Science, Specific Knowledge and Total Quality Management

Abstract

This article analyzes Total Quality Management as an innovation in organizational technology that can be used by companies to increase productivity of both labor and capital. As an organizing technology, TQM has three distinguishing features: (1) it is science-based in sense that individuals at all levels of organization are trained to use scientific method in everyday decision-making; (2) it is non-hierarchical insofar as it provides a process for decentralizing decision-making in ways that do not correspond to traditional corporate hierarchy; (3) it is non-market-oriented in that it does not use prices or formal exchange mechanisms, such as transfer pricing systems, to motivate cooperation or transfer of decision rights.Despite potential benefits of TQM, and many TQM success stories, there is also considerable testimony to difficulty of establishing and maintaining effective TQM programs. We suggest that one important source of TQM's implementation problems has been failure to develop a systematic approach to identifying entire set of organizational changes required by a comprehensive TQM program. While typically arising out of a concern for product quality, most successful TQM programs end up becoming efficiency improvement initiatives that involve organization-wide changes in decision-making authority and performance measures. For this reason, effective implementation of TQM requires major changes in all three components of what we refer to collectively as organizational rules of game--that is, not only (1) systems for allocating decision rights and (2) performance measurement systems, but also (3) reward and punishment systems. Unlike those quality advocates like Edward Deming who object to use of monetary incentives to reinforce TQM initiatives, we argue that the increased decentralization associated with TQM should be associated with a strengthening of relation between performance and rewards of all types.Note: This paper draws heavily on our Journal of Accounting and Economics paper of same title, Volume 18, 1994, pp. 247-287. See working paper version of this paper Science, Specific Knowledge, and Total Quality Management.