The relationships between quality, innovation and business performance: an empirical study

Abstract

This paper examines the relationship between product quality, product innovation and process innovation, and the relationship between these three operational performance measures and business performance in terms of sales, profitability and market share. The impetus for this study was driven by an argument that propounds quality and innovation are two elements that compete with each other, and that firms need to make a trade-off decision between them. In conjunction with this, another argument suggests that quality is increasingly being 'downgraded' into an order qualifier criteria and innovation is taking over as the order winner. Using empirical data drawn from 194 managers in Australian firms, the results indicate that there are strong and positive relationships between product quality and process innovation. Similar relationships also occur between product innovation and process innovation. However, the relationship between product quality and product innovation appears to be relatively weak, especially with respect to specific elements. Further to this, the results indicate that process innovation shows strongest relationship with business performance, followed by product innovation and product quality. At the surface level, this finding provides support for the above argument that quality is relatively inferior in its impact on business performance compared to innovation.