| Research findings concerning the relationship between Total Quality Management (TQM) and subsequent financial performance have often been contradictory and controversial; results most likely due to methodological limitations and differences between the studies. The current study seeks to remedy many of these limitations, while determining the nature of the relationship between an effective TQM program and subsequent financial performance. Is this relationship direct (with no intervening variables) or indirect (with one or more intervening variables)? These two major hypotheses (direct or indirect) were tested utilizing a sample of suppliers that have won U.S. supplier quality awards from major OEMs such as Ford, Chrysler, Toyota, Boeing, and Texas Instruments. The direct relationship was tested through a doubly (multivariate) repeated measures (longitudinal) research design, utilizing growth in revenue, growth in assets, gross profit, and return on assets as the financial performance dependent measures. The indirect relationship was tested utilizing a theoretical model proposed by Edwards Deming, commonly referred to as the Chain Reaction Model, which argues that TQM primarily impacts subsequent financial performance indirectly through related direct product cost reductions and productivity enhancements.;This research found no statistically significant, direct relationship between an effective TQM program and subsequent financial performance, although it was shown how different, less robust data analysis techniques could have arrived at the opposite conclusion. Alternatively, this research provided empirical validation for Deming's Chain Reaction Model by demonstrating that TQM does impact subsequent financial performance through two intervening variables---direct product cost reductions and productivity enhancements. This finding, however, must be tempered by the fact that the TQM effect size was small (less than 5%). In addition, this research successfully tested several variants of Deming's model that provide enhance explanatory power over the original configuration---providing useful extensions of Deming's theoretical work. |
