The profitability of customer-targeted quality improvement efforts: an empirical examination

Headnote

Keywords

Quality improvement, Customer profiling, Financial performance, Data analysis, Samples, Portugal

Abstract

While many researchers tend to agree that quality improvement efforts lead to operational and customer-related organizational gains, the financial bottom-line impact of quality efforts is still debatable. Utilizes a sample of 68 certified Portuguese firms to shed some light on the nature of the relationships between quality improvement efforts and financial performance measures. Uses factor analysis, cluster analysis, and analysis of variance to analyze the data gathered using a survey-based research instrument. Concludes that quality efforts directed toward the customer tend to be associated with higher financial performance in terms of net profit after tax.

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Introduction and background

The globalization of the marketplace, increased customer sophistication, and a reduced time-tomarket have forced today's business organizations to launch quality improvement efforts aimed at promoting a customer-focus in the hope of leading to a competitive advantage in the marketplace. The success of these quality improvement initiatives in firms such as Xerox, Motorola, Ford and General Motors, among others, have motivated firms across the globe to undertake ambitious quality improvement initiatives. Faced with an increasingly competitive European marketplace, many Portuguese firms have recently resorted to quality improvement strategic avenues in search of a competitive advantage.

The bulk of the literature appears to support the notion that there exists positive relationships between quality improvement efforts and the different facets of organizational performance such as operational efficiency, customer satisfaction, financial performance, and even competitive advantage (Spitzer, 1993; Flynn et al., 1995; Lemak and Reed, 2000; Grace and Choi, 1999; Hendricks and Singhal, 2001; Lillrank et al., 2001; Forza and Fillippini, 1998; Tata and Parasad, 1998). In general, however, empirical research dealing with the relationship between quality improvement efforts and organizational performance is slow in forthcoming (Flynn et al., 1995; Madu et al., 1995; Sun, 1999). This is especially true in terms of the specific empirical relationship between quality improvement and financial performance of the firm. In this context, some researchers even question the existence of such an empirical relationship (Grant, 1995; Ahire and Dreyfus, 2000). Therefore, empirical research addressing this...