Quality and Performance of the Company in the Czech Republic

SUCHÁNEK, P., ŠPALEK, J.: Quality and performance of the company in the Czech Republic. Acta univ. agric. et silvic. Mendel. Brun., 2012, LX, No. 4, pp. 351–362 Quality management contributes to increasing the performance of an enterprise through the application of such working procedures which ensure in the end the output required by customers. It also ensures the realization of revenues and profi t for the enterprise. Quality is usually studied separately, whereas this analysis is focused on the elimination of confl icts and the resulting costs and ineffi ciencies in the company. Quality can also be seen in the narrower sense as a quality product which focuses on satisfying customer requirements. It is clear that quality management in the enterprise must lead to a quality product and customer satisfaction. Performance is also usually examined separately using the tools of fi nancial analysis (mainly ratios). What is lacking in research to date is the clear and conclusive interconnection of quality and performance and its parameters. The subject of this paper is the analysis of quality (with emphasis on product quality) and its infl uence on business performance (represented by selected fi nancial ratios). The aim of this article is to fi nd the level of product quality in a company and identify those quality factors aff ecting a company’s performance. The resulting interconnection of the parameters of quality and performance should guarantee that the infl uence (selected parameters) will be refl ected in the quality of business performance possible through the simultaneous management of quality control and infl uence on future business performance. quality, performance, fi nancial analysis, cluster analysis, customer satisfaction A number of authors deal with the quality and business performance of a company; however, their interpretation of quality in terms of a company is very comprehensive (for example Kaplan and Norton, 1992 or Madu, Kuei, Jacob, 1996). Other authors analyze the quality of a company through customer satisfaction, but they do not provide any quality concept within the company despite the fact that the connection with a performance is rather loose in this case (for example Parasuraman, Zeithaml, Berry, 1988). Our research focuses on examining product quality and customer satisfaction in a company product. We associate the observed level of quality with the performance of a company. This enables us to identify those quality factors directly aff ecting a company’s performance. The aim of this article is to fi nd the level of product quality in a company and to identify those quality factors that aff ect a company’s performance. The sample data we use come from Czech companies. Specialized studies of a similar kind which would examine the relationship between quality and performance are very rare in the Czech Republic; our research therefore aims to contribute to fi ll in the gap. The presented analysis is an output of the ongoing research of the research team. Previous results illustrated that most companies in the Czech Republic consider the quality of their products or services as superior. At the same time, these companies are aware of the positive impact of the superior quality of their products on the effi ciency of their company (see Blažek et al., 2009 or Špalek, Částek, 2010, for further information). However, these conclusions do not provide evidence concerning other aspects of company performances which could even refl ect quality management. 352 P. Suchánek, J. Špalek 1 THEORETICAL FRAMEWORK Company performance can be measured in many diff erent ways. A usual approach is to evaluate the performance though fi nancial ratios such as return on investment (Duchesneau and Gartner, 1990; Smith, Bracker and Miner, 1987), return on sales (Kean et al., 1998), or return on equity (Richard, 2000; Barney, 1991). In the case of a new company without a profi t history, we can use the current amount of revenues or more commonly the number of employees (Orser, Hogarth, Riding, 2000; Mohr, Spekman, 1994; Robinson, Sexton, 1994; Srinavasan, Woo, Cooper, 1994; Loscocco, Leicht, 1993; Davidson, 1991; O’Farrel, 1986). Moreover, there are other opportunities of how to evaluate company performance: dynamic variables such as improvement in ROI over time (Miller, Wilson, Adams, 1988), other fi nancial ratios such as revenues/income per worker (Johannison, 1993; Bade, 1986), or liquidity and sale volume (Deng, Dart, 1994). While defi ning the term quality, it is necessary to note that a single correct defi nition of what quality exactly is does not exist. For example, Garvin (Garvin, 1987; Garvin, 1984) defi nes fi ve basic building blocks of quality together with its eight dimensions, whose meeting is critical for considering production quality or even the quality of a company itself. When empirically verifying the relationships between the application of quality management and company performance, we have to take into account the fact that when looking for causal relationships, it is necessary to work with quality perception and not with its objective operationalization. The reason is the customers’ subjective quality assessment as their opinion is the basis for their decision to buy, which is the basic building block of fi nancial indicators. The best way to increase company performance is therefore to increase quality, which is a result of a well-realized business strategy. According to Japanese philosophy, quality is a zero defect – doing it right the fi rst time (Parasuraman, Zeithaml, Berrry, 1985). Crosby defi nes quality as conformance to requirements (Crosby, 1979 reference from Parasuraman, Zeithaml, Berrry, 1985). This concept of quality makes a core of the defi nition of quality according to ISO 9001 (compare with ČSN EN ISO 9001 ed. 2, 2010). Companies operating in industry perceive quality in accordance with this aforementioned, generally accepted defi nition, as a degree of meeting requirements by a set of inherent traits. Existing models of quality assessment are not directly associated with performance, or they are not directly linked to business performance indicators. An exception in this respect is Everett, who conducted extensive research with his team on the approaches to quality improvement including business performance. It was found that the fi nancial indicator of business performance measured by ROA depends on three factors: knowledge of quality, senior management involvement, and employee compensation and recognition (Everest et al., 1997). These factors stem from a generally recognized quality model in which the authors agree on eight fundamental quality factors: the role of top management leadership, the role of the quality department, training, product or service design, supplier quality management, process management, quality data and reporting, and employee relations (Saraph, Benson, Schroeder, 1989). Quality data and reporting is understood as monitoring costs associated with quality measuring, an information system, and methods aimed at determining the level of quality; however, the last factor does not directly include indicators of company performance. Given the fact that this model focuses only on the quality of management, it was extended to include product and process factors (rate of product/process change, degree of manufacturing content, proportion of product/service purchased by an outsider, extent of batch vs. continuous process, product complexity) as well as factors related to the market (the degree of competition, the extent of barriers to entry into the industry, the extent of quality demands by customers, the extent of government quality regulation) (Saraph, Benson, Schroeder, 1991). Even here, however, the standard indicators of business performance are not mentioned.