Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
The impact of soft TQM on financial performance: The mediating roles of non-financial
balanced scorecard perspectives
Abstract
Purpose – The purpose of this study is to explore the effect of soft TQM on organizational
performance in the Jordanian pharmaceutical manufacturing sector using the balanced scorecard
perspective. It also examines the indirect effect of soft TQM on financial performance through
balanced scorecard non-financial perspectives.
Design/methodology/approach – The study is based on survey data collected from 197 employees in
managerial and non-managerial positions working in Jordanian pharmaceutical manufacturing
companies. Validity and reliability analyses were performed, and the study hypotheses were tested
using structural equation modeling.
Findings – The results indicated that soft TQM positively affected all balanced scorecard perspectives.
Customer perspective positively affected financial performance while innovation and learning perspective and internal business process perspective did not. In addition, only customer perspective
significantly mediated the relationship between soft TQM and financial performance.
Originality/value – This is one of the first papers to examine the effect of soft TQM on organizational
performance in terms of balanced scorecard perspective in the pharmaceutical sector. In addition, this
paper is the first to examine the mediating effects of the balanced scorecard non-financial perspectives
on the relationship between soft TQM and financial performance.
Keywords Soft TQM; Balanced scorecard; Pharmaceutical sector; Mediating effects; Jordan.
Paper type Research paper.
1. Introduction
During the last two decades, manufacturing companies have found themselves working in a rapidly
changing environment characterized by fierce competition, globalization, and rising expectations and
demands of various stakeholders. In light of this reality, traditional management strategies have
become insufficient and ineffective to outperform competitors and create more value. Therefore, many companies are increasingly paying more attention to total quality management (TQM). In this context,
TQM is seen as one of the major strategic options for manufacturing companies to survive and
maintain their performance in today’s competitive environment.
In the existing literature, the role of TQM in enhancing performance is widely acknowledged. In
addition, TQM is seen as a vital strategic option, which represents a source of competitive advantage
(Hung et al., 2011; Wiele et al., 2006). Furthermore, several researchers investigated the effect of soft
and hard TQM on different performance measures (e.g., Zeng et al., 2015; Vecchi and Brennan, 2011;
Jimenez-Jimenez and Martinez-Costa, 2009). However, most existing TQM studies utilized traditional
performance measures and a limited number of studies measured performance in terms of balanced
scorecard (BSC). The BSC perspective combines traditional financial measures with non-financial
measures (Kaplan and Norton, 2001). Thus, the BSC perspective is superior to traditional performance
measurement systems, as such a combination of financial and non-financial perspectives directs organizational efforts toward future performance and goal accomplishment (Fooladvanda et al., 2015).
Most existing studies emphasized the crucial role of soft TQM in improving performance (e.g., Phan et
al., 2011; Fotopoulos and Psomas, 2009). Soft TQM is regarded as the main driver of quality
performance as well as operational and organizational performances (Zeng et al., 2015). The failure of
effectively diffusing soft TQM will impede any quality and improvement initiatives (Abdallah, 2013).
No previous studies, to the best of our knowledge, investigated the effect of soft TQM on performance
in terms of the BSC perspective; therefore, this paper focuses on the soft TQM.
The current Jordanian pharmaceutical industry is characterized by severe competition, like other
pharmaceutical industries worldwide. This prompts Jordanian pharmaceutical companies to strive to
improve their operations and quality in order to maintain their competitive positions and market shares.
These companies are forced to continually improve every aspect of their businesses and to provide a superior value to customers in order to survive.
The current study contributes to the existing TQM literature by applying the BSC perspective in an
attempt to yield new insights into the relationship between soft TQM and performance. Additionally,
this is one of the first studies to investigate the mediating effects of non-financial BSC perspectives on
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
the relationship between soft TQM and the financial BSC perspective. Furthermore, this is the first
study to investigate the proposed relationships in the Pharmaceutical industry in Jordan. The findings of this study are expected to be a valuable resource for managers in pharmaceutical manufacturing
companies by assisting them in improving the effectiveness of their TQM programs and allocating the
right resources to the targeted performance perspectives.
2. Literature review
2.1 Total quality management Total quality management is a comprehensive dynamic process for encouraging continuous
improvement in the effectiveness and efficiency of all aspects of a business (Vanichchinchai and Igel,
2011). Additionally, TQM is a management approach that can achieve long-term success for an
organization by focusing on meeting and exceeding customer expectations (Evans and Lindsay, 2011).
Previous literature pointed to several benefits that can be acquired due to the implementation of TQM principles in terms of financial and non-financial benefits. These benefits include improved
organizational performance, enhanced competitive position, increased customer satisfaction, greater
employee satisfaction, reduced costs, increased revenues, empowered employees, increased market
share, more frequent prevention of problems before they occur, and improved overall quality (Goetsch
and Davis, 2013; Das et al., 2011; Psomas and Fotopoulos, 2010; Kumar et al., 2009; Sila, 2007).
Several researchers have divided TQM dimensions into soft and hard (e.g., Zeng et al., 2015; Abdallah,
2013; Vecchi and Brennan, 2011; Jimenez-Jimenez and Martinez-Costa, 2009). In general, soft TQM
dimensions represent the management of people, relationships, and leadership; these are known as
people-related factors (Rahman, 2004). Hard TQM dimensions represent the tools used in quality
management (Abdallah, 2013). They include production, work process, and control techniques that
ensure the correct functioning of working systems and processes (Evans and Lindsay, 2011). Some
researchers asserted that soft TQM dimensions have a higher effect on quality improvement and organizational performance than hard dimensions (Fotopoulos and Psomas, 2009; Rahman and
Bullock, 2005).
Rahman and Bullock (2005) indicated that soft TQM dimensions include people management, supplier
relations, customer focus, and shared vision. Agus (2001) suggested that the soft TQM dimensions
most commonly used in quality management are top management commitment, employee involvement,
training and development, teamwork, and communication. Abdullah et al. (2010) presented six critical
soft TQM dimensions, top management commitment, customer focus, employee involvement, training
and development, reward and recognition, and supplier relationship. Abdallah (2013) used five soft
TQM dimensions, customer focus, training, top management leadership, workforce management, and
supplier relationship. Zeng et al. (2015) used three dimensions to measure soft TQM, small group
problem solving, employee suggestions, and task related training for employees. Based on the above review, four soft TQM dimensions are defined as the most widely used in the
literature and will be used in the current study: top management commitment, customer focus,
employee involvement, and training and development. A review of each dimension is provided in the
following sub-sections.
2.1.1 Top management commitment
Management is responsible for the provision of an appropriate and stimulating work environment for
employees in order to achieve the goals of the organization and improve its performance (Abdallah and
Phan, 2007). The responsibility of top management is additionally reflected in supporting employees
and improving processes and the capability for continuous improvement within the organization. This
requires top management commitment to continuous improvement by providing the necessary support and resources required to achieve the desired goals (Phan et al., 2011).
2.1.2 Employee involvement
Employee involvement refers to any sense of responsibility or activity related to an employee’s
participation in work. This may include improvement activities, team-work, decision making, and
commitment to the organization’s decision-making process (Edwinah and Augustine, 2013; Evans and
Lindsay, 2011). There are two types of employee involvement: formal and informal. Formal
involvement occurs when there is a structure and expectations that support this form of participation;
informal participation occurs when undocumented and unstructured participation happens without
management’s attention or support (Edwinah and Augustine, 2013). Employee involvement helps the
organization achieve many benefits, including improved morale, increased productivity, stimulation of
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
innovative ideas, increased customer satisfaction, and a reduction in bureaucratic procedures (Abdallah
et al., 2017; Evans and Lindsay, 2011).
2.1.3 Customer focus
The focus of any business must be directed toward meeting the needs, expectations, and desires of
customers. A company’s survival and success depend on retaining current customers and attracting
new ones (Sanuri and Mokhtar, 2013). Therefore, it is necessary to satisfy the needs of customers to
maintain their loyalty to the organization. Subsequently, customer focus is considered one of the
leading factors in TQM. A focus on customer satisfaction helps with business process improvement
and continuous improvement within the company, achieving desirable performance results (Abdallah
and Matsui, 2008).
2.1.4 Training and development Training and development are considered critical success factors for an organization’s strategy in
support of performance and productivity (Analoui and Khoury, 2010). Training is important for several
factors, such as the quality of the existing labor pool, global competition, rapid and continual change,
technology transfer problems, and demographic change (Goetsch and Davis, 2013). Training benefits
include decreased production errors, increased productivity, improved quality, decreased turnover,
lowered staffing cost, improved health and safety, improved communication, increased employee
flexibility, improved employee relations, and reduced accidents (Goetsch and Davis, 2013).
2.2 The balanced scorecard
The balanced scorecard is a performance measurement tool useful for monitoring, managing, and
controlling financial and non-financial performance; it was introduced in 1992 by Robert Kaplan and
David Norton (Saraiva, 2011; Kaplan and Wisner, 2009; Sharma, 2009). In 1996, the BSC expanded into an organization-wide strategic management system including four performance categories:
finance, customer, internal process, and innovation and learning (David, 2013; Saraiva, 2011). Today,
BSC as a performance measurement tool has expanded again and is used in analyzing and measuring
performance and controlling its compatibility with the strategic goals of the organization (Saraiva,
2011).
The BSC helps both managers and employees understand their organization’s shared vision. It links the
financial and non-financial aspects of the organization to determine the organization’s performance
level (Sharma, 2009; Kaplan and Norton, 2000). Therefore, the organization should value the
developments of lag indicators as well as leading indicators and more closely connect them with the
strategies (Chung-Ching et al., 2007). Lag indicators tend to be presented through the financial
perspective (Kaplan and Norton, 2000). On the contrary, non-financial metrics are often leading indicators of performance (Decoene and Bruggeman, 2006). In addition, leading indicators that are
presented through the customer, internal process, and innovation and learning perspectives can provide
important information about performance; therefore, non-financial measures are better predictors of a
firm’s long-term performance (Kaplan and Norton, 2001).
In this study, the BSC will be used to measure organizational performance. The four perspectives of the
BSC will be discussed in the following sub-sections.
2.2.1 Customer perspective
This perspective identifies the target market and segments while measuring the success of this segment
(Chi et al., 2009). Similarly, to formulate the customer perspective, an organization should have a clear
idea of targeted customer and business segments and the tools needed to measure outcomes (Kaplan and Norton, 1996). To measure the customer perspective, a plan and objectives must include some
measurement standards such as customer satisfaction, customer retention, loyalty, customer
profitability, and market share (Kaplan and Norton, 2001). Therefore, customer satisfaction is
considered a strong indicator of the performance of an organization; without customers, there would be
no business.
2.2.2 Internal business process perspective
The internal process perspective focuses on improving internal process that help to achieve
organizational goals (Chia et al., 2009). There are four process levels within this perspective, which
are: innovation, customer management, operations, and regulations and environment (Carmona et al.,
2011; Hung et al., 2011). Internal processes stimulate innovation, develop new products and services
through research and development, and increase customer value, which impacts customer satisfaction;
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
all of this consequently leads to the achievement of financial goals (Abran and Buglione, 2003).
Consequently, the internal business process perspective provides the indicators for organizations to improve their performance by identifying and evaluating the value of both shareholder and customer
goals (Kaplan and Norton, 1992).
2.2.3 Innovation and learning perspective
The innovation and learning perspective represents the employee’s ability and the organization’s
processes to manage and adapt to the continuous improvement business environment (Hung et al.,
2011). Innovation is the improvement and development of a new product, procedure, strategy, or
technology, while learning is acquiring job-related skills, knowledge, and behaviors (Liao et al., 2008).
The innovation and learning perspective has three aspects: people, systems, and organizational
dimension (Abran and Buglione, 2003). By monitoring and improving these three aspects, the
organization creates growth and improvement.
2.2.4 Financial Perspective
There are many financial metrics used to measure financial performance, such as economic value
added (EVA), which captures the true economic profit more than any other financial performance
measure; EVA is therefore the most significant measure of financial performance (Yao et al., 2009;
Chari, 2009). In addition, return on assets (ROA) and return on equity (ROE) are also important
indicators of financial performance (Bose and Thomas, 2007). Due to the difficulty of getting these
measures from the surveyed companies, the current study will measure financial perspective in terms of
subjective question items.
3. Theoretical framework and hypotheses development
3.1 Research framework The current study is based on the framework proposed in Figure 1. The framework considers the effect
of soft TQM on the four BSC perspectives. The effects of BSC non-financial perspectives, namely,
customer perspective, internal process perspective, and innovation and learning perspective on
financial perspective are also considered. Additionally, the mediating effects of BSC non-financial
perspectives on the relationship between soft TQM and financial perspective are included.
[Insert Figure 1 here]
3.2 Soft TQM and customer perspective
Customer satisfaction is one of the most important objectives of TQM (Evans and Lindsay, 2011).
Companies therefore focus on earning customer satisfaction, in addition to achieving good overall
performance, through the use of a TQM dimensions (Bhat and Rajashekhar, 2009). Existing literature
widely acknowledges the crucial role of soft TQM dimensions in enhancing customer satisfaction (e.g.,
Valmohammadi, 2011; Fotopoulos and Psomas, 2009; Terziovski, 2006). Management support,
employee involvement, proper training, and customer focus are expected to lead to decreased
production errors, increased productivity, improved quality, decreased turnover, lowered staffing cost,
improved safety and health, improved communication, increased employee flexibility, improved
employee relations, and fewer accidents, which will increase customer satisfaction (Goetsch and Davis, 2013; Phan et al., 2011; Abdallah and Matsui, 2009).
H1. Soft TQM positively affects customer perspective.
3.3 Soft TQM and internal business process perspective
One of the main objectives of TQM is improving internal processes. Soft TQM enhances internal
business processes by boosting the focus on internal improvements which are expected to yield various
benefits, including decreasing the costs of defects and rework, reducing supervision and maintenance
costs, managing inventory levels, decreasing mistakes and complaints, decreasing time of delivery,
and stimulating innovation (Fotopoulos and Psomas, 2010; Kumar et al., 2009). Companies with high
levels of top management commitment are able to produce higher quality products, which is a result of process focus and improvement (Das et al., 2011). Similarly, customer focus and response to customer
complaints and suggestions will help companies make further process improvements (Sharabi, 2010).
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
In the same way, employee involvement is a major driver of improvements through process
improvement teams (Evans and Lindsay, 2011; Hendricks and Singhal, 2001). In addition, employee training improves internal processes through decreased production errors, increased productivity,
improved quality, and increased employee flexibility (Goetsch and Davis, 2013).
H2. Soft TQM positively affects internal business process perspective.
3.4 Soft TQM and innovation and learning perspective
While some studies asserted that TQM in general positively affects innovation (e.g., Sadikoglu and
Zehir, 2010; Martínez-Costa and Martínez-Lorente, 2008; Prajogo and Sohal, 2006), other studies
found that soft TQM is related to innovation performance while hard TQM is related to quality
performance (Prajogo and Sohal, 2004; Sitkin et al., 1994).
Management support and employee involvement have been found to greatly affect innovation and learning (Abdallah and Phan, 2007). Employee involvement provides a necessary and solid basis for
achieving innovation through the development of gradual, and eventually radical, innovation (Zeng et
al., 2015). Furthermore, employee involvement offers a greater degree of participation and freedom for
problem solving without constant supervision, which is fundamental for facing the risks associated
with innovation (Adams et al., 2006). Similarly, customer focus has a positive effect on new product
development and on the process of product innovation (Prajogo and Sohal, 2003). Therefore,
organizations that adopt soft TQM are expected to be more innovative than other organizations that do
not adopt TQM.
H3. Soft TQM positively affects innovation and learning perspective.
3.5 Soft TQM and financial perspective Some previous studies found that soft TQM is positively related to financial performance (e.g.,
Valmohammadi, 2011; Kumar et al., 2009; Tharenou et al., 2007). Leadership, teamwork, customer
focus, and training lead to an improvement in quality, decreasing defects, and increasing sales which
point to financial benefits (Fotopoulos and Psomas, 2009). Improved quality and increased interaction
with customers enhance customer satisfaction, which will lead to increased sales and market share
(Gadenne and Sharma, 2009).
H4. Soft TQM positively affects financial perspective.
3.6 Customer perspective and financial perspective
Customer satisfaction increases market share and revenue, leading to increased profits (Dimitriades, 2006). In the same context, satisfied customers are willing to pay because they are less price sensitive,
which leads to increased revenues (Homburg et al., 2005). In addition, satisfied customers become
loyal over time, leading to increased sales and therefore, enhanced financial performance (Chi and
Gursoy, 2009). On the same vein, higher annual revenue and profitability mostly comes from very
satisfied customers; on the other hand, a little of the revenue comes from less satisfied customers
(Anderson et al., 2004). Many researchers have concluded that there is a positive relationship between
customer satisfaction and financial performance (e.g., Wiele et al., 2006; Yeung et al., 2002).
H5. Customer perspective positively affects financial perspective.
3.7 Internal business process perspective and financial perspective Several researchers asserted that there is a direct effect of internal processes on financial performance
(e.g., Ngniatedema et al., 2014; Dossi and Patelli, 2010; Ittner et al., 2003). However, other researchers
found an indirect effect of internal processes on financial performance through customer perspective
(Fu, 2010; Jun and Cai, 2010). Process improvement leads to enhanced efficiency and effectiveness in
the use of resources, which reduces production costs, increases productivity, improves quality, reduces
errors and reworks, improves delivery times, and enhances flexibility, leading, thus, to improved
financial performance (Ferreira et al., 2010; Abdallah and Matsui, 2009).
H6. Internal business process perspective positively affects financial perspective.
3.8 Innovation and learning perspective and financial perspective
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
Several studies discussed the importance of innovation and learning in organizational performance
improvement (e.g., Okatan, 2012; Laforet, 2011). Most of these studies agree that innovation and learning is considered a primary source of competitive advantage, because of its great effect on
organizational performance. Furthermore, learning is a basis for gaining a sustainable competitive
advantage and is a key variable in the enhancement of financial performance and increasing an
organization’s capacity to take effective actions (Moustaghfir and Schiuma, 2013). For this reason,
companies with innovation and learning capability enjoy improved market positions and reputations
and can attract new customers and increase their revenues (Eisenhardt and Martin, 2000).
H7. Innovation and learning perspective positively affects financial perspective.
3.9 Mediating Role of non-financial BSC perspectives on soft TQM-financial perspective relationship
The role of soft TQM in enhancing non-financial performance with regard to customer perspective, internal processes, and innovation and learning is widely acknowledged (e.g., Valmohammadi, 2011;
Sadikoglu and Zehir, 2010; Fotopoulos and Psomas, 2009; Kumar et al., 2009). In addition, firms that
use these non-financial performance measures were found to have superior financial performance
compared to other firms (Zhang et al., 2013; Huelsbeck et al., 2011; Xiong and Lin, 2008).
Soft TQM dimensions increase the focus on internal processes, which will result in improved processes
and more efficient usage of resources; this, in turn, will lead to improved financial performance
(Ferreira et al., 2010; Fu, 2010). In addition, improvements in internal processes will improve quality,
reduce delivery times, and enhance operational flexibility, which are usually reflected in enhanced
financial performance (Abdallah and Matsui, 2009).
TQM is considered a critical element for improving the satisfaction of customers (Terziovski, 2006).
Most studies reported a positive effect of customer satisfaction on financial performance (Swaminathan
et al., 2014; Anderson et al., 2004). Customer satisfaction increases companies’ market share, customer loyalty, and customer retention rate, thereby improving financial performance. In the same vein, Agus
and Abdullah (2000) indicated that the impact of TQM on financial performance is mediated by
customer satisfaction. Thus, an organization that implements soft TQM will have higher customer
satisfaction, which in turn will lead to improved financial performance.
Innovation and learning are seen as key processes within organizations that can improve overall
performance (Breznik and Hisrich, 2014). Learning and innovation are expected to enhance
competitive advantage and financial performance (Abdallah et al., 2016; Dobni, 2008; Damanpour and
Schneider, 2006). Soft TQM reinforces innovation and learning company wide, and the expected
output is new or improved products, processes, and operational procedures; this creates customer value,
thus improving financial performance.
H8. Customer perspective positively mediates the relationship between soft TQM and financial
perspective.
H9. Internal business process perspective positively mediates the relationship between soft TQM and
financial perspective.
H10. Innovation and learning perspective positively mediates the relationship between soft TQM and
financial perspective.
4. Methodology
4.1 Sample
The population of this research consists of all pharmaceutical manufacturing companies operating in
Jordan. There are 23 pharmaceutical manufacturing companies in Jordan with a total of 5,400
employees working in those companies (MOH, 2011). The contact information of the pharmaceutical
companies were obtained from their official websites by the researchers. Next, each company’s human
resources department or public relations department was contacted by the researchers by telephone,
those who would be mainly responsible for the distribution of the questionnaires inside the companies.
Seven companies declined to participate due to their internal policies and sixteen companies agreed to
participate. The number of distributed questionnaires in each company was negotiated with the human
resource department. This number ranged from 15 to 30. A total of 380 questionnaires were distributed to the respondents in the participating companies. The questionnaire was distributed to employees in
managerial and non-managerial positions. The data collection procedure lasted for one and a half
months during August and September, 2016. At the end, 243 questionnaires were returned, 46 of which
were deemed unusable due to a large amount of missing data. Thus, the final number of usable
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
questionnaires was 197, representing a response rate of 51.8%. This response rate is considered
relatively low compared with other empirical studies conducted in Jordan. For instance, Suifan et al. (2016) received a response rate of 80.6% and Al-Sa’di et al. (2017) received a response rate of 69%.
4.2 Questionnaire and measures
To achieve the study goals, a survey questionnaire was developed to collect data. The question items
included in the survey were adapted from some previous studies. The survey was first prepared in
English language and then translated into Arabic. The translated survey was then reviewed by four
professors in Business Administration and the necessary modifications were made based on the
received feedback. In addition, the survey was pre-tested by three managers from two pharmaceutical
companies to ensure the clarity and understandability of the question items and modifications were
made as needed.
The constructs used in this study were adapted from the literature. Soft TQM constructs of top management leadership, customer focus, employee involvement, and training and development were
adapted from Yeh (2011). Employee involvement construct consisted of five question items, while
each of the other three soft TQM constructs consisted of six question items. The BSC non-financial
perspectives of customer perspective, internal business process perspective, and innovation and
learning perspective were adapted from Mafini and Pooe (2013) and Al Fayez (2014). These three
constructs consisted of four, five, and six question items respectively. Respondents were requested to
assess their agreement or disagreement with the survey items based on 5-point Likert scale where 1
indicated strong disagreement and 5 indicated strong agreement. Finally, financial performance
construct was adapted from Flynn et al. (2010). This construct included five subjective items and
respondents were asked to evaluate their performance relative to their major competitors over the last
three years. The evaluation of financial performance over the last three years helps to avoid potential
problems related to short-term fluctuations in financial results (Coltman et al., 2011; Kim et al., 2004).
4.3 Measurement validity and reliability
To assess construct validity, exploratory factor analysis (EFA) was first applied with all items entered
simultaneously. The Promax rotation method was used with principal component analysis. Our criteria
was to retain items that loaded onto one factor with factor loadings greater than 0.40. We also ensured
that items loaded onto their respective factors, and that eigenvalues for all the constructs were greater
than one (Hair et al., 2010). Some question items were deleted either because their loadings were less
than 0.40 or because they loaded onto more than one factor. As was initially expected, EFA resulted in
eight distinct factors.
Cronbach’s α-coefficient was applied to assess the reliability of the resulted constructs. The reliability
of the constructs ranged from 0.721 to 0.981 indicating acceptable internal consistency (Hair et al., 2010).
Next, we proceeded to perform confirmatory factor analysis (CFA) based on the output of EFA using
Amos 20. Our criteria was to ensure that all the factor loadings were greater than 0.50, the average
variance extracted (AVE) value for each construct was above 0.50, and the composite reliability values
for all the constructs were greater than 0.70 (Garver and Mentzer, 1999; Fornell and Larcker, 1981).
Some additional question items were deleted to meet these cutoff values. The final construct items are
presented in Table I below. The fit indices of the final model using first order constructs fitted the data
well (X2 = 394.056; d.f. = 161, X2/d.f. = 2.44, CFI = 0.927, GFI = 0.898, RMSEA = 0.072, IFI = 0.929,
NNFI = 0.911, and RMR = 0.047). The goodness-of-fit index (GFI) was very slightly below the
recommended minimum value of 0.90 (Garver and Mentzer, 1999). All other indices were within the
recommended values and indicated an acceptable level of unidimensionality and convergent validity (Garver and Mentzer, 1999; Hu and Bentler, 1999; Bollen, 1989). In addition, the standardized
coefficients for all the items were higher than twice of their standard errors, providing additional
support for convergent validity (Anderson and Gerbing, 1988). Besides, factor loadings for all the
question items were greater than 0.50. Moreover, average variance extracted (AVE) values for all the
measurement scales were greater than 0.50 providing additional support of convergent validity (Fornell
and Larcker, 1981). The composite reliability for all the scales were higher than 0.70 indicating a
satisfactory level of reliability (Garver and Mentzer, 1999; Fornell and Larcker, 1981).
The fit indices were re-computed using the second order construct of soft TQM and also fitted the data
reasonably well (X2 = 450.430; d.f. = 175, X2/d.f. = 2.57, CFI = 0.916, GFI = 0.892, RMSEA = 0.080,
IFI = 0.921, NNFI = 0.902, and RMR = 0.052).
Table II shows standardized factor loadings of EFA and CFA, Cronbach’s alpha values, and composite
reliability of the final constructs.
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
[Insert Table I here]
[Insert Table II here]
In order to assess discriminant validity of first order constructs, the square root of AVE value for each
construct was confirmed to be greater than the absolute correlation value between that construct and
other constructs. This criterion was met for all the constructs as shown in Table III indicating
satisfactory support of discriminant validity (Fornell and Larcker, 1981). Additionally, The AVE value
for each construct was higher than maximum shared squared variance (MSV) and average shared
squared variance (ASV) values providing further support of discriminant validity (Hair et al., 2010).
[Insert Table III here]
Finally, descriptive statistics of the final constructs were computed. In order to shed more light on the
respondents’ perceptions, descriptive statistics were computed based on the job position of the
respondents. Three main job levels have been determined: top management (general managers and
executive managers), middle management (divisional managers and head of departments), and non-
managerial positions. It is interesting to note that the perceptions of top managers regarding all the
study constructs were higher than middle managers and non-managerial levels as shown in Table IV.
This might be partially explained by the fact that respondents have different access levels to the
required information. In addition, top managers have the tendency to overstate the use of soft human
resource practices and they are more optimism in general about the use of those practices than middle managers and employees (Jiang et al., 2017).
[Insert Table IV here]
5. Results
Study hypotheses were tested using structural equation modeling (SEM) with Amos 20. SEM allows
the simultaneous testing of direct and indirect effects. The mediating effects were tested using the
bootstrapping re-sampling method (Shrout and Bolger, 2002). Bootstrapping method is suitable for
small and large samples and does not require the indirect effects to be normally distributed (Hayes,
2009). As recommended by Hayes (2013), 5,000 bootstrap samples were selected with 95% bias-
corrected confidence intervals. The bootstrapping procedure indicates that the alternative hypothesis with regard to the mediating effect is supported or rejected based on the confidence intervals. If the
lower and upper confidence intervals contain the number zero, this implies that the indirect effect is
zero with 95% confidence level and the alternative hypothesis is then rejected. If the two intervals do
not contain zero, then the alternative hypothesis is supported.
The results showed positive and significant direct effect of soft TQM on customer perspective (β =
0.644, P < 0.001), internal business process (β = 0.415, P < 0.001), innovation and learning perspective
(β = 0.623, P < 0.001), and financial perspective (β = 0.171, P < 0.05); therefore, hypotheses H1, H2,
H3, and H4 were supported. The results also revealed that the direct effect of customer perspective on
financial perspective was positive and significant (β = 0.586, P < 0.001); therefore hypothesis H5 was
also supported. However, the results showed insignificant effects of internal business process
perspective (β = 0.014, P > 0.05) and innovation and learning perspective (β = 0.081, P > 0.05) on financial perspective; therefore, hypotheses H6 and H7 were not supported.
The bootstrapping results showed that the standardized indirect effect of soft TQM on financial
perspective through customer perspective was 0.389 with confidence intervals between 0.281 and
0.523. As these confidence values do not contain zero, hypothesis H8 was supported. The standardized
indirect effect of soft TQM on financial perspective through internal business process perspective was
0.006 with confidence intervals between - 0.052 and 0.066. As these confidence values contain zero,
hypothesis H9 was not supported. Similarly, the standardized indirect effect of soft TQM on financial
perspective through innovation and learning perspective was 0.055 with confidence intervals between -
0.036 and 0.165. As these confidence values contain zero, hypothesis H10 was also not supported.
Figure 2 illustrates the results of the structural equation modeling (SEM), and Table V provides
summary of the tested hypotheses.
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
[Insert Figure 2 here]
[Insert Table V here]
6. Discussion and conclusion
6.1 Discussion
The results proved that soft TQM have a direct positive effect on customer perspective, internal
business process perspective, and innovation and learning perspective. These results are consistent with
some previous studies (e.g., Valmohammadi, 2011; Fotopoulos and Psomas, 2009; Kumar et al., 2009;
Terziovski, 2006). These findings assert that soft TQM dimensions are essential factors for enhancing
customer satisfaction. This impels that Jordanian pharmaceutical companies have a business culture
that is directed toward customers. Such a culture enables the prediction of the needs and desires of customers and thus, enhances customer satisfaction levels. In addition, it seems that Jordanian
pharmaceutical companies have an effective communication system with customers that focuses on
receiving the necessary feedback on time, which helps to understand customer complaints and
suggestions and enables companies to take corrective actions and find solutions quickly.
Soft TQM proved also to be an essential predictor of the performance of internal processes.
Management support accompanied with effective training programs for employees will boost the
improvements of internal processes through the enhancement of an individual’s performance. Such
programs enable employees to deal with different challenges they may encounter and quickly adapt to
any changes related to production processes, productivity, technology, and environment-related issues.
Pharmaceutical companies have to pay a noticeable attention to training and development programs on
an ongoing basis in order to reap the benefits that result from these programs. Furthermore, by encouraging employees to participate in decision-making processes and continuous improvement
activities, the expected output is improved internal processes. Employees often have more technical
and production information than higher management. Therefore, they are able to propose solutions and
suggestions that will considerably improve internal operations and processes. Managers should
increase employee involvement in various work areas in order to enhance different aspects of internal
processes, such as decision-making policies, improvement activities, productivity, and manufacturing
processes.
Innovation and learning perspective is also positively affected by soft TQM. Employee involvement
and the ongoing training and development programs contribute considerably to the refinement of
worker skills and increase their experience and knowledge. This situation enables employees to
effectively participate in innovation and development activities. Top management support is essential
for providing the necessary resources needed for innovation activities, providing adequate support for employees, and offering appropriate training programs. Moreover, a risk-encouraging supervisor, a
prerequisite for promoting innovation, cannot be diffused without direct support from top management.
Accordingly, well-trained and supported employees who are involved in the improvement processes
and are given a sufficient degree of freedom will be a good source of innovative ideas.
The results indicated a direct positive effect of soft TQM on the financial perspective. This result is
consistent with some previous studies (e.g., Valmohammadi, 2011; Fotopoulos and Psomas, 2010;
Kumar et al., 2009; Gadenne and Sharma, 2009; Fotopoulos and Psomas, 2009; Tharenou et al., 2007).
Top management support that leads to involved and well trained employees is expected to enhance
financial performance. Indeed, a quality program cannot succeed without a sound support of top
management. In addition, customer focus is an essential factor for improving financial performance.
Jordanian pharmaceutical companies focus on customers by improving their services, providing high quality products, and paying attention to their complaints and suggestions. These actions lead to
improved organizational reputation, increased sales, increased market share, and thus, increased profits.
Customer perspective proved to be directly and significantly related to financial performance. This is
consistent with some previous studies (e.g., Chi and Gursoy, 2009; Dimitriades, 2006). In addition,
customer perspective demonstrated a significant mediating effect between soft TQM and financial
performance relationship. Customer focus leads to winning the loyalty of customers, making them
permanent. It also helps to improve the company’s reputation, attracting new customers and leading to
increased market share, sales, and enhanced financial performance. Jordanian pharmaceutical
companies should direct TQM efforts to enhance customer perspective and customer satisfaction,
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
which in turn will improve financial performance and contribute to the company’s sustainable
competitive advantage. The innovation and learning perspective, and internal business process perspective showed an
insignificant effect on financial performance. This result is inconsistent with some previous studies
(e.g., Laforet, 2011; Fu, 2010; Jun and Cai, 2010; Eisenhardt and Martin, 2000). Moreover, the
mediating effects of these two perspectives on the relationship between soft TQM and financial
performance relationship were insignificant. These results can be explained by the fact that innovation
in the pharmaceutical industry is expensive and requires tremendous financial resources in addition to
huge expenditures to pass the trials phase. Many small companies in the industry, especially in
developing countries like Jordan, rely on the production of generic forms of patent-free medicines as
the main source for their earnings. Another source for the revenue comes from the “Licensed
Category”, permitting local companies to manufacture certain licensed drugs which otherwise will be
imported from large international companies that own them in exchange of predetermined fees. Furthermore, regarding the process for manufacturing medications or vaccines, it can be characterized
by a heavily regulated set of rules such as “Good Manufacturing Practices”. These rules are demanded
by local and international regulatory authorities to sanction the production of medicines to ensure their
safety and adherence to quality standards. This leaves little room for innovative improvements because
of the large number of restrictions and the high quality of scrutinized process to begin with. It seems
that most notable innovations in the Jordanian pharmaceutical industry come in the form of few
patented herbal medicines unique to the region representing an attempt by the local companies to
penetrate the local and some international markets.
6.2 Conclusion
In this study, a theoretical framework was developed to investigate the effects of soft TQM on
organizational performance in terms of BSC perspectives. The direct effects of BSC non-financial perspectives on the financial perspective in Jordanian pharmaceutical companies were also explored.
Additionally, the indirect effect of soft TQM on the financial perspective through BSC non-financial
perspectives were investigated.
The findings revealed that soft TQM positively affected BSC non-financial perspectives, namely,
customer perspective, internal business process perspective, and innovation and learning perspective.
Additionally, soft TQM positively affected the financial perspective. Soft TQM is proved to be an
effective strategy to improve organizational performance and Jordanian pharmaceutical companies
should intensify their implementation levels of soft TQM dimensions in order to improve their
competitive positions.
The findings demonstrated that only one non-financial perspective, customer perspective, was
positively and significantly related to financial performance. Additionally, customer perspective positively and significantly mediated the relationship between soft TQM and financial performance
Customer satisfaction represents a critical predictor of financial performance and pharmaceutical
companies should pay a considerable attention to satisfy their customers and improve their financial
results.
Two BSC non-financial perspectives, internal business process and innovation and learning were found
to insignificantly affect financial performance. Furthermore, the mediating effects of these two
perspectives on the relationship between soft TQM and financial performance were insignificant.
All in all, the overall conclusion is that soft TQM is critical to improve organizational performance of
pharmaceutical companies. In order to achieve higher financial performance, pharmaceutical
companies should put more emphasis on satisfying and pleasing their customers.
6.3 Limitations and future research
The current study has some limitations that should be taken into consideration in future studies. First,
control variables such as company size, age, process type, and technology type are not considered in
this study due to the sample size; such variables may have affected the results. Second, the study
included only the pharmaceutical industry, so the results cannot be generalized to other industries.
Future studies should investigate the proposed relationships in other manufacturing and service sectors.
Third, financial performance was measured using subjective items that were evaluated based on
respondents’ perceptions. This is due to the difficulty of obtaining objective financial data in Jordan
due to their sensitive nature. The used subjective items may not have captured all the aspects that
reflect improved financial performance. Future studies could employ financial indicators to re-examine
the proposed relationships.
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
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Figure 1 Research model
Financial
perspective
Soft TQM
Internal
process
perspective
Customer
perspective
Innovation
and learning
perspective
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
Figure 2 SEM results
Table I Measurement items
Item
number
Item descriptions (References)
Top management commitment (Yeh, 2011)
TMC1 Top management focuses on quality rather than yields.
TMC2 Top management empowers employees to take necessary action on their own.
TMC3 Top management actively participates in quality and improvement process activities.
Customer focus (Yeh, 2011)
CF2 Satisfying our customers and meeting their expectations are the most important things we
do.
CF4 Our company always conducts market research in order to collect information for
improving our products and increase customer satisfaction.
CF6 Our company conducts customer satisfaction surveys to measure customer satisfaction
and to collect complaints and opinions from customers. Employee involvement (Yeh, 2011)
EI2 Employees have the opportunity to suggest changes or modifications to existing
processes.
EI3 Employees are actively involved in improving products, services, and processes.
EI5 Employees are encouraged to fix problems they find.
Training and development (Yeh, 2011)
TD1 Training in specific work skills (technical and vocational) given to employees throughout
the company. TD5 Employees are regarded as valuable, long-term resources worthy of receiving education
and training throughout their careers.
TD6 Managers and supervisors ensure that all employees received training that helps them
understand how and why the company does what it does.
Customer perspective (Al Fayez, 2014; Mafini and Pooe, 2013)
CP1 Reputation of our company in the eyes of the customers has improved.
CP3 Company has maintained its customers and attracts new customers.
CP5 The number of customer complaints within the last three years have decreased strongly.
Innovation and learning perspective (Al Fayez, 2014; Mafini and Pooe, 2013)
Customer
perspective
Financial
perspective
Soft TQM
Innovation
and learning
perspective
Internal
process
perspective
0.644***
0.415***
0.623***
0.171**
0.586***
0.014
0.081
R2 = 0.388
R2 = 0.415
R2 = 0.172 R2 = 0.570
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
ILP1 Innovation is encouraged in our company.
ILP2 Managers promote and support innovative ideas, and creativity.
ILP5 The company empowers and supports its employees to experiment and learn.
Internal business process perspective (Al Fayez, 2014; Mafini and Pooe, 2013)
IBP1 Cross-functional communication flows easily throughout the company.
IBP4 Our products always conformed to specifications.
IBP5 Our company improved delivery time.
Financial perspective (Flynn et al., 2010)
FP3 Our company’s overall performance improved over the last three years.
FP4 Our company market share increased over the last three years.
FP5 Our company’s profitability increased over the last three years.
Table II Reliability and validity of the constructs
construct Item number EFA Loadings CFA Loadings Cronbach’s
alpha
Composite
reliability
TMC TMC1 0.738 0.744 0.727 0.746
TMC2 0.623 0.905
TMC3 0.840 0.516
CF CF2 0.735 0.740 0.852 0.856 CF4 0.886 0.837
CF6 0.919 0.864
EI EI2 0.792 0.857 0.820 0.823
EI3 0.949 0.787
EI5 0.811 0.688
TD TD1 0.870 0.685 0.810 0.822
TD5 0.697 0.806
TD6 0.845 0.839
CP CP1 0.888 0.851 0.885 0.886 CP3 0.702 0.928
CP5 0.702 0.765
ILP ILP1 0.944 0.861 0.734 0.748
ILP2 0.501 0.501
ILP5 0.711 0.731
IBPP IBP1 0.650 0.544 0.759 0.784
IBP4 0.893 0.680
IBP5 0.972 0.963
FP FP3 0.945 0.948 0.981 0.981
FP4 0.950 0.988
FP5 0.969 0.982
Soft TQMa TMCb 0.736 0.658 0.721 0.806
CFb 0.781 0.695
EIb 0.625 0.582
TDb 0.798 0.899
Notes: a: second order construct; b: second order indicators; TMC: top management commitment; CF:
Final author version Albuhisi, A.M. and Abdallah, A.B. (2018), “The impact of soft TQM on financial performance: The mediating
roles of non-financial balanced scorecard perspectives”, International Journal of Quality & Reliability Management, Vol. 35 No. 7, pp. 1360-1379.
customer focus; EI: employee involvement; TD: training and development; CP: customer perspective;
IBPP: internal business process perspective; ILP: innovation and learning perspective; FP: financial
perspective
Table III Assessment of discriminant validity
Construct AVE MSV ASV 1 2 3 4 5 6 7 8
1. TMC 0.515 0.440 0.240 0.718
2. CF 0.665 0.607 0.358 0.663 0.815
3. EI 0.609 0.490 0.214 0.257 0.293 0.780
4. TD 0.608 0.599 0.324 0.434 0.471 0.665 0.779
5.CP 0.724 0.607 0.358 0.556 0.779 0.336 0.612 0.851
6. ILP 0.509 0.489 0.325 0.530 0.314 0.700 0.706 0.492 0.713
7. IBP 0.562 0.266 0.189 0.313 0.376 0.420 0.411 0.516 0.472 0.750
8. FP 0.946 0.598 0.299 0.549 0.632 0.353 0.420 0.773 0.493 0.499 0.973
Note: Square root of AVE is on the diagonal
Table IV Descriptive statistics of study constructs
Respondents’ job level
Construct
Top
managers
n = 14
Middle
managers
n = 96
Non-managerial
employees
n = 87
Overall
mean
n = 197
Overall
standard
deviation
TMC 3.96 3.77 3.74 3.76 0.640
CF 4.03 3.55 3.72 3.65 0.789
EI 4.00 3.50 3.52 3.52 0.688
TD 4.06 3.58 3.50 3.58 0.724
CP 4.15 3.58 3.77 3.71 0.760
ILP 3.84 3.45 3.52 3.51 0.711 IBPP 4.10 3.77 4.01 3.89 0.632
FP 3.58 3.44 3.41 3.43 0.562
Note: TMC: top management commitment; CF: customer focus; EI: employee
involvement; TD: training and development; CP: customer perspective; IBPP: internal
business process perspective; ILP: innovation and learning perspective; FP: financial
perspective
Table V Summary of results
Hypothesis Path Standardized effect Result
H1 Soft TQM → CP 0.644*** Supported
H2 Soft TQM → IBPP 0.415*** Supported H3 Soft TQM → ILP 0.623*** Supported H4 Soft TQM → FP 0.171** Supported H5 CP → FP 0.586*** Supported H6 IBPP → FP 0.014 Not supported H7 ILP → FP 0.081 Not supported H8 Soft TQM → CP → FP 0.389** (indirect effect) Supported
H9 Soft TQM → IBPP → FP 0.006 (indirect effect) Not supported H10 Soft TQM → ILP → FP 0.055 (indirect effect) Not supported
Notes: ***p < 0.001; **p < 0.05; CP: customer perspective; IBPP: internal business process
perspective; ILP: innovation and learning perspective; FP: financial perspective