IJQRM

14,4 Strategic quality management

and financial performance
indicators
432
Ross L. Chapman, Peter Charles Murray and Robert Mellor
InCITe (Innovation & Continuous Improvement Technologies) Research
Received November 1995
Revised March 1996 Group, University of Western Sydney, Macarthur, Campbelltown,
Australia
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Introduction
This paper seeks to explore particular aspects of a study initially discussed in
an earlier paper[1], which examined the integration of strategy and continuous
improvement in Australian firms. In particular, the paper combines both
quality and strategy issues considered in the study and examines the possible
impact of these issues on business performance.
Five key areas identified from the literature and outlined in the previous
paper include: the development of a continuous improvement culture through
vision and mission (strategic integration); team-based planning and
deployment throughout multi-functional levels (involvement/deployment);
customer-focused strategic planning (customer focus planning); measurement
and benchmarking for strategic advantage (measurement and benchmarking);
and level of priority given to continuous quality improvement and innovation
(innovation and continuous improvement (CI)).
The selection of these areas was based partly on the literature imperatives
that emphasize the necessity to link quality and strategic advantage (QSA) –
mainly emanating from the strategic intent literature – with total quality
management (TQM). There is a strong perception that QSA has a direct link with
increased business performance but the latter is difficult to achieve without the
development and implementation of a TQM philosophy. It should be recognized
from the outset that although most experts in the subject recognize and foresee
that improved performance is the most likely outcome, empirical studies are yet
to validate this. Moreover, it should be noted, from this study and others, that
there is a definite (and variable) time lag between TQM/QSA implementation
and its impact on business performance measures. Through the examination of
both historical (four to five years ago) and current aspects of strategic quality
management, this work has attempted partially to offset this time lag.

Background
International Journal of Quality
Strategic quality management
& Reliability Management,
Vol. 14 No. 4, 1997, p. 432-448,
Porter[2] has described the development of competitive strategy as “a broad
© MCB University Press, 0265-671X formula for how a business is going to compete, what its goals should be, and
 what policies will be needed to carry out those goals”. Many authors (see Strategic quality
for example [3-5]) have stressed the importance of incorporating quality management
management planning into the strategic planning process. In 1992, the
focus for category 3 of the US-based Malcolm Baldrige National Quality
Award shifted from the strategic quality plan to the strategic business plan.
This was necessary following recognition that organizations winning the
Baldrige Award completely integrate quality planning into their strategic 433
business planning. The following attributes have been observed[6] in high
performing (award-winning) firms who have successfully integrated these
processes:
• TQM/CI implementation is seen as a means to achieve improved
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customer satisfaction and not an end in itself.

• Quality strategies must be tied to broad business strategies and should
be part of the organization’s mission/vision statements.
• Goals, priorities and targets must be clear and unambiguous to all
employees. They must be deployed throughout the organization while
retaining alignment to organization-wide improvement strategies.
• Goals must be quantifiable and the measurement/benchmarking process
must provide clear indications of progress towards the goal. These goals
must be set aggressively in recognition that competitors are also rapidly
improving.
• Planning must incorporate customer focus as a central element and
firms must recognize different segments in their current and potential
customer base.
• Competitor benchmarking in the area of customer satisfaction is a
continuing activity and the information is fed into the strategy and goal-
setting process.
• Employees at many levels participate in the planning process.
• Data collection and analysis relating to key internal processes is a
fundamental part of routine work. Results of such measurement are used
to produce revised goals and targets.
For the purposes of this study, the above points were summarized into five
separate indicators of successful QSA/TQM integration and survey questions
relating to each QSA/TQM indicator were grouped together. While not
specifically included in the factors listed by Marquardt[6], the innovation
aspects of the fifth indicator were included in response to recent research such
as that posited by Voss[7], which suggests that an organization’s ability to
prepare itself strategically for innovation is a critical factor in long-term
success. Response analysis and correlations with financial indicators were then
undertaken to assess grouped responses. Full details of the questions and the
response format are contained in the Appendices. Table I (see p. 440) shows the
questions allocated to each of the five indicators.
 IJQRM The five indicators selected are:
14,4 (1) Strategic integration. Integration of quality plans into strategic business
plans and recognition of this in the organization’s mission/vision
statement(s).
(2) Deployment/involvement. Successful involvement of employee teams at
434 various levels in the strategic planning process and effective deployment
of strategies and goals throughout the organization.
(3) Customer-focused planning. Goals and targets are consistent with the
overall aim of improved customer satisfaction. Measurement of customer
satisfaction indicators is linked to strategic planning.
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(4) Measurement and benchmarking. Benchmarking processes are an

accepted part of the organization’s activities (including the planning and
goal-setting processes), and involve performance aspects beyond the
standard financial measures.
(5) Innovation and CI. Both innovation and continuous improvement have
strategic importance and are included in the organization’s broad
objectives.

Validity of the selected indicators for strategic quality management

The first key indicator, strategic integration, is a vital function for improved
business performance. In communicating corporate objectives, corporate
management need to show their commitment to the total philosophy of quality
by building it into their vision and mission.
At the business level, the integration of TQM and QSA requires not merely
adding aspects of TQM to existing frameworks (say, to production processes)
but, rather, adopting a holistic approach. This was an early but very visible flaw
examined in Skinner’s work[8] which highlighted companies often adding to,
but not changing, factory processes, and this is no less evident in TQM
implementation.
The effect of this has been well documented as Western companies have
more often disbanded so-called TQM initiatives (such as zero defects or defect-
free exhortations), and returned to approaches based around the concept of
acceptable quality levels. In these traditional approaches, the emphasis is more
on mass inspection, rework and the scrapping of defective goods and services,
and a “delivery at all costs” mentality pervades the organization. Western
companies, in comparison to Japanese companies, who have been more
successful in developing strategic integration, have been the losers in the
TQM/QSA endeavour[9]. In a report by McKinsey[10], it was also recognized
that Australian companies still require much improvement in this area.
Employee involvement through the use of quality teams is a vital function
within TQM. As Barclay[11] indicates, team-based work groups depend on
executives sharing the opportunity to resolve problems, set schedules and take
responsibility for daily operation and work-process development. Indeed,
 employee involvement was one of the principal functions of the TQM Strategic quality
philosophy espoused by Deming[12], and is now most notable in contemporary management
organizations employing flatter structures. Involvement of employees from a
wide range of levels and functions in an organization in policy deployment and
product development is also a feature of many companies successfully
integrating QSA endeavours and TQM. Techniques such as Hoshin planning
[13] and quality function deployment (QFD)[14] have generated considerable 435
interest among firms seeking structured approaches to assist them in their
deployment/involvement initiatives.
In moving to customer focused planning, high-performance companies are
making the provision of customer value the organization’s primary strategic
intent[15]. In order to provide best value for their customers, managers are
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recognizing the importance of maintaining significant levels of

interdependence. This interdependence not only extends to vendors and
customers in the external environment, but also to the way in which the
company views its internal relationships. Every product or job within
functional areas has an internal customer. Provided all actions and
requirements between internal functions are clearly linked to the requirements
and expectations of the external customer, this is a powerful approach for
quality improvement implementation in areas of company operation which are
far removed from interaction with external customers.
In the same way that the company expects consumers to purchase only
quality finished products, internal receivers of partly finished or processed
goods command the same level of quality. Frequently, this will mean a
redefinition of manufacturing’s role and image in the organization. As
Edmondson and Wheelwright[16] explain, new skills, new knowledge, and new
methods for doing things will be required at all organizational levels.
The benefits of creating interdependence and strong relationships between
producers’ suppliers (or suppliers and customers) have been evident for some
time now. In Porter’s study[17], these relationships were identified as vital
processes for creating horizontal linkage in the value chain as manufacturers
and their suppliers, through strong communication and participation,
continually add value by refining processes and innovations. When Hayes[18]
observed Japanese firms, he found that the objective, as in all partnerships, was
a mutually beneficial long-term relationship. What many Japanese companies
refer to as “co-destiny”[18] (see also [19]).
Measurement and benchmarking activities are very much in line with QSA
determinants of world’s best practice. Best practice companies regard
benchmarking as a vital and necessary part of sustaining competitive
advantage. Specifically, benchmarking is the continuous process of measuring
products, services and practices against the toughest competitors and/or
recognized industry leaders[20,21].
Two aspects of benchmarking should be noted: strategic and process.
Venetucci[22] defined strategic benchmarking as comparing the strategies of
two or more competing or non-competing performers to determine their relative
 IJQRM strengths and weaknesses. The most immediate benefit is to identify
14,4 weaknesses and/or flaws in a strategy before implementation in order to revise
and alter existing strategic choices. A comparative analysis of this type can also
assist potential high performers to pinpoint critical success factors – often
missed in earlier analysis – which may lead to new or special capabilities
underpinning operational plans.
436 Differences in strategy can signal shifts in the industry cost drivers which
may favour one competitor over another. Tracking competitors (even non-
threatening ones) may point to major differences in strategy and tactics. If
competitors are achieving major economic gains, say through vertical
integration, opportunities may emerge for the tracking company through a
more flexible subcontracting strategy.
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Process benchmarking measures specific processes by comparing both the

cost to perform the process and the level of success with which it is
executed[22]. This is generally the aspect initially adopted by companies when
first engaging in benchmarking and measurement activities. Primarily, it
highlights performance weaknesses and sets goals for re-engineering activities.
As a basis for managerial control, it serves to emphasize how productivity
innovations result from variations or adaptations of existing processes from
industry to industry. Best-performing companies, and those successfully
integrating their TQM/QSA initiatives, are generally involved in both strategic
and process benchmarking and undertake such measurement both internally
and externally.
Similarly, the level of priority given to continuous quality improvement and
innovation is another key ingredient of the TQM model. Company-wide
creativity is nurtured in companies exercising a high degree of TQM/QSA
integration. Employees are encouraged to generate radical ideas and are
rewarded for championing their cause[23]. It is no surprise that these
companies have innovated not just with new products but also with the
processes which shape them. These companies create a culture where
continuous improvement is the norm. Continuous improvement programmes,
because of the high level of process understanding and study, are often the
reason why new processes are created and old ones discarded. This is in direct
contrast to the marginal adjustments which characterized earlier conventional
plants.
Collectively, the five indicators selected for this study form a composite of the
attributes of integrated TQM/QSA initiatives which, ideally, should be reflected
in productivity gains and business performance improvement.

Links between quality management and business performance indicators

In one of the more comprehensive examinations of the impact of quality on
business performance, Garvin[3] found that a strong association existed
between productivity (both labour and capital) and quality as well as between
profitability (ROI) and quality. Garvin found that the relationships between
quality and profitability were less well established because of the many other
 variables affecting ROI measures. Other studies (e.g. [24-27]) have found strong Strategic quality
relationships between productivity improvement and organizational success in management
such factors as customer satisfaction programmes, product quality
improvement, reduction in waste and strategic quality improvement.
In an extensive study of New Zealand manufacturing firms, Maani et al.[28]
and Sluti et al.[29] used structural equation modelling (SEM) to test the
relationships between typical measures of quality (such as scrap, rework and 437
customer complaints), process utilization and output, manufacturing
performance and overall business performance. They found strong links
between quality improvements and process utilization. Links were also
observed between quality factors and manufacturing performance. For overall
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business performance indicators, significant (although weaker) links were

found between quality and return on sales (ROS) measures but links with
return on assets (ROA) and market share were less significant.

Research methodology
Following a successful study into the strategic management approaches
adopted in large Australian-based companies[30] the focus of this research
moved to medium to large companies. While it was recognized that large
Australian companies devoted considerable attention to QSA/TQM integration,
it was believed that this was less true for medium-sized organizations. As
recent reports (e.g. [10]) have suggested that medium-sized companies
(especially manufacturers of elaborately transformed goods) provide the best
opportunities for Australia to reverse its worsening international debt
situation, attention was directed to Australian companies ranked from 150 to
1,000 by turnover in descending order, based on Business Review Weekly and
Australian Stock Exchange listings.
Following elimination of companies mainly concerned with primary
industries (mining, agriculture, fishing, etc.), 150 companies were selected to
participate in the survey. A questionnaire was constructed with three sections.
Section 1 included questions relating to strategic management. Section 2 mainly
involved questions concerning strategic aspects of quality and continuous
improvement. Section 3 involved questions concerning company structure.
Only section 2 (questions 22 to 38) of the questionnaire has been used for the
analyses discussed here. These 17 questions measured both current and
previous (four to five years ago) importance and performance, as well as the
current trend in each characteristic examined. (A further five questions in this
section related to Porter’s value chain concept but are not discussed in this
paper.) Appropriate five-point scales were used for the Importance,
Performance and Trend responses for each characteristic. The structure of the
response boxes was adapted from that described by Shores[13].
Appendix 1 includes a copy of the response scales used for each category
and the answer box provided for each question. Appendix 2 lists the questions
as presented in the questionnaire.
 IJQRM Of the 135 companies agreeing to participate in the survey, 75 completed and
14,4 returned at least one usable questionnaire. Companies were asked to target up
to five senior or middle managers to complete and return the questionnaires.
These companies were split fairly evenly between listed and private ownership.
A third of these companies (25) provided five usable questionnaires, a further 15
returned four questionnaires and 12 companies returned three, resulting in 69
438 per cent of responding companies providing three or more usable
questionnaires. For each company, a score was determined for each question by
averaging the responses from individual managers.
An analysis of the variation in responses from different managers in each
company was carried out for each question, using statistical control charts
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(s-charts). Five companies were identified as exhibiting greater variation in the

responses to more than a small number of questions (three) than could be
explained by chance. In these cases, responses from a particular manager were
found to be generally inconsistent with the remaining managers from that
company, and the responses from the “inconsistent” manager were excluded
from the averaging process.
Examination of the replies concerning respondents’ backgrounds indicated
that only 18 per cent had been with the company for less than three years.
Functional positions of responding managers was divided in roughly equal
percentages (10 to 14 per cent each) between: divisional/state manager;
operations manager; financial manager/chief accountant; manufacturing
manager; purchasing manager; and sales/marketing manager. Smaller
percentages (about 4 per cent each), came from chief executive officer/managing
director/general manager; group manager; personnel manager; and technical/
DP manager.
The 75 responding companies represented all States of Australia, but were
predominantly from the more industrialized States of NSW and Victoria. Figure
1 gives a breakdown of the sample by industry sector (as categorized by ASIC
groupings) and indicates that a reasonably broad cross-section of industries is
represented in the sample.
From this total sample of 75 responding firms, a subset was identified for
which both questionnaire responses and financial performance data were
available. Depending on the financial performance ratio being examined, this
represented between 35 and 41 firms. The financial data were obtained from
ASX listings, or from individually sourced company annual reports in the case
of non-listed companies.
While a range of financial performance ratios was collected, it was felt that
of the typical financial performance measures used in the marketplace, these
three might more closely reflect improved performance of the firm with more
limited impact from external factors:
(1) earnings on shareholders funds (EOSF) – calculated as (profits after
taxes (net profit)/total shareholder equity).
 (2) return on total assets (ROTA) – calculated as (earnings before interest Strategic quality
and tax/total assets). management
(3) labour productivity ratio (LPR) – calculated as (sales/number of
employees).
An examination of the performance ratios collected indicated a distorting of the
data by two or three firms at either end of the range of values calculated. After 439
removal of these few outliers, the following mean and range values were found
for the sample of firms remaining:
(1) EOSF: mean = 7.04; range = –7.67 to 23.20;
(2) ROTA: mean = 4.05; range = –3.45 to 14.40;
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(3) LPR (in $’000s): mean = 313.2; range = 38.1 to 946.9.

With the exception of the mean ROTA figure, these values are consistent with
commercially prepared means for Australian businesses generally[31]. The
average ROTA figure is somewhat lower than the commercially reported
business average. This may be due to the absence of large multinational firms
in our sample which could well produce a sample with a lower ROTA average.

Survey results
Sample distribution
The distributions shown in Figure 1 indicate that the sample of 75 firms
responding to the survey were well distributed across the manufacturing/
service continuum as well as across the major ASIC classifications. Figure 1
also shows that the subset of 41 firms used for the financial indicator analysis
has a reasonably consistent distribution across the various areas. The major
difference between the complete survey response group and the financial
indicator subset is in the slightly larger proportion of banking, finance and
insurance classified firms in the subset and the slightly smaller proportion in
the wholesale and retail sector. These distributions, together with the
comparisons of financial indicator data and aggregated figures from Australian
firms, generally indicate that a reasonably representative sample of medium to
large Australian firms has been considered.

Question classifications and indicator scores

Table I lists the groupings of questions related to each of the five identified
indicators of successful QQA/TQM integration. Pearson correlation coefficients
(r) between the four questions grouped in each indicator were always greater
than 0.40 with the majority falling between 0.50 and 0.75. All correlations were
significant at the 99 per cent level or higher.
For each of the strategic quality management indicators, individual
company scores were determined by adding up the scores for that company in
each of the component questions. For example, adding the scores of a given
company for questions 25, 27, 29 and 35 gave that company’s score for the
strategic integration indicator. A separate score was calculated for the three
 IJQRM G
H A
14,4 B

F
C
440
E D

Financial data subset only

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H A
G
B

C
F

E D

Figure 1.
Distribution of firms in
total survey response
database and financial
indicator subset by
ASIC groupings
Key
A = Food, beverages and tobacco
B = Machinery and equipment (including computers)
C = Other manufacturing
D = Wholesale and retail
E = Transport and construction
F = Banking and finance
G = Insurance
H = Other services

measures, four to five years ago performance, current performance and current
importance for each company. The individual company scores were then
averaged across all companies included in the financial indicator subset. This
was carried out separately for each of the five strategic quality indicators and
the three measures, four to five years ago performance, current performance,
and current importance. This calculation resulted in possible maximum and

Questions included in
Indicator each indicator

1. Strategic integration 25, 27, 29, 35

Table I. 2. Deployment/involvement 22, 24, 26, 30
Allocation of questions 3. Customer-focused planning 31, 32, 34, 36
to the five identified
indicators of successful 4. Measurement and benchmarking 23, 28, 33, 34
strategic quality planning 5. Innovation and CI 33, 34, 36, 37
 minimum values of 20 and four respectively. The resulting 15 average scores are Strategic quality
displayed in Figure 2. management
The most noticeable observation from Figure 2 is that, on average, the firms
believe they have undergone marked improvement in all areas of strategic
quality management over the past four to five years. All indicators show an
increase in performance of between 36-43 per cent. Interestingly, the mean
response for the customer-focused planning category (three) showed the greatest 441
increase from the lowest mean of four to five years ago. Firms generally
indicated that they performed better in the areas of strategic integration and
deployment/involvement and not as well in customer-focused planning and
innovation/CI. The figure also indicates that managers’ rate importance of each
area higher than the performance achieved in that area within their firm.
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Mean response
18

16

14

12

10

0
1 2 3 4 5
Indicator

Key Figure 2.
4-5 years ago performance Mean indicator
responses for the three
Current performance
selected measures
Current importance

Correlations between survey responses and selected financial

performance indicators
Questionnaire responses for the four to five years ago performance entry (see
Appendix 1) were correlated with selected financial performance ratios on a
firm-by-firm basis. The past performance measure was chosen rather than the
current performance since the primary survey data were collected in 1992/93,
with financial ratios calculated using 1991 financial year results. The four to
five years ago responses were selected also partially to offset the recognized lag
 IJQRM between strategic decisions and actions regarding quality management, and the
14,4 impact of these actions on financial indicators.
Thus, a firm’s relative self-assessed ranking of its performance in about
1988/89 in several aspects of strategic quality management was correlated with
its relative performance as measured by selected standard financial
performance measures as reported in 1990/91.
442 Pearson (linear) correlation coefficients (r) were calculated for individual firm
responses to questions 22 to 38, correlated with the above three performance ratios
for each firm. Firms were categorized as manufacturing or service, based on their
ASIC code, and correlation coefficients were calculated for the total group and the
manufacturing and service subgroups separately. The significance of each
coefficient was determined by calculating the probability (p) (shown in brackets
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after each value) that the coefficient equals zero (i.e. is not significant).
Table II reports the significant Pearson correlation coefficients and their
significance. Only those satisfying the following conditions for significance
have been reported in the Table:
–0.25 > r > 0.25 and p <=0.10.
The first fact evident from Table II is that there are many more significant
correlations for the LPR ratio than for the other two selected ratios. This is

Number of firms
Manu- Question Manu-
Ratio All facturing Service number Question area All facturing Service

EOSF 35 17 18 33 Benchmarking 0.30 (0.08) – 0.34 (0.10)

22 Interlinked
planning – – 0.41 (0.09)
ROTA 39 17 22 30 Quality teams – –0.43 (0.09) –
LPR 32 15 17 17 Interlinked
planning – – 0.41 (0.10)
23 Measurable
goals 0.32 (0.07) – 0.42 (0.09)
25 Quality in
mission 0.36 (0.05) – 0.45 (0.07)
27 Situation
analysis 0.38 (0.03) – 0.51 (0.04)
30 Quality teams – – 0.42 (0.09)
Table II. 31 Customer
Significant Pearson responsive – – 0.42 (0.09)
correlation coefficients
33 Benchmarking 0.50 (0.00) – 0.67 (0.00)
between individual
question response and 35 Goals/long-term
financial performance plans – – 0.47 (0.06)
ratios 38 O/S expansion –0.45 (0.01) – –0.48 (0.06)
 probably due to the greater sensitivity of sales figures to changes in business Strategic quality
performance than either EOSF or ROTA ratios. Of course, the more cynical management
observer may argue that those firms claiming business improvements through
various quality management interventions have often engaged in major
downsizing activities which would rapidly improve the LPR value.
The lack of significant correlations for the manufacturing subgroup is more
difficult to explain, although the very broad spread of the industries covered in 443
this subgroup compared with the less diverse nature of the services subgroup
may partially explain this result. The negative coefficient for ROTA and the
quality team’s response is also surprising. That is, the higher a firm’s relative
assessment of its performance regarding the development and support of
quality teams, the worse its relative performance as measured by ROTA.
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In general, the data indicate a positive correlation between strategic

company-wide quality management issues and financial performance ratios, in
particular labour productivity. This is especially evident for issues relating to
benchmarking, inclusion of product and/or service quality in the mission and
vision statements and the use of situation analysis in the planning process.
Correlations of strategic quality management indicators with return on assets
or earnings on shareholders’ funds are considerably less evident.
These findings are consistent with those of Maani et al. [28] and Sluti et al.
[29] who also reported that links between quality and sales-related performance
measures were more significant (and more readily identifiable) than those
between quality and assets-related or market-share performance measures.
Question 38, while not incorporated into any of the five indicators, was
included to examine the global orientation of the firm. Interestingly, this
question gave a significant negative correlation with the LPR measure. This
may indicate that those firms actively expanding into overseas markets suffer
some initial productivity loss because of the increased costs required in gearing
up to meet export requirements and overseas expectations regarding quality,
delivery and cost.
An examination of the financial indicators against four to five years ago
performance survey responses (aggregated into the five indicators of successful
strategic quality management identified above) gave similar results. Using the
same significance criteria as for Table II, and without subdividing the sample
into manufacturing and service based groups, only the LPR correlations gave
significant values. The categories of strategic integration (r = 0.36; p = 0.04),
and measurement and benchmarking (r = 0.35; p = 0.05) were found to be
significantly correlated to the productivity ratio, while involvement/
deployment (r = 0.28; p = 0.12) was substantial.

Conclusions
As noted above, the labour productivity ratio appears to be considerably more
sensitive to QSA/TQM initiatives than either return on assets (ROA or ROTA as
used here) or earnings on shareholders funds (EOS, or EOSF as used here).
Values for both ROA and EOS type ratios are susceptible to variable financial
 IJQRM decision making. These decisions may be more reflective of companies seeking
14,4 short-term financial gain at the expense of longer-term profit maximization. In
short, such measures vary to the extent that the ratios can reflect external
demands for performance rather than internal processes of change.
In terms of the five broad QSA/TQM indicators, both strategic integration
(indicator 1) and measurement and benchmarking (indicator 4) show the
444 strongest positive correlation to the labour productivity ratio. The result for
indicator 1 tends to support the generally accepted best practice view wherein
quality programmes become an integrative mechanism in strategic business
plans. As these plans proceed to the evaluation stage, an increase in
performance is the most likely outcome. Where companies adopt a holistic
approach to continuous improvement, inefficient work practices will be filtered
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out of administrative systems, and design, production and support systems will
become more streamlined and efficient. Improvement in labour productivity
ratios will reflect such system improvements.
Similarly, strong correlations associated with benchmarking and
productivity tend to reinforce the view that such activities represent a strategic
core competence in the pursuit of sales. Notwithstanding extraordinary
company activities as an underlying cause for increased sales, the sampled
number of firms is large enough to confirm that benchmarking and
measurement activities – especially where organizations are forced to match, if
not build, core competences – are directly related to productivity increases.
In comparison to other indicators, it is interesting to note that managers rate
deployment/involvement (indicator 2) as the highest in importance and
performance. Strategic integration (indicator 1) is rated the next highest. These
ratings are consistent with the significant correlation between this indicator
and the labour productivity ratio. Indicator 2, while rating highly in importance
and performance, is not significantly correlated to productivity. Only one of its
individual component questions shows a correlation, and this for service firms
only. Thus the QSA/TQM indicator, ranked most highly in both importance and
performance, shows only a weak correlation with productivity as measured
here. Figure 2 also demonstrates that firms rate importance higher than
performance in all five indicators.
Although indicators 1 and 4 show the strongest matching correlations to the
productivity ratio, certain components of the remaining indicators over both
service and “all” companies nevertheless indicate some correlation. Service
companies quite noticeably display the strongest matching correlations. The
somewhat weaker correlations in the “all” companies category – which includes
both service and manufacturing – may be explained by the very diverse nature
of manufacturing firms in the sample resulting in large fluctuations in their
responses to QSA/TQM initiatives. In a recent Australian study by Murray and
Jenkins[32], similar large disparities were found in companies’ response to best
practice initiatives.
By comparison, the service companies in the sample include a large
representation from insurance and banking companies. In terms of consistency,
 a tighter clustering of companies with similar value chain characteristics might Strategic quality
display like-minded responses to QSA/TQM determinants with a similar management
impact on their productivity and performance measures.
The results in this survey lend strong support to previous research; most
notably, confirmation that selective QSA/TQM initiatives can be linked to
financial performance expressed in labour productivity ratios. No such link was
found in ROA or ROS ratios when correlated to QSA/TQM. In terms of 445
productivity, this research confirms the importance of integrating QSA with
TQM initiatives. Companies who embrace holistic rather than one-off
approaches to such strategies can be expected to increase their productivity as
these processes are implemented throughout the company.
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This research also highlights that the pattern of stated importance of

QSA/TQM imperatives in firms of this size range is at odds with their stated
performance. There are also anomalies regarding stated importance/
performance and measured performance in terms of labour productivity ratios
(LPR) over “all” companies, especially in the significant indicator of
deployment/involvement (indicator 2). Given that involvement of employee
teams in the planning and deployment processes is generally accepted to be
very important, this area should be flagged for further consideration in
subsequent research.
In addition, current research activities are targeting a small number of
companies in the sample for a longitudinal study. This is an attempt to
overcome the time lag and loss of detail occurring with Likert-scale based
surveys and aggregated means. It is hoped to use a combination of quantitative
and qualitative research methodologies to investigate the strategic quality
management initiatives in these individual firms.

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