TQM and market orientation's impact on SMEs' performance

Demirbag, Mehmet and Koh, Lenny C.S. and Tatoglu, Ekrem and Zaim, Selim (2006) TQM and market orientation's impact on SMEs' performance. Industrial Management and Data Systems, 106 (8).

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Abstract

The principal aim of this study is to determine the impact of market orientation (MO) and implementation of total quality management (TQM) on organizational performance of SMEs. Based on theoretical considerations, a model is proposed linking the MO and TQM constructs to the organizational performance construct. Exploratory and confirmatory factor analyses empirically verified and validated the underlying dimensions of MO, TQM and organizational performance. Structural equation modeling was employed to test the model drawing on a sample of 141 SMEs operating in the Turkish textile industry. Data analysis reveals that, while MO has a strong and positive impact on the extent of TQM implementation, it has no significant impact on organizational performance. Similarly, a strong and positive relationship was noted between the level of TQM implementation and organizational performance. It has also been found that the MO has a positive and significant impact on organizational performance through only a mediating role of TQM implementation. The data were collected from textile manufacturers in Turkey, which may restrict to some extent generalizability of findings to other industries or firms operating in more stable environments. Given the limitations associated with perceptual measures, findings should be interpreted with some degree of caution. Finally, an implementation of alternative scales on the same sample would provide further insights into the causal links between MO, TQM and organizational performance SMEs should consider TQM as a facilitating management tool for improving organizational performance in relatively more dynamic environments. Market-oriented SMEs may not realize an increased performance gains with a successful MO implementation but, when TQM is implemented alongside MO, better financial performance can be achieved. As increasing number of SMEs are being involved in global markets, a double track approach (MO at business level and TQM implementation at functional level) to improve product and management quality becomes inevitable. A triangulation of MO, TQM and organizational performance outperforms two-way relationship of MO and organizational performance. Direct and indirect effect of each construct on organizational performance was discovered. SMEs should consider TQM as having a mediating role to improve organizational performance under a given set of market orientation.