The Relationship Between Quality and Business Performance

The Relationship Between Quality Dimensions and Business Performance

In our study of first tier suppliers to North American automobile manufacturers, we examined relationships between competitive dimensions of quality (e.g., design quality, conformance quality) and overall firm performance (e.g., ROI, Market Share). Most quality programs identified by examining international practices have focused on improving quality control through strengthening conformance to specifications. However, conformance quality is only one dimension of quality performance. Garvin (1984) identified “Competitive Dimensions of Quality” that could be used by a firm as when guidelines deploying quality as a weapon. Garvin’s dimensions were:

  1. Product Reliability: the ability to maximize the time to product failure or malfunction.
  2. Product Durability: the ability to maximize the time to product replacement.
  3. Conformance to Specifications: the ability to manufacture a product whose operating characteristics meet established performance standards.
  4. Design Quality: the ability to provide a product with capabilities, features, styling, and/or operating characteristics that are either superior to those of competing products or unavailable with competing products
  5. Company Reputation: the ability to create a positive or favorable image in the customer’s mind when he/she hears the company’s name.
  6. Pre-Sale Customer Service: the ability to service the customer during the purchase decision process (i.e. before the customer buys the product).
  7. Product Support: the ability to service the customer in providing product support after the sale of the product to ensure continuing customer satisfaction.

Our analysis illustrates a mismatch between the strategic importance placed on a competitive dimension of quality by senior management and the correlations between that dimension and the measures of firm performance.

Predictors of Performance

One could argue that the quality dimensions which are the most consistent predictors of overall firm performance should be assigned the greatest strategic importance, demonstrating a perfect alignment between the firm’s strategy and outcomes. For example, the dimension which is the most consistent predictor of overall firm performance should be given the greatest amount of strategic importance. However, this was not the case: product support was significantly related to every measure of firm performance, though four other dimensions were given higher ratings in terms of greater strategic importance.

Company reputation, conformance to specifications, design quality, and pre-sale customer service were also misaligned, meaning that these dimensions were given greater strategic importance weight than their relationship to firm performance actually warrants. For example, conformance to specifications was the second highest rated quality variable in terms of strategic importance to the firm; however, it had the weakest relationship to business performance. Conformance to specifications was significantly related to only three measures of firm performance.

Product support, product reliability, and product durability were perceived as less strategically important to the firm by CEOs. However, these dimensions demonstrated the strongest relationship to business performance. First tier suppliers may benefit from realigning their strategic foci to give greater emphasis to product support, product durability, and product reliability, contrary to conformance to specifications, design quality, and pre-sale customer service.

Strategic Importance in the Automotive Industry

The nature of automotive products and other durable goods is such that product reliability, durability, and product support (after-sales service) are critical. The smaller contributions of conformance to specifications and design quality to business performance does not imply, however, that these dimensions do not matter. Within the automotive industry, conformance is often regarded as an order-qualifier for which high performance is required to be given consideration as a potential supplier. Note also that all of the quality variables are consistent predictors of more than one of the overall firm performance measures. Furthermore, all of the quality variables are related to ROI, which is often recognized as an important indicator of firm performance in the automotive supply industry.

Strategic Importance in Other Industries

Very little research has addressed how the relative effects of various dimensions of quality might differ for various industries. The contributions of various quality performance measures to overall firm performance was examined in the furniture industry (Forker et al.), in one instance, and their highest impact quality variables were design quality, product improvement, and conformance quality.

These results, especially for design quality, were very consistent with the quality literature. For example, Deming’s emphasis on continuous improvement includes the continuous improvement of design quality. Juran and Gyrna highlight the importance of design quality, saying that product designs should address the critical few features that capture consumers’ needs, and Crosby strongly advocated designing quality into a product. Also, design control is one of the three components of Feigenbaum’s “total quality control” concept. However, the external validity of the Forker et al. research is limited because their work was specific to a single industry.

Results

It is interesting that our results are not entirely consistent with the Forker et al. furniture industry study; specifically, we did not find design quality as the most critical variable. This may be because design is under the complete control of a furniture manufacturer, but not under the complete control of a supplier to the auto OEMs. Design may be virtually dictated to the supplier in the latter case. However, our findings are consistent with, and provide some support for, Garvin, whose work is generally considered influential.

Garvin suggests that firms do not need to excel on all dimensions of quality in order to be successful. Pursuing a quality niche which is especially important to the customer (i.e., product support, reliability, and durability) can lead to better firm performance, especially if the dimensions singled out are ones that other firms have not targeted. Further research in other industries would be required to determine whether the impact of quality dimensions on firm performance varies significantly across industries. Future research might also empirically group Garvin’s quality dimensions into individual broader categories of quality performance having strategic or managerial significance.

Our research shows that quality dimensions are highly correlated with firm performance in the automotive industry. Surprisingly, the quality variables related to the greatest number of measures of firm performance – product support, reliability, and durability – were evaluated as less strategically important by the respondents. The quality variables which the literature identifies as being most important were indeed given the greatest amount of strategic importance by the executives in our sample of firms – conformance to specifications, design quality, and pre-sales customer service. However, these quality variables were not necessarily related to all firm performance measures.

Conclusion

A longitudinal study within a single industry such as the automotive supply industry would help determine if these quality dimensions and their impact on firm performance change over time. Conformance, design quality, and pre-sale customer service probably had a great impact on firm performance in the past, but customer requirements and expectations have changed as a result of industry trends (e.g., outsourcing, strategic alliances, just-in-time). Once recognized as order-winners in this industry, these dimensions now only allow a supplier to exist (but not excel) in the marketplace.

The quality dimensions impacting firm performance have changed, but the strategic importance placed on the dimensions have not, necessarily. By the time product support is given the attention it deserves, there might be a new dimension which will win orders and have a greater impact on firm performance. This would be expected in a highly volatile and dynamic industry with intense international competition.

-Sime

 

Sources

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Deming, W.E. 1982. Quality, productivity, and competitive position, Cambridge, MA: MIT Center for Advanced Engineering.

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Forker, L.B., Vickery S.K., and Droge, C.L. 1996. The contribution of quality to business performance. International Journal of Operations & Production Management 16(8): 44-62.

Garvin, D.A. 1983. Quality on the line. Harvard Business Review 61(5): 65-75.

Garvin, D.A. 1984b. What does ‘product quality’ really mean? Sloan Management Review, Fall, 26(1): 25-43.

Garvin, D.A. 1987. Competing on the eight dimensions of quality. Harvard Business Review 65(6): 101-109.

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