The structural link between TQM practices and financial performance: the mediating role of operational performance

Abstract

PurposeThis study aims at examining the effect of total quality management (TQM) practices on the financial performance ISO 9001:2008 certified manufacturing companies in Ethiopia with a mediating role of operational performance.Design/methodology/approachA cross-sectional survey research was conducted to meet the purpose. Data used for the study were solely primary data and were collected from the top and middle-level managers of different departments and senior experts working under the production/operation and quality management units of the target organizations. Data were obtained from 302 participants working in 73 companies using a self-administered questionnaire. Structural equation modelling (SEM) technique was applied to test the hypotheses positing the structural link between TQM practices, operational performance and financial performance.FindingsThe findings show that TQM practices had a significant direct and positive effect on both operational performance and financial performance and that operational performance significantly affects financial performance. The bootstrapping output of the mediation analysis also established that operational performance partially mediates the causal link between TQM practices and financial performance.Research limitations/implicationsThe empirical evidence provided by the present study provides helpful insights and guidance to managers to make a good deal of investment in maintaining enhanced performance outcomes under the operations stream that eventually would lead to better financial outcome.Originality/valueBeing one of the first attempts to empirically examine the structural linkages among TQM practices, operational performance and financial performance in Ethiopian manufacturing organizations, this paper provides strategic insights on the importance of implementing TQM practices in a holistic manner for the achievement of better performance outcomes.