develop and deploy their resources and
capabilities (Samson and Gloet, 2014).
Much of the strategy literature has emphasized resources internal to the firm as the
principal driver of a firm’s profitability and strategic advantage (Kostopoulos et al., 2002).
With the advent of knowledge and intellectual management, the innovative capability
dimension is gaining increasing recognition as the only true strategic asset and is
considered to be a most important determinant of an organization’s performance (Saunila,
2014; Rajapathirana and Hui, 2018). Capabilities, in contrast, refers to a firm’s capacity to
deploy and coordinate different resources, usually in combination, using organizational
processes, to effect the desired end (Kostopoulos et al., 2002). This includes obtaining and
sharing information about customer’s need, market changes and competitor’s actions, as
well as the development of new technologies to create new products that are superior to
those of competitors. Such activities highlight the critical nature of organizational processes,
which gather and consume the knowledge assets that drive innovation in an SRBV of an
organization (Barney, 1991; Barney and Arikan, 2001; Samson and Gloet, 2014). Therefore,
as a subset of SRBV, the notion of dynamic capabilities (Teece, 2009) represents a
combination of management capabilities and resources that cut across various business
functions including manufacturing, product development, research and development,
TQM human resources and organizational learning (Teece et al., 1997; Samson and Gloet, 2014).
Many definitions of dynamic capabilities point to the importance of innovation as well as
change and organizational learning, which is related to accumulating processes, pioneering
processes, coordinating processes and deploying processes (Giniuniene and Jurksiene, 2015).
Because dynamic capabilities theory takes a holistic view of organizations, it is well suited
to exploring the complexity of innovation and the various innovative attributes that makes
manufacturing activities successful.

2.2 QM practices and innovation capability

There are two opposite schools of thoughts concerning the relationship between QM and IC
(Sadikoglu and Zehir, 2010). The positive viewpoint contends that companies embracing QM
in their system and culture can provide a fertile environment for innovation (Zeng et al., 2015;
Kafetzopoulos and Gotzamani, 2019). Supporting this viewpoint, the literature has highlighted
the important role of cross-functional product design, process quality management, quality
empowerment, organization-wide employee training and quality information usage in
nurturing innovation (Hoang et al., 2006; Kim et al., 2012; Sadikoglu and Zehir, 2010;
Santos-Vijande and Álvarez-González, 2007; Schniederjans and Schniederjans, 2015; Zeng
et al., 2015). Also, firms engage in innovation for a number of reasons. Their objectives may
involve products, markets, efficiency, quality or the ability to learn and to implement changes
(Pekovic and Galia, 2009). Most of the recent QM studies have empirically proved that a set of
QM practices is positively linked to innovation (Antunes et al., 2017; Kim et al., 2012;
Kanapathy et al., 2017; Schniederjans and Schniederjans, 2015). The empirical studies
emphasize that QM practices can provide technicians and R&D workforces with opportunities
for applying QM principles and techniques in their innovative activities where the
opportunities enable them to efficiently detect customer demand, to actively generate
knowledge sharing, and to continue improvement of working systems and processes (Kim
et al., 2012). Cross-functional cooperation enables open communication supporting creative
idea suggestions which are essential to product innovation (Zeng et al., 2015). Quality training
enhances the skills of an employee to efficiently and effectively improve teamwork, thus
reducing errors and enhancing job satisfaction which can impact product innovation (Kim
et al., 2012). QM advocates customer focus which also highlights the importance of delighting
customers (Zeng et al., 2015). Companies that implement QM have to explore and find ways to
serve customer needs and expectation at the best. The concept of QM such as formalization
and empowerment can create the necessary balance between autonomy, discipline and
underlying control, which provides a solid basis for the development of gradual innovations
and eventually radical innovations (Santos-Vijande and Álvarez-González, 2007). Therefore it
can be concluded that QM practices create an impetus for companies to be innovative in
developing and launching new products or services that aim to match the customer’s needs
(Hoang et al., 2006; Kafetzopoulos and Gotzamani, 2019).
However, the alternative school argues that QM impedes the development of IC. QM
advocates the philosophy of continuous improvement which aims at simplifying or
streamlining a process (Zeng et al., 2015). The negative viewpoint states that process
management practices focus on improving the process by eliminating waste and obtaining
efficiency and claims that QM practices are not compatible with innovation (Sadikoglu and
Zehir, 2010). Process management practices basically aiming at eliminating waste and
improving efficiency could be detrimental to innovation, since it reduces slack resources
that are necessary for fertilizing innovation (Sadikoglu and Zehir, 2010; Zeng et al., 2015).
Researchers contend that QM practices would yield rigidity and inhibit innovation by
trapping people into focusing on the details of the current quality process rather than a new
idea to change the current work system (Zeng et al., 2015). Defending this, researchers have
also argued that customer focus is concerned with product conformance (product quality
(PQQ)), but not with product newness (product innovation) (Hoang et al., 2006). Customer Quality
focus could lead the organization “narrow-minded” to current product and services rather management
than making breakthrough improvements to explore customer’s latent needs (Zeng et al., and innovation
2015). Such an incremental approach results in achieving product conformance, rather than
product innovation, and constrains the firm’s ability to innovate (Sadikoglu and Zehir, 2010; capability
Zeng et al., 2015). Continuous improvement inhibits breakthrough improvement (innovation)
since it focuses on incremental change, necessitates standardization in order to establish
control, stability and routine, and prevents people from thinking of radical changes in the
organization (Sadikoglu and Zehir, 2010). The negative school of thought, however, does not
completely reject arguments that QM practices may support innovation and admit that QM
may facilitate innovation, but only on a limited basis (Hoang et al., 2006). Despite admitting
pieces of evidence for positive influence of QM practices on innovation, proponents of the
negative school believe that the implementation of QM practices is likely to create more
disadvantages for innovation than support (Prajogo and Sohal, 2001, 2006; Martínez-Costa
and Martínez-Lorente, 2008; Moura and Abrunhosa, 2007). The main debate issue still
remains, whether the nature of QM practices does support the development of IC or not,
leading to the development of the following hypothesis:
H1. QM practices have a positive impact on IC.

2.3 Innovation capability and firm performance

Research & Development consists of creative work undertaken on a systematic basis in
order to increase the stock of knowledge, including knowledge of man, culture and society,
and the use of this knowledge to devise new application (Maistry et al., 2017). Innovation can
only occur if a firm has the capability to innovate (Laforet, 2011). Adler and Shenbar (1990)
have defined IC as consisting of four aspects, including: the capacity of developing new
products satisfying market needs; the capacity of applying appropriate process technologies
to produce new products; the capacity of developing and adopting new product and process
technologies to satisfy future needs; and the capacity of responding to accidental
technological activities and unexpected opportunities created by competitors. Therefore, the
firm’s IC is its ability to mobilize the knowledge possessed by its employee and combine it to
create new knowledge, resulting in product and/or process innovation (Çakar and Ertürk,
2010). It is recognized as that competitive advantage which can be obtained with a
high-competent workforce that enables an organization to compete on the basis of quality
and innovation. IC has been suggested to be a multi-faceted construct (Adler and Shenbar,
1990; Dahlgaard-Park and Dahlgaard, 2010; Saunila, 2014; Vicente et al., 2015; Avermaete
et al., 2003; Zhang, 2006; Higon, 2011). Dahlgaard-Park and Dahlgaard (2010) highlighted in
their study that a firm must enhance their organizational capability including leadership,
people and partnership before implementing the original process of innovation and new
product development. Vicente et al. (2015) have conceptualized that IC is the firm capacity to
develop a new product through the combination of innovation behavior, strategic capability
and internal technological process. Based on a meta-analysis, Saunila (2014) proposed a
research framework for the measurement of IC which includes seven dimensions, namely
participatory leadership culture, ideation and organizing structures, work climate and
well-being, know-how development, regeneration, external knowledge and individual
activity, which are also being used in the present study.
IC is one of the most important dynamics that enable SMEs to achieve a high level of
competitiveness both in the national and international market (Çakar and Ertürk, 2010).
Organizations devoting themselves to the development of their IC have better prospects to
succeed in future (Saunila and Ukko, 2012). Indeed, there is a wealth of evidence in the
academic literature indicating a positive relationship between a firm’s IC and firm
TQM performance in the manufacturing industry (Cheng et al., 2010; De Clercq et al., 2011;
Naranjo-Valencia et al., 2016). On the contrary, some researches indicate a negative link or
no link at all (Capon et al., 1990; Chandler and Hanks, 1994; Subramanian and Nilakanta,
1996; Zhang, 2011). However, substantial practitioner-oriented literature suggests that in
order to survive and thrive in increasingly hyper-competitive markets, innovation is the
only solution (Kim and Maubourgne, 2005; Rosenbusch et al., 2011). Based on these
arguments, this research proposes that SMEs’ development of IC may improve a firm’s
performance, leading to the following hypothesis:
H2. IC have a positive impact on FP.

2.4 QM practices and firm performance

QM is characterized by its principle, practices and techniques, and has been well accepted as
a management model that provides a competitive edge to the company when successfully
implemented (Antunes et al., 2017). The QM philosophy insists on continuously improving
performance in order to meet the challenges of relentless competition in the market.
Reducing product variation will increase output and reduce the need for rework, mistakes
and waste in staff, machine time and materials (Sadikoglu and Zehir, 2010). Continuously
improving processes, products or service quality will reduce scrap and rework costs, reduce
waste and non-value added activities and enhance productivity, product design, product
quality and lead time (Kaynak, 2003; Sadikoglu and Zehir, 2010; Jayaram et al., 2010; Wu
and Zhang, 2013; Antunes et al., 2017). Aligning product design with customer expectations
and focusing on quality at all stages of product development and production processes are
seen as drivers of improved product quality (Kannan and Tan, 2005). These advantages will
enable the firm to obtain greater profitability by increasing profit margins (Fuentes et al.,
2006; Kim et al., 2012). Successful continuous improvement efforts will improve a firm’s
processes, products or services and enable it to meet and satisfy changing customer
demands and needs (Sadikoglu and Zehir, 2010; Antunes et al., 2017). A thorough review of
the literature reveals that the majority of the literature supports the positive and significant
relationship between QM and firm performance (Ebrahimi and Sadegi, 2013; Sila, 2007;
Antunes et al., 2017; Konecny and Thun, 2011; Kim et al., 2012). QM has been widely adopted
by firms in the last 50 years and yet firms report less than optimal results ( Jayaram et al.,
2010; Yang et al., 2009; Kannan and Tan, 2005). However, three-quarters of QM have failed
entirely or have created problems serious enough that the survival of the organization was
threatened (Valmohammadi and Roshanzamir, 2015). Therefore, there are several
inconsistencies being reported in scholarly articles, which further calls for an empirical
examination of the relationship between QM practices and firm’s performance. Based on the
reviewed literature, the following hypothesis is suggested:
H3. QM practices have a positive impact on FP.
QM is not new, and it is, in essence, a holistic approach throughout an organization that sets
the foundation for good business practices that focus on stakeholders (Tenji and Foley, 2019).
While the use of QM practices is adequately discussed in the context of R&D, there is little
documentation on its impact specifically, on the performance of manufacturing organization
(Maistry et al., 2017). In order to compete in global markets, the organization must have the
ability to identify new opportunities, configure and protect technologies, skills, knowledge
assets, so as to achieve a sustainable competitive advantage (Antunes et al., 2017). Applying
QM practices within the organization provides and enhances the organization’s skills and
capabilities, and this would in turn reflect positively on the performance (Yusr, 2016).
Throughout the world today, innovation has become the dominant factor in maintaining
competitiveness (Syapsan, 2019). Innovation activities in an organization positively contribute
to their long-term success and growth (Khan and Naeem, 2018; Maletič et al., 2014). IC refers to Quality
the application of new knowledge, ideas, methods and competencies that can generate unique management
skills and enhance the competitiveness of the organization (Antunes et al., 2017). Also, IC is and innovation
contented to have a significant impact on superior firm performance because of short product
life cycles in the market and high rates of new product introductions (Zehir et al., 2015). The capability
adoption of QM practices in innovation activities helps an organization update changes in
customer needs, minimize non-value activities and reduce new product development time and
costs (Kim et al., 2012). Moreover, discussing the relationship between QM practices and
innovation capabilities based on SRBV theory strongly justifies this kind of relationship
(Yusr, 2016). It is very hard to imitate an organization that has high innovation capabilities in
the market because the cost of imitating and transferring of knowledge that forms the basis of
innovation is very high because of the hardness of imitating verbal content of the R&D
activities (Zehir et al., 2015). As is well known, resources lead to capabilities (Amit and
Schoemaker, 1993). Therefore, the main idea is QM practices in the organizations provide
different kinds of resources, whether tangible or intangible, and these resources help to build
and provide capabilities that can be related to innovation within the organization (Yusr, 2016).
In this regard, enhancing QM capabilities will help to improve product design, process quality,
R&D capabilities, marketing capabilities and planning capabilities, thereby resulting in
improved firm performance. In other words, the effect of QM on firm performance might come
indirectly through the role of QM practices in enhancing the innovation capabilities of the
firm. Thus, the following hypothesis is proposed:
H4. QM practices have an indirect positive effect on FP through IC.
Avermaete et al. (2003) highlight that although small and medium manufacturing firms are
limited in terms of investment and research facilities, innovation seems to be undertaken
continuously. This reflects the importance of innovation in the vast majority of small
medium enterprises (Aziz and Samad, 2016). Zhang (2006) view this kind of situation as
commitment to innovation, which is said to have a strong relationship with the business-
owner’s orientation and not to firm age or size. His findings has supported the notion that
the age of the firm does not significantly affect the relationship between innovation and
competitive performance. More recent researches conducted by Higon (2011) and Aziz and
Samad (2016), however, found contradicting result, in which Higon (2011) have highlighted
in their results that the firm age has a significant impact on the effect of innovation on
competitive advantage, whereas Aziz and Samad (2016) have highlighted that firm age has
no significant impact of innovation on competitive advantage. The influence of firm age on
the QM-IC-FP relationship in SMEs is a matter of nature of the firm’s resources rather than
their quantity. Also it is logical to assume that resources and capabilities appear to be age
dependent, with younger companies having limited resources and fewer capabilities than
their established counterparts (Carr et al., 2010). While new ventures draw on resources that
are less specialized, but flexibly deployable, mature firms still are at an advantage as they
have a specialized resource base that enables them to efficiently operate in a given market
conditions (Amit and Schoemaker, 1993; Rosenbusch et al., 2011). Equally important, a
firm’s endowment is deemed an important driver of its innovative activity, and a skilled
workforce is a vital resource for firms dealing with complex activities (Pellegrino, 2018).
Mature firms have established routines, which younger firms lack (Rosenbusch et al., 2011).
For any firm, highly qualified employees are a firm’s primary vehicle for absorbing external
knowledge and consequently for enhancing its absorptive capacity. Also, it is argued that
young firms may have better access to high-skilled employees because of the dynamic and
vibrant work environment in which they operate as compared to their mature counterparts
(Pellegrino, 2018; Rosenbusch et al., 2011). However, the liabilities of newness suggest that
young firms are at a disadvantage and, therefore, are likely to face higher mortality rates
TQM than well-established firms when competing in global markets (Carr et al., 2010). This is
because younger firms often lack the same level of recognition and legitimacy in the market-
place, economies of scale, development of routines and organizational processes, and
relationship in form of alliances and/or partnerships (Carr et al., 2010; Pellegrino, 2018;
Rosenbusch et al., 2011). The mixed results reported in literature have been calling for
further investigation to examine the moderating effects of firm age on the relationship
between QM, IC and firm performance in the context of manufacturing SMEs in India. Also,
given that new ventures typically do not have established routines, organizational processes
and/or the organizational knowledge base necessary for successfully competing against
incumbent firms, they are vulnerable to failure, and hence the following hypotheses
are proposed:
H5. The older the organization, the stronger the relationship between QM and IC.
H6. The older the organization, the stronger the relationship between QM and firm
performance.

3. Research methodology
3.1 Questionnaire development and data collection
This section includes the development of a questionnaire, selection of participants in the
survey and data collection tool. For this study quantitative methodology was adopted. A
set of questionnaire was used as a main instrument of this study. The questionnaire
incorporated sections dealing with: demographic details, measures of QM, IC and
measures of firm performance. To design the survey instrument, we used existing
measurement items addressed in the literature. IC scales have been adopted from Saunila
Minna (2014). Similarly, the measurement for QM and FP has been adopted from Jayaram
et al. (2010). A five-point Likert scale that ranged from 1 ¼ “strongly disagree,” through
3 ¼ “neutral,” to 5 ¼ “strongly agree” was used to measure the respondent’s responses to
the survey instrument. The initial questionnaire designed is subjected to a pre-test by
experts to determine content validity. The content validity helps questionnaire to improve
upon the domain or concept under study (Talavera, 2004). This review has helped in
confirming the relevance of identified constructs and items in the Indian context.
Additionally, the research instrument was pretested with a group of eight experts
consisting of five academicians and three consultants who are teaching and consulting in
the operations management area and have published research papers in the areas of
innovation management and QM. Each expert has been requested to evaluate the
reliability, relatedness, bias, unclear items in the instrument and its significance to the
Indian SME manufacturing industry. Majority of the feedback from experts gave positive
remarks and certified that the questionnaire was acceptable for data collection. To further
access content validity, the instrument was pretested at several manufacturing units,
before proceeding for the final data collection phase.
The focal point of this research is on manufacturing SMEs, which constitute the vast
majority of enterprises in India, as in most Asian countries. The database of Small &
Medium Business Development Chamber of India has been referred to select the firms for
the survey. To be included in the data collection, the company must also meet the
following criteria: register as small and medium manufacturing enterprise under Ministry
of Corporate Affairs; has a legal business identity and operations in India; and has ISO
compliance certificates and practicing QM manufacturing practices for last five years. A
target sample of 300 ISO 9001 certified manufacturing SMEs in India was selected
using a random sampling method. This study selected 300 SMEs, with an expectation that
more than 100 SMEs would agree to allow one of their senior managers to be interviewed.
Initially, each selected firm in the list was contacted by telephone to identify the senior Quality
managers at that location and verify the address and line of business. Approximately management
150 companies confirmed their participation in the research survey program. However, and innovation
after repeated follow-ups, an appointment/meeting could not be arranged with some
companies. The study analysis, hence, is based on a sample of 134 ISO 9001 certified capability
manufacturing SMEs who gave confirmation for a face-to-face meeting with the
researcher. The data to the survey instrument were collected through a structured
interview with owners/managers or other senior directors which lasted up to 1 hour. All
participating respondents indicated their knowledge of the organization’s QM practices
and innovation strategies.
Among the respondents, 61.9 percent were owners/entrepreneurs and 38.1 percent were
senior directors. A total of 41.8 percent of respondents are in the category of firms age less
than seven years; meanwhile, 58.2 percent of respondents were in the category of firm age
for more than seven years. Regarding operating sector, most respondents were from food
(12.6 percent), automotive (14.7 percent), electronics and electronics (27.5 percent), industrial
equipment (12.6 percent) and chemical (9.7) industries. The remaining respondents were
from packaging, textile and plastic operating sectors.

3.2 Data analysis – construct validity

Exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) were used to
assess construct validity (Hair et al., 2010, 2013). The purpose of factor analysis in this
study is to explore how various items within each of the constructs interact with one
another and to develop scales (by combining several closely correlated items) to be used in
the following analysis for linkages. The EFA has been performed to extract the loadings
of factors with varimax rotation. Factor analysis explains the eigenvalues, percent of
variance and cumulative percent of variance. As shown in Table I, all the loadings of
factor analysis for IC are greater than 0.671 which satisfies the minimum loading criteria.
IC explains 64.91 percent of the total variance. PLC is having more than
20 percent of the total variance. Similarly, in Table II all the loading of factor analysis
for QM are between 0.627 and 0.833, satisfying the minimum loading criteria. QM explains
64.39 percent of the total variance. Cross-functional product design explains
approximately 28 percent of variance among all other factors. Table III shows the
results of EFA for firm performance scale components. As a result of EFA, four latent
factors (constructs) are established explaining 74.88 percent of the total variance. Design
performance is having more than 35 percent of the total variance.
In order to determine whether the extracted latent factors show an acceptable fit to the
empirical data, the CFA (maximum likelihood estimation technique) is also applied in
addition to EFA. Thus, a series of tests are also performed to further determine the
construct validity of the latent factors (Singh, 2008). The CFA model results generated
through AMOS show that all the constructs revealed using EFA are also confirmed using
CFA. The extracted latent factor show an acceptable fit to the empirical data with
χ2 ¼ 186.704; χ2/df ¼ 1.849; comparative fit index (CFI) ¼ 0.938; goodness of fit index
(GFI) ¼ 0.90; Tucker–Lewis Index (TLI) ¼ 0.926; root mean square error approximation
(RMSEA) ¼ 0.08; standardized root mean square residual (SRMR) ¼ 0.02; at p ¼ 0.000.
After running the overall model for CFA, construct validation also includes tests for
convergent and discriminant validity. Convergent validity refers to the extent to which
varying approaches to the measurement of the latent factors yield the same results. It is
demonstrated if a group of items measure one common factor (Su et al., 2008). In other
words, the convergent validity shows whether the relationship between constructs and
items are significant (Bryne, 2016; Hair et al., 2013; Hair et al., 2010). The composite
reliability (CR) measures should be greater than 0.70 (Hair et al., 2010). In the present
TQM Innovation capability items PLC IOS WCW KHD RGN EK IA

PLC1 0.711
PLC2 0.730
PLC3 0.685
PLC4 0.671
PLC5 0.696
PLC6 0.788
IOS1 0.688
IOS2 0.751
IOS3 0.696
IOS4 0.731
IOS5 0.673
IOS6 0.713
WCW1 0.764
WCW2 0.709
WCW3 0.701
WCW4 0.718
WCW5 0.693
KHD1 0.858
KHD2 0.753
KHD3 0.797
RGN1 0.807
RGN2 0.832
RGN3 0.826
EK1 0.843
EK2 0.789
EK3 0.832
IA1 0.811
IA2 0.840
IA3 0.834
Eigenvalue 5.972 2.530 2.370 2.054 2.038 2.033 1.827
% of variance 20.593 8.724 8.173 7.083 7.029 7.009 6.299
Cumulative % 20.593 29.317 37.490 44.573 51.602 58.611 64.910
Notes: PLC, participatory leadership culture; IOS, ideation and organizing structures; WCW, work climate
Table I. and well-being; KHD, Know-how development; RGN, Regeneration; EK, External Knowledge; IA,
Innovation capability: Individual activity. Extraction method: principal component analysis; Rotation method: Varimax with Kaiser
factor analysis results normalization. A rotation converged in 11 iterations

study, all constructs of IC (0.835–0.867), QM (0.838 – 0.898), and firm performance

(0.836–0.857) are above the threshold limits as shown in Table IV. The criterion for
convergent validity is that CR should be greater than average variance extracted (AVE)
and AVE W 0.5 (Hair et al., 2013; Hair et al., 2010). Discriminant validity checks whether
the items estimate only the assigned latent factor and no others (Singh, 2008). For
discriminant validity, the maximum shared variance (MSV ) and average shared variance
(ASV ) should less than AVE, i.e., MSV o AVE; ASV o AVE (Hair et al., 2010, 2013).
This criterion for discriminant validity is seen to be satisfied in Table IV, as MSV and
ASV were both lower than the AVE for all the constructs.

4. Quantitative findings
The standard deviation, mean and bivariate correlation along with Cronbach’s α and KMO
values for IC, QM and firm performance constructs have been shown in Table V. The
Cronbach’s α values are W 0.70 (McKone et al., 2001) and KMO values are W 0.60 (So and
Sun, 2010), suggesting the scales are reliable and valid. The pattern of correlations
Quality management items CFPD PQM QE ET QIU
Quality
management
CFPD1 0.807 and innovation
CFPD2 0.825
CFPD3 0.676 capability
CFPD4 0.680
CFPD5 0.627
CFPD6 0.634
PQM1 0.741
PQM2 0.800
PQM3 0.739
PQM4 0.669
PQM5 0.786
PQM6 0.612
PQM7 0.666
QE1 0.822
QE2 0.656
QE3 0.827
QE4 0.694
ET1 0.743
ET2 0.764
ET3 0.806
ET4 0.688
QIU1 0.753
QIU2 0.786
QIU3 0.833
QIU4 0.802
QIU5 0.821
Eigenvalue 7.235 2.962 2.724 2.224 1.596
% of variance 27.828 11.391 10.477 8.554 6.140
Cumulative % 27.828 39.219 49.696 58.250 64.390
Notes: CFPD, Cross-functional product design; PQM, Process Quality Management; QE, Quality Empow-
erment; ET, Organization-wide employee training; QIU, Quality information usage. Extraction method: Table II.
principal component analysis; Rotation method: Varimax with Kaiser normalization. A rotation converged in Quality management :
14 iterations factor analysis results

(Table V ) in this study generally supported the proposed direct relational hypotheses
(H1–H3). All 16 indicators for the constructs in this study exhibited statistically
significant correlations, demonstrating moderate to high correlations among QM
practices, IC activities and firm performance. Nevertheless, these were only bivariate
relationships. To test the hypothesized relationship between the various constructs and
also to analyze the direct and indirect effects, structural equation modeling (SEM) was
used. SEM estimates were generated through AMOS 20.0 with the maximum likelihood
estimation method. SEM is a multivariate statistical analysis technique that is used to
analyze structural relationships between various single factor variables. Whether a single
factor is sufficient for representation of IC, QM and FP constructs can be measured and
verified through fit indices. The fit indices for the second-order model (confirmatory factor
analysis – CFA model) were χ2/df ¼ 1.849; CFI ¼ 0.938; GFI ¼ 0.90; TLI ¼ 0.926;
RMSEA ¼ 0.08; and SRMR ¼ 0.02; at p ¼ 0.000. The modification indices are at its
lowest point and have no scope for further improvement. The standardized regression
weights for IC, QM and FP constructs range from 0.579 to 0.859, 0.790 to 0.853, and 0.674
to 0.803, respectively, whereas square multiple correlations range from 0.336 to 0.738. The
overall indices values indicate a good model fit (Hair et al., 2010). PLC and IA are strongest
contributors among IC constructs. QIU and process quality management (PQM) are
TQM Firm performance items DP PQ PQQ CS

DP1 0.833
DP2 0.835
DP3 0.782
PQ1 0.798
PQ2 0.783
PQ3 0.690
PQ4 0.718
PQQ1 0.770
PQQ2 0.745
PQQ3 0.807
PQQ4 0.772
CS1 0.530
CS2 0.817
CS3 0.789
CS4 0.716
CS5 0.753
Eigenvalue 5.964 3.286 2.682 1.480
% of variance 36.532 17.540 13.763 7.043
Cumulative % 36.532 54.072 67.835 74.878
Table III. Notes: DP, Design performance; PQ, Process quality; PQQ, Product quality; CS, Customer satisfaction.
Firm performance: Extraction method: principal component analysis; Rotation method: Varimax with Kaiser normalization.
factor analysis results A rotation converged in six iterations

CR AVE MSV ASV

PLC 0.846 0.510 0.341 0.140

IOS 0.835 0.503 0.230 0.124
WCW 0.841 0.515 0.137 0.086
KHD 0.853 0.646 0.234 0.129
RGN 0.861 0.675 0.218 0.069
EK 0.862 0.666 0.156 0.065
IA 0.867 0.679 0.129 0.082
CFPD 0.859 0.507 0.211 0.139
PQM 0.893 0.517 0.216 0.159
QE 0.838 0.568 0.139 0.064
ET 0.838 0.564 0.163 0.114
QIU 0.898 0.639 0.281 0.165
DP 0.857 0.668 0.252 0.126
PQ 0.836 0.560 0.168 0.123
PQQ 0.856 0.598 0.239 0.120
CS 0.845 0.530 0.157 0.112
Notes: CR, Composite reliability; AVE, Average variance extracted; MSV, Maximum shared variance;
ASV, Average shared variance PLC, Participatory leadership culture; IOS, Ideation and organizing structures;
Table IV. WCW, Work climate and well-being; KHD, Know-how development; RGN, Regeneration; EK, External
Composite reliability, knowledge; IA, Individual activity; CFPD, Cross-functional product design; PQM, Process quality manage-
convergent and ment; QE, Quality empowerment; ET, Organization-wide employee training; QIU, Quality information usage;
discriminant validity DP, Design performance; PQ, Process quality; PQQ, Product quality; CS, Customer satisfaction

strongest contributions among QM constructs, whereas process quality and product

quality are major contributors among firm performance constructs.
The proposed framework in Figure 1 has four hypothesized relationships between QM,
IC and firm performance. These hypothesized relationships have been tested through SEM
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Items 6 6 5 3 3 3 3 6 7 4 4 5 3 4 4 5
Mean 3.62 3.78 3.55 3.58 3.56 3.51 3.56 3.81 3.82 3.55 3.77 3.73 3.77 3.82 3.76 3.80
SD 0.555 0.564 0.521 0.663 0.683 0.629 0.662 0.594 0.552 0.611 0.635 0.728 0.654 0.556 0.623 0.545
Cronbach’ α 0.766 0.757 0.763 0.751 0.759 0.762 0.771 0.805 0.768 0.742 0.755 0.858 0.751 0.737 0.776 0.765
KMO 0.798 0.809 0.788 0.674 0.694 0.687 0.698 0.793 0.786 0.741 0.752 0.789 0.684 0.757 0.784 0.770
1 PLC 1
2 IOS 0.698* 1
3 WCW 0.713* 0.615* 1
4 KHD 0.584* 0.620* 0.532* 1
5 RGN 0.446* 0.440* 0.445* 0.475* 1
6 EK 0.672* 0.597* 0.573* 0.609* 0.378* 1
7 IA 0.667* 0.613* 0.635* 0.591* 0.531* 0.673* 1
8 CFPD 0.629* 0.526* 0.560* 0.463* 0.308* 0.530* 0.543* 1
9 PQM 0.563* 0.429* 0.593* 0.456* 0.442* 0.529* 0.567* 0.666* 1
10 QE 0.399* 0.207* 0.318* 0.301* 0.346* 0.294* 0.357* 0.528* 0.514* 1
11 ET 0.483* 0.335* 0.459* 0.360* 0.313* 0.450* 0.478* 0.586* 0.556* 0.614* 1
12 QIU 0.475* 0.330* 0.469* 0.294* 0.387* 0.397* 0.514* 0.517* 0.612* 0.550* 0.709* 1
13 DP 0.413* 0.215* 0.367* 0.243* 0.309* 0.372* 0.463* 0.417* 0.468* 0.419* 0.495* 0.591* 1
14 PQ 0.517* 0.344* 0.494* 0.342* 0.374* 0.493* 0.506* 0.550* 0.603* 0.462* 0.510* 0.637* 0.649* 1
15 PQQ 0.377* 0.223* 0.454* 0.250* 0.321* 0.358* 0.539* 0.430* 0.565* 0.446* 0.474* 0.583* 0.744* 0.674* 1
16 CS 0.502* 0.320* 0.424* 0.414* 0.410* 0.506* 0.500* 0.481* 0.520* 0.397* 0.493* 0.602* 0.620* 0.710* 0.592* 1
Notes: PLC, Participatory leadership culture; IOS, Ideation and organizing structures; WCW, Work climate and well-being; KHD, Know-how development; RGN,
Regeneration; EK, External knowledge; IA, Individual activity; CFPD, Cross-functional product design; PQM, Process quality management; QE, Quality empowerment;
ET, Organization-wide employee training; QIU, Quality information usage; DP, Design performance; PQ, Process quality; PQQ, Product quality; CS, Customer
satisfaction. *Correlation is significant at the 0.01 level (two-tailed)
Quality
management

Table V.
capability
and innovation

reliability and validity

Mean, standard
deviation, correlation,
TQM
Quality Management
Firm Performance
• Cross-functional product design
• Process quality management H3 (+) • Design performance
• Quality empowerment • Process quality
• Organization-wide employee • Product quality
training • Customer satisfaction
• Quality information usage

H1 (+)

Innovation Capability H4
• Participatory leadership culture
• Ideation and organizing
structures H2 (+)
• Work climate and wellbeing
Figure 1. • Know-how development
Proposed research • Regeneration
framework • External knowledge
• Individual activity

using SPSS 20.0 and AMOS. Each stage of our analysis resulted in a new model. Figures 2–4
represent the proposed and alternate models with t and standard regression values. In the
evaluation of models, the regression values of the first- and second-order are assessed for
QM, IC and firm performance constructs. Figures 2–4 explain and compare the proposed
and alternate models with the help of SEM. QM and IC constructs are of first order, whereas
firm performance represents the second-order relationship. At each stage of the model
testing process, we verified that assumption required for SEM model fit (Table VI) were met.
For the assessment of overall model quality, one common test of a model fit is the χ2 value.
The χ2 should be divided by degrees of freedom and be less than 2.5 (Baumgartner and
Homburg, 1996; Konecny and Thun, 2011) indicating an acceptable fit. This is fulfilled by all
models having no values higher than 2.437. Also, all the models are a fitting model as most

0.64 0.73 0.66 0.62

Design Performance Process Quality Product Quality Customer Satisfaction

0.74 Participatory
Leadership Culture 0.79
0.85 0.81
0.8

0.80
6

0.59
Ideation and Organizing
0.7

Structures
7

Firm
0.62 0.05 Performance 0.58
Work Climate and Well 0.7 Cross-Functional
Being 9 Product Design
6

0.72
0.7

0.64 Know-how Innovation 0.63

0.79 Process Quality
0

Development Capability Management

0.8

68
0.
0.54 7 0.45
Regeneration 0.6 Quality
Quality Empowerment
8

0.75
0.7

Management 0.7
8
0.61 0.61
2

Organization-wide
0.8

External Knowledge
0.8

Figure 2. Employee Training

0

Proposed model of IC,

0.67 0.64
QM and FP Individual Activity Quality Information
Usage
 0.65 0.73 0.66 0.62
Quality
management
0.74 Participatory
Design Performance Process Quality Product Quality Customer Satisfaction
and innovation
Leadership Culture
0.8 0.85 0.81 0.79 capability
0.80
5
0.60 Ideation and Organizing
0.7

Structures
5

Firm
0.62 0.69 Performance 0.58
Work Climate and Well 0.7 Cross-Functional
Being 9 Product Design

6
0.71 0.63

0.7
0.64 Know-how Innovation Process Quality
Development

0
Capability Management

0.8
58
0.
0.54 7 0.45
Regeneration 0.6 Quality
Empowerment
8

0.79 Quality
0.7

Management 0.7
8
0.61
2

0.61
0.8

External Knowledge Organization-wide

Figure 3.

0.8
Employee Training

0
Alternate Model 1 of
0.67 0.64
Individual Activity Quality Information IC, QM and FP
Usage

0.61 0.69 0.62 0.59

Design Performance Process Quality Product Quality Customer Satisfaction

0.73 Participatory
Leadership Culture 0.76
0.83 0.79
0.8

0.78
5

0.62
Ideation and Organizing
0.7

Structures
9

Firm
0.52 Performance 0.51
Work Climate and Well 0.7 Cross-Functional
8 0.20
Being Product Design
2

0.73
0.7

0.61 Know-how Innovation 0.58

0.76 Process Quality
6

Development Capability Management

0.7

67
0.
0.50 0 0.49
Regeneration 0.7 Quality
Quality Empowerment
8
0.7

Management 0.8
1
0.61 0.65
1

External Knowledge Organization-wide

0.8

Figure 4.
0.8

Employee Training
3

Alternate Model 2 of
0.66 0.69
Individual Activity Quality Information IC, QM and FP
Usage

Model χ2/df CFI GFI SRMR RMSEA

Figure 2. Proposed model 1.849 0.938 0.909 0.024 0.080

Figure 3. Remove link QM-IC 2.096 0.930 0.898 0.028 0.079
Figure 4. Remove link IC-FP 2.437 0.901 0.883 0.098 0.110 Table VI.
Notes: Model fit indices threshold value: χ2/df o 2.5; CFI W0.9; GFI W 0.9; SRMR o 0.10; RMSEA o 0.10 Comparison
Source: Byrne (2016) of fit indices
TQM considered indices of the model fit are above the threshold values recommended by some
authors (Konecny and Thun, 2011; Bryne, 2016). With regard to the considered fit indices, it
is explicitly mentioned in the literature that not all of the fit criteria have to be invariably
fulfilled by the models (Konecny and Thun, 2011). In particular, the fact a single local fit
criterion lying slightly below or above the threshold value should not result in the rejection
of a model (Baumgartner and Homburg, 1996). On the basis of CFI, GFI, SRMR, RMSEA and
χ2/df, the proposed SEM model as well as the alternate models have been accepted
(Table VI). To test, whether the proposed or alternate models are accepted for analysis, χ2
difference tests were conducted for the calculation of the difference in proposed and
alternate models. The difference between degrees of freedom of proposed and alternate
models is equal to 1 (Table VII). Hence all models are suitable for the statistical analysis of
proposed hypotheses. The simultaneous relationship between QM, IC and FP is very weak
(Figure 2). This means that IC (β ¼ 0.05) may not have greater impact on firm performance,
when QM practices are impacting IC (β ¼ 0.75) and FP (β ¼ 0.79). As shown in an alternate
model (Figure 4), IC (β ¼ 0.20) and QM (β ¼ 0.76) are observed to have a significant impact
on firm performance. Also, in an another alternate model (Figure 3), based on the
standardized β coefficients, the QM (β ¼ 0.79) is having a greater influence on IC, which in
turn affects the overall firm performance (β ¼ 0.69). The total, direct and indirect effects
have been reported in Table VIII, for all hypotheses. Overall results indicate that hypotheses
H1–H4 were supported at 95 or 99 percent significance level. The first three hypotheses
(H1–H3) between QM and IC (β ¼ 0.755); between IC and firm performance (β ¼ 0.203);
and between QM and firm performance (β ¼ 0.761) are having only direct and total effects,
whereas the fourth hypothesis is having direct effect coefficients with β ¼ 0.255 and
indirect effect coefficients with β ¼ 0.546.
The two-group comparison of SEM was used to test the moderating effect of
organization age on the relationship between QM and IC (H4). The sample was split into two
groups based on the mean of organization age. Organizations above the mean were as
mature firms, and those below the mean were defined as new firms. A two-group
comparison was then performed to examine whether there were any differences in
structural parameters between new firms and mature firms. In the first step, the parameter
from QM to IC was constrained to be equal. In the second step, the parameter was not
constrained (allowing it to be free). The difference in the two models was significant

Model χ2 df χ2 difference df difference SCDT (α ¼ 0.05)

Figure 2. Proposed model 186.704 101

Table VII. Figure 3. Remove link QM-IC 213.858 102 27.154 1 Significant
Comparison of Figure 4. Remove link IC-FP 248.542 102 68.838 1 Significant
alternate models Note: χ2 difference tests (SCDT)

Total Direct Indirect Supporting SEM

Hypothesis Relationship t-value effects effects effects Results model

H1 QM→IC 7.864** 0.755 0.755 0.000 Supported Proposed model

H2 IC→FP 2.803* 0.203 0.203 0.000 Supported Alternate Model 2
Table VIII. H3 QM→FP 7.744** 0.761 0.761 0.000 Supported Alternate Model 2
Results of H4 QM→IC→FP 8.010** 0.801 0.255 0.546 Supported Alternate Model 1
SEM models Notes: *,**Significant at 0.05 and 0.01 levels, respectively
( χ2 difference ¼ 42.03, df ¼ 1, p o 0.1), which supports the proposition that new and Quality
mature firms differ. The test of the moderating effect of organization age on the relationship management
between QM and firm performance followed the same procedure. The difference in the two and innovation
models was not significant (χ2 difference ¼ 1.83, dF ¼ 1, not significant). The results are
summarized in Table IX. capability
Examining the coefficients of two groups, it is found that the coefficient for new firms is
0.61 (t ¼ 6.08, p o 0.1), and for mature firms it is 0.25 (t ¼ 2.94, p o 0.1). This implies firms
that are new in the market show a strong relationship between QM and IC, whereas
well-established firms in the market present a weak relationship. This does not support H5.
As for the relationship between QM and firm performance, the coefficient for new firms is
0.69 (t ¼ 6.08, p o 0.1) whereas the coefficient for mature firms is 0.73 (t ¼ 6.08, p o 0.1).
This does not H6. There is no significant difference in firm performance between the new
and mature firms.

5. Discussion and implications

In an increasingly competitive environment, factors such as innovation and quality can lead to
competitive advantage. The research study aggregated empirical evidence regarding QM, IC
and firm performance relationship in small and medium enterprises. It was directed to
uncover whether smaller, resource-scarce manufacturing firms benefit from pursuing QM
practices and innovation activities. The findings show that both QM practices and innovation
activities create value for manufacturing SMEs. To be more specific, the quantitative analysis
indicates that the proposed hypotheses H1–H4 are supported. Overall, these supported
hypotheses clearly show that QM through the firm’s IC are directly or indirectly associated
with firm’s business performance. Although conventional wisdom states that continual
process improvement and radical (breakthrough) improvement cannot coexist in an
organization (Sadikoglu and Zehir, 2010), we found no negative effect of QM practices on IC of
a firm and consequently on firm’s performance. Organizational capability to manage
processes is very beneficial to firms that are struggling to create radical or incremental
innovation in a competitive market (Kim and Maubourgne, 2005). The findings of this study
support the notion that an organization’s effort to establish and improve QM practices
positively and directly relate to the IC of the organization. Thus, it appears that information
and knowledge in a set of routines accumulated through QM help the firm establish a learning
base and facilitate innovative and creative activities. Hence it can be concluded that
innovation activities have the potential to invigorate an organization’s product, process and
administrate standardization when strategically aligned with internal contingencies of QM
philosophy. An organizational orientation toward strategically aligned quality and innovation
activities can lead to the development of more ambitious goals, the allocation of resources in
areas where they can create more value, an inspiring and challenging firm culture,

Path Moderator SE χ2 Difference Result

Quality Organization age New firms 0.61 (t ¼ 6.08)** χ2(1) ¼ 42.03** H5 (Not supported)
Management →
Innovation
Capability Table IX.
Moderating effect of
Mature firms 0.25 (t ¼ 2.94)**
organization age on
Quality Organization age New firms 0.69 (t ¼ 6.86)** χ2(1) ¼ 1.83n.s. H6 (Not supported)
the relationship of
Management → quality management
Firm Performance on innovation
Mature firms 0.73 (t ¼ 7.80)** capability and firm
Notes: n.s., not significant. **Significant at 0.01 level performance
TQM organizational proactivity, as well as effective risk analysis and risk taking. Innovative SMEs
which focus on QM can benefit from a positive perception by market participants leading to
higher brand equity, improved market share and financial performance.
Furthermore, empirical evidence provided in this study suggests that new firms are
characterized by having better IC from the adoption of QM philosophy as compared to
mature SMEs. Considering the trade-off between flexibility and specialization of resources
as companies mature (Amit and Schoemaker, 1993), the flexibility of new firms might be
more beneficial for innovation success than specialization of assets found in established
firms (Rosenbusch et al., 2011). As such, the flexibility of new firms might enable them to
adapt to the changing environments or induce rapid industry changes themselves
(Rosenbusch et al., 2011). This translates into a marketing attitude to adopt an ISO
customer-focused QM system, such as to react quickly to new opportunities in the market.
Within a short period of time, such new manufacturing firms are able to operationalize their
market-orientation behavior to facilitate innovation to seize more share of the existing
market. This finding is especially insightful for new small business owners as it highlights
that the often cited liability of newness of new ventures can prove to be an asset for the
development of new organizations if an entrepreneur chooses adequate strategies
(Rosenbusch et al., 2011). The study also highlights that mature firms need to establish an
effective mechanism for strategically internalizing innovation-driven activities in order to
improve their IC. The findings provide vital insights for academics and practitioners
interested in the relationship between QM practices and IC.
Our study also has a number of relevant implications for entrepreneurs and business
owners of manufacturing SMEs. One of the primary tasks of entrepreneurs and managers
in small manufacturing business units is to improve their operations – otherwise, they
would not justify their job titles. New, innovative ways of working within the operations
process to gain a competitive advantage are therefore part of every operations manager’s
duty. The main managerial implication from this study is that firms should continue to
invest in and deploy an innovation strategy that supports QM approach.
The study increases our understanding of the conditions under which QM support for
IC improves a firm’s market performance. The strong positive effects of a quality
orientation on IC can lead entrepreneurs and small business executives to conclude that by
focusing more attention on innovation and devoting more resources to the QM
tasks, the benefit of IC will substantiate automatically. When pursuing an innovation-
focused improvement strategy, entrepreneurs and small business owners face the
quandary of deciding whether they should pursue innovation development
projects or apply standardization or quality control practices. The dilemma is often
how to start? One approach is to first identify techniques or triggers that help product
standardization and process improvement. An excellent starting point for all analysis is
the customer. In order to design quality products and services, it is necessary for a
company to fully understand their potential customer and their expectations. Various
gap analysis methodology can be used to assess customer’s expectations and identify the
gap that helps identify corrective actions required in the design of the product and its
delivery process.
The second approach is to form quality circles and process improvement teams. Such
an approach is generally uncommon in SMEs. All decision making in a manufacturing
small business setup is centric to entrepreneur(s) or business owner(s). Business owners
should encourage and assure the formation of a small group of voluntary members from
diverse functional areas to regularly discuss problems (not necessarily restricted to
quality matters) and determine possible solutions. Small business owners must be willing
and able to commit the time and resources needed to train the employees who will
participate in the quality circle program, particularly the quality circle leaders and
facilitators. These group can carry out workplace improvement task within a small Quality
manufacturing setup for quality control, production increase, education and management
self-development. Quality circles also serve to facilitate communication and increase and innovation
commitment among both labor and management. In enhancing employee satisfaction
through participation in decision making, such initiatives may also improve a small capability
business’s ability to recruit and retain qualified employees. Quality circles can be a rich
source of innovative solutions to operational problems and patent applications may
follow. Quality circles strengthen the structure of an enterprise, enriching and humanizing
work, giving decision-making power to lower levels. Hence, a quality circle can improve a
small business’s overall competitiveness by reducing costs, improving quality and
promoting innovation. Overall, the managerial implication for SME business owners can
be summarized as follows: to develop and achieve IC, manufacturing firms are needed to
develop a quality-driven culture that can motivate innovation behavior, imbibe concern
for improvement, improve internal coordination with employee to encourage innovation-
driven problem-solving mindset that pulls off ideas, customer-centric concepts into
successful product/service, process, business model or system. This study provides
insight for a small manufacturing business to leverage technology and internal knowledge
base to deliver better innovation outcome and performance.
The major task awaiting policy makers is reconnecting manufacturing policies,
including innovation and R&D policies, with specific objectives. Policies are thus required
to be targeted. The assessment tool and research model investigated here identify specific
areas where operational or adjustment actions are required. This study also allows for
optimal response to specific problems, which sometimes may be of a very local nature or
confined to a specific operational area of QM. Targeted actions stand a better chance of
being effective in terms of achieving desired objectives. Targeted interventions also
contribute to avoid inefficiencies that may occur if support is provided through broad
interventions. A further implications of this study is that it entails how QM practices have
the potential to invigorate an organization’s product, process and administrative
innovation. This may lead to development of new policies linking QM philosophy to the
development of innovation capabilities of the firm. As such, an assessment tool
can be developed by policy makers which can be used as a continuous improvement
instrument for empirical monitoring of actions and for identifications and prioritization
of areas requiring improvement efforts by way of determination of gap scores and their
total effects.

6. Conclusion
This study was undertaken to investigate and understand the effect of QM, IC and firm
performance in the Indian manufacturing SME industry. The main finding for this
research suggests that the firm’s ability to manage and design quality into products is a
critical capability for both product and process innovation. Designing quality products
capability could be an important foundational element for product innovation, ensuring
faster and more effective translation of new ideas into product features and technical
specification that values customer’s requirement. Also, deployment of quality-centric
culture and standardized work routines in the context of process innovation embedded
with idiosyncratic elements increases the level of firm-specificity and inimitability which
may directly or indirectly confer a technological or market advantage to a firm’s new
products. Furthermore, our findings contradict the commonplace assumption that mature
firms innovate more effectively than new firms. The quantitative analysis shows that new
firms tend to possess better IC as compared to mature firms. Also, new firms are neither
worse nor better than the established firms in terms of performance. SMEs are engines of
growth and backbone of a developing country like India. There is no doubt that the
TQM twenty-first century will be credited for being the century of innovation. As per the
findings of the study, quality and innovation are not conflicting activities, and the results
confirm that firm with better innovation capabilities will be proactive in the adoption of a
standardized QM system, which has been proven to be the most critical catalyst for a
company’s success. Hence, entrepreneurs and executives in manufacturing SMEs in
developing economies are well-advised to pursue QM practices and innovation projects to
enhance their firm performance.

7. Limitations and scope for future research

The findings and the contribution of the current investigation must be evaluated, taking
into account the potential limitation of the research design. Our sample includes only 134
small and medium manufacturing businesses, with one respondent per manufacturing unit
which may have created a biased view. It is advised for future researchers to consider a
larger sample for an investigation to generalize the findings of the present study. The work
carried out within our study might also be applicable to the service sector. This specific
research study can also be extended to a further analysis of two different sectors of the
manufacturing industry and with a triangulation methodology, which enables both a
qualitative and quantitative approach toward data collection. The present study is limited to
the effect of QM on firm’s IC and performance, but the general outline can be applied to other
types of activities, such as marketing orientation, organizational learning and their linkages
to innovation speed. As the world economies become increasingly interdependent, an urgent
issue is to test the applicability of QM and IC constructs in other economic cultures. Cross-
national studies should be conducted to compare the strength of the framework and assess
its generalizability across varying business systems and organizational forms. This is
essential for the continuous advancement of the body of knowledge on QM systems and
firm IC. More research can be directed toward uncovering other moderators and illustrating
specific mechanisms on how innovation affects firm success.

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Corresponding author
Saumyaranjan Sahoo can be contacted at: saumya8989@gmail.com

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