the impact of soft tqm on financial performance: the

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

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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

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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;

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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).

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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

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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

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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.

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[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.

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[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,

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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.

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Figure 1 Research model

Financial

perspective

Soft TQM

Internal

process

perspective

Customer

perspective

Innovation

and learning

perspective

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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

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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:

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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

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the impact of soft tqm on financial performance: the

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