Tourism Analysis, Vol. 17, pp. 195–211 1083-5423/12 $60.00 + .

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Competition, total quality management practices,

and performance: evidence from upscale hotels

Anoop Patiar,* Michael C. G. Davidson,† and Ying Wang†

Department of Tourism, Leisure, Hotel and Sport Management, Nathan Campus,

*

Griffith University, QLD, Australia

†Department of Tourism, Leisure, Hotel and Sport Management, Gold Coast Campus,
Griffith University, QLD, Australia

Hotels operate in a highly competitive market and therefore place a strong emphasis on quality man-
agement in order to gain/maintain competitiveness. This research examined the relationship between
total quality management (TQM), market competition, and hotel departmental financial and nonfi-
nancial performance. The data were collected from a sample of Australian and Indian hotels using a
self-administered postal survey. The results suggested that while TQM and market competition had
a direct interactive effect on hotel departmental nonfinancial performance, the effect on the financial
performance was indirect. It was also suggested that those hotels subscribing to TQM philosophy
were more likely to thrive on competition.

Key words: Total quality management (TQM); Market competition; Departmental performance; Hotels

Introduction low-cost leadership through discounting; and qual-

ity based, by providing customers with a unique
The hospitality industry has experienced contin- experience to achieve customer loyalty. Although
uous expansion over the last three decades to the former helps increase a hotel’s market share in
become one of the world’s largest industries in the short term, it may negatively impact on profit-
terms of creating employment and assisting in earn- ability in the long term (Kandampully & Suhartanto,
ing invisible exports (Leiper, 2003). At the same 2000). Many hotels therefore have turned to quality
time, competition in this industry has become improvement for achieving a competitive advan-
increasingly intensified (Ingram & Daskalakis, tage (Ingram & Daskalakis, 1999).
1999; Kandampully & Suhartanto, 2000). The way In recent decades three main approaches to qual-
in which hotels gain a competitive edge falls into ity management have been the focus of research
two main categories: price based, by establishing a and application. The ISO 9000 standard introduced

Address correspondence to Anoop Patiar, Department of Tourism, Leisure, Hotel and Sport Management, Nathan Campus, Griffith
University, QLD 4111 Australia. E-mail: a.patiar@griffith.edu.au

195
196 Patiar, DAVIDSON, AND WANG

by the International Standards Organization in characteristics (i.e., remote island resorts and busi-
1987 focuses on business processes rather than out- ness hotels in metropolitan areas). The use of man-
comes. The ISO 9000 quality standard has not been agement contracts is extensive in this industry,
popular, particularly among hotels, because it resulting in the separation of ownership from man-
requires formal procedures to be developed for the agement and operation, which is not commonly
implementation and control of all aspects of busi- seen in other service sectors. Additionally, the hotel
ness operations (Ingram & Daskalakis, 1999). In industry has features of both a manufacturing and a
the UK, the BS 5750 is an alternative to ISO 9000 service industry, with the production and consump-
with some hotel subscriptions (Callan, 1992). tion processes taking place simultaneously on the
SERVQUAL is perhaps the most popular approach same premises. The unique characteristics of the
used for measuring service quality and has been hotel industry imply a high level of sophistication
developed from the expectancy disconfirmation in the operation that may impact on business pro-
theory. SERVQUAL views service quality as the cesses and quality management (Yu, 2008). A
outcome of customer comparison between expecta- study dedicated to the hotel industry is there-
tions and perceived service in five dimensions: tan- fore warranted.
gibles, reliability, responsiveness, assurance, and TQM’s impact on organizational performance
empathy. It helps identify sources of quality defi- has been investigated vigorously in a broad context
ciency, and subsequent strategies for quality improve- but to a much less extent in the hospitality industry.
ment (Parasuraman, Zeithaml, & Berry, 1985; Empirical findings generally support the proposi-
Zeithaml, Parasuraman, & Berry, 1990). However, tion that TQM leads to overall performance
understanding customer expectations has been improvement (i.e., Aarts & Vos, 2001; Feng,
shown to be problematic; customers either do not Prajogo, Tan, & Sohal, 2006; Harrington &
know what they want or do not give a clear indica- Akehurst, 1996; Nield & Kozak, 1999; Santos-
tion of what they want (Lim & Tang, 2000). Vijande & Álvarez-González, 2007; Sit, Ooi, Lin,
Another group of studies has focused on the & Chong, 2009). However, there is no clear conclu-
application of total quality management (TQM). sion with regard to whether TQM has direct profit
This approach emphasizes not only the quality implications (Kaynak, 2003). Literature also sug-
management system itself as in ISO 9000, but also gests that TQM interacts with organizational char-
includes supporting systems such as strategic plan- acteristics and environmental factors to jointly
ning systems, information systems, and operational affect organizational/departmental performance.
systems. The relevance of such a holistic approach Nevertheless, there is a lack of empirical examina-
is apparent for hotels, because hotel patrons judge tion in this regard (Nair, 2006). Hence, a number of
service quality of accommodation and food and gaps such as knowledge of TQM’s application and
beverage outlets as an overall experience, rather its relevance to the hotel sector need to be addressed.
than the aggregation of individual service elements The first gap was revealed in our literature search
(Wilkins, Merrilees, & Herington, 2007). While that limited studies examined the drivers of perfor-
TQM has received increasing emphasis in research mance in hotels. For instance, Patiar and Mia
studies in a general management context, little has (2008a) found that nonfinancial performance
been applied to the tourism and hospitality indus- improved when managers perceived high intensity
try, and in particular, to the hotel sector. of competition and made an extensive use of man-
The hotel industry is distinctly different from agement accounting systems (MAS) information.
other service sectors (e.g., banks and retail shops). Similarly, Patiar and Mia (2009) reported that as
Particularly at the upper end of the hotel industry, managers were empowered, particularly working
which has much broader international footprint under transformational leaders, they made greater
than other services sectors, major hotel brands and use of MAS information resulting in optimized
subbrands own properties in locations throughout nonfinancial performance. To enrich the hospitality
both the developed and developing countries. Even literature and assist practicing managers, other
under the same brand/subbrand, there are several drivers of performance such as TQM (a compre-
types of operation with differentiated staffing hensive set of management techniques, see more
 hotel total quality management practices 197

details under Literature Review) should also be 1980s for both internal and external reasons.
examined. Secondly, the research effort on TQM in Internally, hotels wanted to reduce costs and defects
service sectors has not matched the increasing to improve effectiveness and efficiency, and to
importance of these sectors—in particular the tour- make quality culture a focal point for management
ism and hospitality industry—and as Wilkins et al. (Claver, Tarí, & Pereira, 2006). Externally, hotels
(2007) noted, there is limited research on service faced increased competition and ever more
quality in hotels. Thirdly, studies in hospitality and demanding consumers. It was perceived that qual-
tourism sectors have focused on individual dimen- ity management programs could help enhance hotel
sions of TQM, mainly the human resource manage- corporate image and enable them to adapt to market
ment aspect (Sila & Ebrahimpour, 2002). However, needs, and to attract new customers (Chacko,
service quality is a holistic concept that demands a Davidson, & Green, 2005). In other words, the
holistic total service quality approach (Wilkins et impact of quality management on hotels’ perfor-
al., 2007). Fourthly, empirical findings of the TQM mance was seen as improving internal processes
and performance links are not conclusive, calling and applying aggressive marketing techniques
for more research to investigate the impact of TQM (Claver et al., 2006). In addition to the various
on organizational performance (Kaynak, 2003; Sila approaches to quality management, TQM has been
& Ebrahimpour, 2002). Finally, there is a lack of shown to provide a basis for a sustainable business
empirical findings related to examining the effects (Flynn, Schroeder, & Sakakibara, 1994).
of environmental and organizational factors on the
effectiveness of TQM (Chong & Rundus, 2004;
Total Quality Management
Hendricks & Singhal, 2001; Nair, 2006; Santos-
Vijande & Álvarez-González, 2007; Sila & Although there are variations in the constituent
Ebrahimpour, 2002; Zeithaml, 2000). components of TQM, the Malcolm Baldrige
To address the identified gaps and in particular National Quality Award (MBNQA), originating in
extend Patiar and Mia’s (2008a, 2009) works, more the US, has been used by many as the best research
studies are needed to reveal how market competi- framework for an interdisciplinary approach (i.e.,
tion exerts its influence. This study aims to investi- Curkovic, Melnyk, Calantone, & Handfield, 2000;
gate the relationships between TQM, market Kuo, Chang, Hung, & Lin, 2009; Wilson & Collier,
competition, and departmental performance in large 2000). MBNQA sees TQM as a comprehensive
four- and five-star hotels in Australia and India. By amalgamation of several quality management prac-
proposing and testing an interaction effect of TQM tices and outcomes: leadership; information and
and market competition on hotels departments’ analysis; strategic quality planning; human resource
comprehensive performance, it extends TQM development and management; management of
knowledge in a hospitality context and attempts to process quality; customer focus and satisfaction;
fill the existing knowledge gaps as discussed above. and quality and operational results (Rao et al.,
This article is divided into the following sec- 1996). These components are used collectively to
tions. A review of literature on the relationships stimulate quality improvement and support the
between TQM, market competition, and compre- continuous development of organizational capabil-
hensive performance is presented, leading to the ity, which together, gives an organization competi-
development of two research hypotheses. After tive advantage (Flynn et al., 1994).
detailing the research methods and data analysis Founded on the MBNQA, the European Foun­da­
procedure, the results and their implications for the tion for Quality Management (EFQM) developed
hotel industry are discussed. The article concludes another holistic quality management framework
with a discussion of the series of findings and the that has nine criteria divided into enablers (leader-
directions for future research. ship, people management, policy and strategy, part-
nerships and resource, processes) and results
Literature Review (people results, customer results, society results,
The hotel sector began focusing on the concerns and key performance results). With many parallels
for product and service quality management in the with the MBNQA, the EFQM model also focuses
198 Patiar, DAVIDSON, AND WANG

on total quality and accentuates organizational In addition, there are a range of impediments
excellence and continuous improvement (Nabitz, such as fear of losing management prerogatives at
Klazinga, & Walburg, 2000). A number of other supervisory level and a range of structural factors
studies aimed at developing reliable measurement (i.e., turnover, job insecurity, distrust towards man-
of quality management constructs, for instance, agement fuelled by job insecurity and industrial
Saraph, Benson, and Schroeder (1989), Flynn et al. conflict) that were found to have negatively influ-
(1994), and Flynn and Saladin (2001, 2006). enced effective TQM practices. According to
Hotels have increasingly embraced TQM as a Baldacchino (1995), Day (1994), Rao et al. (1996),
way to gain competitiveness. For instance, the Ritz- and Sila and Ebrahimpour (2002), lack of leader-
Carlton Hotel Chain adopted TQM practice and has ship, narrowly focused training, no long-term orga-
achieved exceptional customer service, winning nizational commitment, lack of customer focus,
the MBNQA twice in the recent years. TQM has and the use of generic TQM models have a nega-
helped the hotel group to achieve exceptional cus- tive impact on the successful implementation of
tomer service (Wylie, 2009). According to Claver quality initiatives.
et al. (2006), hotels that developed quality manage-
ment systems to create and maintain a quality
TQM and Departmental Performance
image in the market, start on the right pathway to
Total Quality (TQ) and improve service quality. TQM is deployed by organizations for its ability
However, there is evidence of limited research on to enable better performance, a multiple-faceted
TQM in the hospitality and tourism industry (Sila & construct that has been measured by financial per-
Ebrahimpour, 2002). Researchers have also ques- formance (i.e., market share, sales per employee,
tioned the genuineness of TQM application in hotels, return on assets, and return on capital), operational
claiming that some hotels were paying only lip ser- performance (i.e., errors, cost savings, timeliness of
vice. It was sometimes more ritualistic and hypo- delivery), product quality, customer service and
critical than practical and genuine (Baldacchino, satisfaction (i.e., overall satisfaction, customer
1995), and failed to take a holistic approach complaints, customer retention), and employee
(Harrington & Akehurst, 1996). relations (i.e., extent of workforce participation)
Overall, TQM provides positive benefits in terms (Nair, 2006; Rao et al., 1996). Dimensions of per-
of reduced cost, increased market share, and formance may be grouped into two categories:
improved profitability to organizations. It has been financial and nonfinancial. The former reflects
found useful in both small and large companies, managers’ ability to operate under resource and
and in both service- and manufacturing-oriented budget capacity, and the latter indicates their ability
companies (Rao et al., 1996). Its effectiveness, to manage staff and customer satisfaction (Patiar &
however, varies to different degrees depending on Mia, 2008a, 2009). Researchers have agreed that
organizational characteristics. For instance, the subjective nonfinancial performance should not be
effectiveness of TQM programs was found to be interpreted as a convenient substitute for financial
strongly linked to organizational structure (Tata, performance (Harris, 2001). Instead, an effective
Prasad, & Thorn, 1999) and Arasli (2002) found performance measurement system should incorpo-
that four-star hotels were more successful than rate suitable financial and nonfinancial indicators
five-star hotels in transitioning to TQM policies (Patiar & Mia, 2008a).
and implementations. Tarí, Claver-Cortés, Pereira- TQM may impact on financial performance
Moliner, and Molina-Azoín (2010) also suggested either directly or indirectly. The direct link is estab-
a significant association between organizational lished through cost reduction resulting from quality
characteristics and hotels’ commitment to quality improvement, while the indirect link is established
management. Hotels having a higher star rating, through better customer satisfaction and subse-
more rooms, more facilities, a higher room rate, quently improved financial performance (Rust,
and chain affiliation to a greater extent were found Zahorik, & Keiningham, 1995). Prior research that
to be more proactive in quality management. analyzed the direct relationship between TQM and
 hotel total quality management practices 199

organizational financial performance has shown 1999). Expenditure on improvement is also associ-
mixed results (i.e., see Kaynak, 2003 for a review ated with a diminishing return on investment. It can
of studies on the TQM–performance link). help improve profitability to a certain point, but
Although some studies (Buzzell & Gale, 1987, past that point, further investment is unprofitable
cited in Harrington & Akehurst, 1996; Chow-Chua, (Rust et al., 1995). Additionally, although quality
Goh, & Wan, 2003; Rust et al., 1995) noted a posi- improvements are often expected to result in lower
tive relationship between quality management and costs, this is more likely to be observed in manufac-
financial return, others (i.e., Aaker & Jacobson, turing fields and the more standardized services
1994; Aarts & Vos, 2001; Wilson & Collier, 2000; such as the fast food industry. Highly service-ori-
see Zeithaml, 2000 for more studies) failed to ver- ented businesses like luxury hotels are less likely to
ify such a proposition. benefit as customization of services toward a
Among the above mentioned studies, Rust et al. sophisticated market prevents economies of scale
(1995) found that investment on effort of quality making quality practice less cost-effective in those
improvement generated a healthy return of 44% organizations (Rust et al., 1995).
over a period of 3 years. Buzzell and Gale (1987, As for its influence on nonfinancial performance,
cited in Harrington & Akehurst, 1996) revealed a in service-oriented organizations, quality manage-
positive relationship between perceived quality and ment results in improved customer service, which
profitability. However, the majority of organiza- offers organizations two benefits: a higher cus-
tions included in their study were situated in the tomer retention rate, because existing customers
manufacturing industries. It is not clear whether the are highly satisfied and are inclined to come back,
results are applicable to services sectors. A study and an ability to attract new customers through
by Powell (1995) implied that, although managers word of mouth and the opportunities to reposi-
in the manufacturing industry reported higher satis- tion themselves by advertising quality of service
faction with their TQM programs than firms in the (Ekinci, 2008; Rust et al., 1995). These benefits
services sector, they did not enjoy greater financial have been validated in many tourism and hospital-
performance. On the other hand, Aaker and ity studies that found significant links between ser-
Jacobson (1994) claimed that expenditure on qual- vice quality/satisfaction and behavioral intention
ity management does not have obvious profit impli- (i.e., Kandampully & Suhartanto, 2000; Zeithaml,
cations. Aarts and Vos (2001) further added that Berry, & Parasuraman, 1996). These benefits and
ISO-registered organizations performed below a possible cost reduction jointly contribute to
average in the capital market. In a hotel service greater profitability.
quality context, Harrington and Akehurst (1996) The ability of quality management to influence
found hotels that subscribed to service quality phi- nonfinancial performance has been empirically
losophy did not seem to have outperformed those tested. Feng et al. (2006) and Santos-Vijande and
that did not in either financial or competitive terms. Álvarez-González (2007) both found that TQM
Likewise, Walker and Salameh (1990) reported enabled organizations to have a greater capacity for
that quality management in hotels had the greatest innovation. Wilson and Collier (2000) reported that
positive effect on employee satisfaction, but its although top management commitment to TQM
effect on profit margins was not significant. was not directly related to financial and customer
The mixed picture painted by these studies may satisfaction performance, it drove system perfor-
be attributable to the fact that implementing a qual- mance, hence influenced overall performance indi-
ity management system entails additional resources, rectly through an improved business process.
at least in the short term. These resources are both Studies conducted in a service or hospitality con-
monetary and nonmonetary, such as the cost of text have generally supported the link between
obtaining a quality certification, the time used in quality management and nonfinancial performance.
implementing quality systems, a greater opera- In Malaysia’s services sector, Sit et al. (2009)
tional bureaucracy, and employee development found that TQM dimensions of leadership, cus-
(Ingram & Daskalakis, 1999; Nield & Kozak, tomer focus, information and analysis, and human
200 Patiar, DAVIDSON, AND WANG

resource focus had a positive association with cus- stronger position to attract potential customers to
tomer satisfaction. Quality management practices repeatedly buy their products and services than
were found to produce tangible benefits for hospi- those that have poor quality products and services.
tality organizations through an improved operating Moreover, in the competitive environment, manag-
system (Nield & Kozak, 1999) and resulted in ers have pressure to effectively manage their costs
remarkable improvement in service quality and as hotels are labor intensive businesses. TQM
customer satisfaction, decreased costs and increased implementation can assist in achieving the cost sav-
sales, and competitive position (Claver et al., 2006). ing objective. If managers perceive low intensity of
They also found that quality management’s impact market competition, they would sell their products
on financial performance was the least obvious and services with little effort. Therefore, it is argued
among all performance dimensions. Similarly, the in this article that when managers perceive uncer-
study by Claver-Cortés, Pereira-Moliner, Tarí, and tainty in the work environment (i.e., intense market
Molina-Azoín (2008) on Spanish hotels showed competition also gives rise to considerable uncer-
positive influence of TQM on competitive perfor- tainty), they will need to embrace more innovative
mance and stakeholder satisfaction, but no such systems and ideas for their businesses survival
influence on financial performance. More impor- (Chong & Eggleton, 2003; Chong & Rundus,
tantly, Nair (2006) conducted a meta-analysis on 2004; Gul & Chia, 1994; Mia & Clarke, 1999;
studies focusing on the relationship between qual- Simons, 1990).
ity management practices and organizational per- TQM’s relationship with market orientation is
formance, and reaffirmed the positive role of quality explicitly shown by its emphasis on customer satis-
management in overall performance improvement. faction. As defined by Schonberger (1992), TQM is
As previously discussed, TQM’s nonfinancial “a set of concepts and tools for getting all employ-
benefits combined with cost reduction may lead to ees focused on continuous improvement, in the
an improved financial performance. Based on the eyes of the customer—the next process as well as
above discussion, it is logical to assume that in a the final consumer” (p. 17). The increased competi-
hotel context, TQM may have a positive and direct tion that hotels are facing results in a stronger focus
impact on hotel financial performance as well as an on customer needs and product design in a bid to
indirect impact on financial performance existing gain competitive advantages through enhancing
through nonfinancial performance. customer satisfaction (Banker, Lee, Potter, &
Srinivasan, 1996).
For long-term survival, a competitive organiza-
TQM, Market Competition, and Performance
tion must be able to accurately understand the envi-
Market competition is “essentially strife in the ronment it is operating in, to satisfy market needs,
market place” (Khandwalla, 1972, p. 276); it may and to continuously adapt to new market rules
be measured in three aspects: the intensity of price (Santos-Vijande & Álvarez-González, 2007). This
competition, the intensity of competition in promo- requires the organization to have a superior market
tion, as well as the intensity of competition in prod- sensing capacity that determines its ability to sense
uct and service quality (Khandwalla, 1972; Patiar and respond to changes in the market, and customer
& Mia, 2008a). As one of the key situational fac- linking capacity that refers to the skills, abilities,
tors in the external operating environment, market and processes in place to achieve collaborative cus-
competition prompts organizations to adopt TQM tomer relationships and to respond to customer
practices so managers could deal with threats and needs. TQM offers a rich array of tools that empha-
challenges presented by their competitors (Chong size an individual’s empowerment and management
& Rundus, 2004) and achieve better control of cost, to achieve incremental but continuous improvement
production, marketing, and finance (Khandwalla, in business processes. It also provides guidance on the
1972). design of an effective change program to build these
Indeed, in the competitive environment, hotel capacities and enables the organization to become
businesses that have robust quality products and market oriented (Day, 1994). Since the quality stan-
services are more likely to find themselves in a dard an organization adopts is benchmarked by that
 hotel total quality management practices 201

of its competitors (Chong & Rundus, 2004), the competition and TQM practices in hotels (Patiar &
organization’s decision to improve quality through Mia, 2008a).
TQM is influenced by its competitors and the inten- In summary, to achieve optimal performance, an
sity of market competition. organization must align with its environment where
A number of studies have attempted to examine the intensity of market competition is an important
how market competition and TQM interact with component that affects the deployment and effec-
each other to impact on organizational performance. tiveness of quality management practices. Likewise,
Chong and Rundus (2004) found that TQM practices the use of TQM also affects an organization’s abil-
in general were not significantly related to nonfinan- ity to respond to competition.
cial organizational performance, but they had signifi- It is therefore logical to assume an interaction
cant impact on organizations operating in a highly effect of TQM and market competition on perfor-
competitive environment, and “the higher the degree mance. Hence, two hypotheses have been devel-
of market competition, the more positive the rela- oped to test this effect.
tionship between the TQM practices of customer
H1: There is an interaction effect of TQM and the
focus and organizational performance” (p. 155).
intensity of market competition on hotel
This implies a two-way interaction (combined
departmental financial performance.
effect) between TQM and market competition to
H2: There is an interaction effect of TQM and the
impact on an organization’s nonfinancial perfor-
intensity of market competition on hotel
mance. Santos-Vijande and Álvarez-González
departmental nonfinancial performance.
(2007) asserted that TQM assists in creating an
organizational culture that is receptive to innova-
Research Methods
tion and its impact on innovation varies consider-
ably under different levels of market competition. To collect data, a questionnaire was adminis-
Under stronger market competition, TQM exerts a tered to a sample of hotels in Australia and India.
direct effect on technical innovation that is not the Large four- and five-star hotels and resorts with
case within the more stable markets. Similarly, more than 140 bedrooms were chosen as the
Das, Handfield, Calantone, and Ghosh (2000) research subjects as these hotels are more likely
found international competition to impact on the to have a departmental management structure.
relationship between quality management and cus- Research suggests that such large luxury hotels and
tomer satisfaction performance. resorts are in a stronger position to adopt TQM, a
Focusing on the hotel sector, Patiar and Mia process that requires special knowledge, skill, and
(2008a) extended the investigation to the hotel substantial investment in time, cost, and other
industry and found that the extent of market com- resources (Arasli, 2002). The study focused on
petition and departmental financial performance departmental performance and senior managers of
are negatively related implying that being profit- the two major profit centers (i.e., in term of size,
able is more difficult in a highly competitive envi- number of employees, and budget): Food and
ronment. The study also revealed a combined effect Beverage Department and Room Division were tar-
of market competition and the use of management geted in the survey. This is supported by Patiar and
accounting systems (MAS), which reflects a hotel’s Mia (2009), who argue that hotels and resorts oper-
practice in the information and analysis dimension ating departments, namely food and beverage
of quality management, on nonfinancial perfor- departments and room departments, are the key
mance of departments; however, there was no such contributor of hotels’ sales revenue and the major
effect on the financial performance. The authors source of employment. Moreover, Food and
attributed this to a lack of control of cost and an Beverage and Room Department managers are an
ability to generate revenue independently at the integral part of a hotel’s executive management
departmental level. The above studies focused on team, and have complete responsibility of effec-
single dimensions of TQM. It has also been noted tively managing the operations and the operating
that there has been a limited effort to investi- budgets. Ethics approval for the study was obtained
gate the link between the intensity of market from the University Ethics Committee in 2008.
202 Patiar, DAVIDSON, AND WANG

In recognition that top management interest in difference in the mean scores of TQM, competition,
the research is critical to secure a desirable response and department performances. Accord­ingly, both
rate, data collection followed a two-stage proce- sets of first and second questionnaires were com-
dure. Initial contact was made with 285 four- and bined and used to analyze the data.
five-star hotels and resorts in Australia (165) and
India (120) identified from the hotel guides. TQM Practices
Telephone calls to each general manager were Department managers’ use of TQM was mea-
made to explain the purpose of the research and to sured on a multi-item Likert-type scale adapted
seek permission to allow their Food and Beverage from Flynn et al. (1994) and Flynn and Saladin
and Room Department managers to participate in (2001, 2006). Following the MBNQA framework,
the study. Following the telephone contact with the these studies identified key TQM constructs and
general managers’ office, 90 hotels in Australia and developed measurement scales based on extensive
75 hotels in India confirmed willingness to partici- literature reviews and empirical testing of reliabil-
pate in the study. A questionnaire package was ity and validity. The prime reason for adapting
mailed to only those hotels. Flynn et al. (1994) and Flynn and Saladin (2001,
The questionnaire was based on the relevant lit- 2006) instrument in this study was due to its practi-
erature and appraised for reliability prior to hypoth- cal relevance to the hotel operations (i.e., food and
esis testing. The questionnaire included sections of beverage and rooms) resembling manufacturing as
multiple-item Likert scale measurements of TQM well as services processes. The final TQM scale
practices, market competition, and departmental contained six subscales that measure various dimen-
performance, as well as demographic details of sions of TQM in hotels, including leadership behav-
managers and hotels. To improve its relevance and iors, people management, identification of customer
reliability, the questionnaire was pilot tested on needs, planning and control dimensions, infor­mation
three department managers from four- and five-star and analysis, and process management. Managers
hotels and on three hospitality management aca- were asked to rate the extent of their usage of vari-
demics. Managers who participated in the pilot test ous TQM practices on 5-point scales ranging from 1
were excluded from the final sample. “sometimes” to 5 “always.” For example, “in my
The package contained a questionnaire for each hotel everyone’s involvement is encouraged to pro-
Food and Beverage and Room Department man- vide quality products and services.”
ager, a prepaid return envelope, and an informa- A literature search uncovered that the use of
tion sheet outlining the research objectives, multiple dimensions of TQM (Das et al., 2000;
explaining the importance of the study and ensur- Feng et al., 2006; Jun, Cai, & Shin, 2006; Nilsson,
ing confidentiality. Each respondent was asked to Johnson, & Gustafsson, 2001; Wilson & Collier,
assess their respective departmental performance, 2000) as well as a single dimension to examine its
use of TQM practices, and the perceived intensity effect on performance (Douglas & Judge, 2001;
of market competition. Easton & Jarrell, 1998; Kaynak, 2003; Powel,
A usable response was received from a total of 1995; Sila, 2007). Consistent with the approach of
57 hotels (114 department managers) in Australia Douglas and Judge (2001), Easton and Jarrell
and a total of 30 hotels (59 department managers) (1998), Kaynak (2003), Powel (1995), and Sila
in India. This provided an overall response rate of (2007), mean of the items was taken to represent
30% (Australia 34.5% and India 25%, respec- the extent of TQM practice in hotels. Cronbach
tively). Consistent with Oppenheim (1996) and alpha of 0.96 for TQM is comparable with other
Wallace and Mellor’s (1988) approach to establish researchers results and suggest the instrument is
nonresponse bias of returned questionnaires reliable (Nunnally, 1978). See Table 2 for the
received after the first and the second mailing, a descriptive statistics and the reliability scores.
t-test was performed to determine if there was a
significant difference between the responses Performance
received through the first and second mailings. The Departmental performance was measured on
results indicated that there were no significant an eight-item scale adapted from Gupta and
 hotel total quality management practices 203

Govindarajan (1984). The scale was validated by terms of products and services charged by their
Patiar and Mia (2008a, 2009). The eight items were competitors, the quality of competitor products and
related to operational innovation, revenue increase, services, and the marketing efforts of the competi-
rooms occupancy/food and beverage outlets occu- tors. A factor analysis extracted a single-factor
pancy levels, average room rate/average customer solution, explaining 67.8% of the total variance and
spending in food and beverage outlets, repeat busi- with a Cronbach alpha coefficient of 0.74, indicat-
ness, staff training and development, staff morale, ing the reliability of this construct (Nunnally,
and operating budget. Respondents were asked to 1978). Responses were measured on 5-point scales
rate how satisfied they had been with their depart- with 1 being “not difficult at all” to 5 “extremely
ment’s performance on 5-point Likert-type scales difficult.” Market competition was calculated as
from 1 “not at all satisfactory” to 5 “highly satisfac- the mean of the three items. See Table 2 for the
tory.” A factor analysis extracted two factors, with descriptive statistics and the reliability scores.
financial indicators grouped in one factor and non-
financial indicators in the other, and explaining Research Model and Testing Procedure
59.2% of the total variance. The Cronbach’s alpha
As mentioned earlier, the means of the measure-
test statistics for the two factors were 0.80 and 0.76,
ments for TQM, market competition, and financial
respectively, indicating that the measurements
and nonfinancial performances were computed to
were reliable (Nunnally, 1978). The factor means
be used in hypothesis testing. In this study, hypoth-
were used in hypothesis testing for financial and
eses involving hotel managers’ perception of mar-
nonfinancial performances. See Table 2 for the
ket competition and their use of TQM practice were
descriptive statistics and the reliability scores.
formulated to assess the two-way interaction effect
While some literature criticizes the use of sub-
on hotel departments’ financial and nonfinancial
jective performance measurement on the basis of
performances. The following multiple regression
its soft measures and managers’ self-reporting of
equations were used to test the hypotheses.
performance owing to the leniency bias. There is an
extant literature that advocates no notable empiri-
Yi = β0 + β1C + β2Q + β3CQ + ε (1)
cal differences between objective and subjective
measures of performance (Covin, 1991; Dess & Yii = β0 + β1C + β2Q + β3CQ + ε (2)
Robinson, 1984) as well as between senior manag-
ers’ evaluation of their subordinates’ performance where C = competition, Q = TQM practice, Yi =
and subordinates’ self-reporting of their perfor- financial performance; Yii = nonfinancial perfor-
mance (Heneman, 1974; Patiar & Mia, 2008b; mance, CQ = competition and TQM practice inter-
Venkatraman & Ramnujan, 1987). Hence, consis- action, and ε = error term.
tent with the published literature, the decision was As can be seen in the two equations, this study
made to use the subjective measures of perfor- adopted a multiplicative form of interactive effect
mance and the self-reporting of performance evalu- and the interaction variables were constructed by
ation (Gul, 1991; Gul, Tsui, Fong, & Kwok, 1995; multiplying the scores of TQM and market compe-
Jogaratnam, Tse, & Olsen, 1999; Patiar & Mia, tition. Responses to the questionnaires were ana-
2008b; Tsui, 2001). lyzed using the SPSS 17 statistical package and the
results are detailed in the following section.
Market Competition
Results
Market competition was measured by a three-
Descriptive Statistics
item scale adapted from Khandawalla (1972) and
validated by Patiar and Mia (2008a, 2009) where The sample comprises the Food and Beverage
intensity of market competition was reflected in Department managers and Room Department man-
three aspects: price, product, and promotion. agers of the participating hotels and resorts, and
Respondents were asked to indicate how difficult it their characteristics are reported in Table 1. The
had been for them to manage market competition in respondents are predominantly young to middle-aged
204 Patiar, DAVIDSON, AND WANG

Table 1 Hypothesis Testing

Characteristics of the Respondents (n = 173)
and Hotels (n = 87) H1 proposes an interaction effect of TQM and
market competition on hotel departmental financial
Variables n % performance. Table 3 reports the estimation results
Gender for equation 1 (financial performance) and equa-
 Male 126 72.8 tion 2 (nonfinancial performance). H1 and H2 were
 Female  47 27.2 tested by examining the sign and significance of the
Age
  21–30 years  44 25.4 coefficient of the interaction effect terms β3 in the
  31–40 years  94 54.3 two equations. Furthermore, various environmen-
  41–49 years  29 16.8 tal, institutional, and demographic factors may
  50 or over years   6  3.5
Country of department managers (hotels) impact on the relationship between dependent and
 Australia 114 (57) 65.9 independent variables in regression modeling and
 India   59 (30) 34.1 their effects must be controlled in order to focus on
Highest qualification
  School certificate  26 15.0 the interaction effect between market competition
 Hospitality diploma  59 34.1 and TQM. Tolerance and VIF test values suggested
  Bachelor degree  57 32.9 that multicollinearity was present and centering the
  Master degree  25 14.5
  Other qualifications   6  3.5 variables is often recommended as a remedy for
Professional experience this problem in interactive regression models (i.e.,
  1 year or more   6  3.5 Aiken, West, & Reno, 1991; Kleinbaum, Kupper,
  2–3 years  28 16.2
  4–6 year  26 15.0 & Muller, 2008; Tabachnick & Fidell, 2007).
  7–9 years  41 23.7 Model estimation thus used centered dependent
  10 or more years  72 41.6 and independent variables that were created by sub-
Hotel rating
  Four stars  48 55.2 tracting each variable by its mean. Equation 1 with
  Five stars  39 44.8 controlled variables of department managers’ gen-
der, age, qualifications, job identification, country
identification, professional experience, as well as
males with tertiary qualifications. More than half of star rating, was estimated and presented in Table 3.
the respondents had a professional career in hotels Table 3 (financial performance for equation 1)
of more than 7 years. The sample is skewed towards shows that, although the estimated model is signifi-
Australia with two out of three respondents work- cant (adjusted R2 = 18.9%, F-value = 5.00, p <
ing in an Australian hotel. The respondent manag- 0.01), the coefficient β3 is not significant. Therefore,
ers working in four- and five-star hotels and resorts there is no evidence to support H1 that such an
are reasonably well distributed. interaction effect exists to directly affect finan-
Hypotheses were tested using multiple regres- cial performance.
sion analysis described earlier. Table 2 summarizes H2 proposes an interaction effect of TQM and
the descriptive statistics and correlation matrix for market competition on hotel departmental nonfi-
all dependent and independent variables in the esti- nancial performance. As can be seen in Table 3 for
mation models. equation 2 (nonfinancial performance), the overall

Table 2
Mean, SD, Reliability Alpha, and Correlations (n = 173)

Variables Mean Mini Maxi SD α 1 2 3 4

1. TQM 4.09 2.17 5 0.52 0.96 1

2. Market competition 3.32 1.67 5 0.66 0.76 0.27** 1
3. Financial performance 3.91 2.40 5 0.59 0.80 0.41** 0.09 1
4. Nonfinancial performance 3.82 2.25 5 0.61 0.78 0.42** 0.06 0.57** 1

*p < 0.05, **p < 0.01.

 hotel total quality management practices 205

Table 3
Relationship of TQM, Market Competition, Performance, and Controlled Variables (n = 173)

Financial Performance Nonfinancial Performance

Variables Coefficient B SEB β B SEB β

Constant β0 0.17 0.31 0.36 0.32

TQM (Q) β1 0.43 0.08 0.38** 0.54 0.09 0.46**
Market competition (C) β2 0.01 0.07 0.01 –0.03 0.07 –0.04
Q×C β3 0.04 0.11 0.03 0.37 0.11 0.24**
Gender β4 –0.02 0.10 –0.01 0.03 0.10 0.02
Age β5 –0.12 0.06 –0.15 –0.05 0.06 –0.06
Qualification β6 0.04 0.04 0.07 0.01 0.04 0.01
Country ID Β7 0.20 0.09 0.16* –0.01 0.10 –0.01
Professional experience Β8 0.07 0.04 0.14 0.03 0.04 0.07
Star rating Β9 –0.08 0.07 –0.09 –0.11 0.07 –0.11
Managers job ID Β10 –0.07 0.08 –0.06 –0.02 0.09 –0.01
R2 23.6% 24.8%
Adjusted R2 18.9% 20.2%
F-value 5.00** 5.36**

*p < 0.05, **p < 0.01.

model is significant with an adjusted R2 of 20.2% δY/δC = 0.54 + 0.37Q

and an F-value of 5.36 (p < 0.01). The coefficient
β3 is positive and significant (p < 0.01), suggesting From the results presented in Figure 1, graphi-
a significant interaction effect of market competi- cally it is evident that the relationship between non-
tion and TQM practices on hotel departmental non- financial performance and market competition is
financial performance. H2 is therefore supported. It negative, when the practice of TQM is low or less
is argued that when the researcher’s interest is in than 1.46 (i.e., 0.54/0.37, the inflection point).
observing the interaction term, it is not necessary to Moreover, the relationship between nonfinancial
interpret other variables in the model (Govindarajan, performance and market competition is positive
1986; Southwood, 1978). Moreover, it is clear that when the practice of TQM is more than 1.46. In other
various control variables did not affect the interac- words, department managers’ perception of the
tion effect of market competition and TQM given intensity of market competition impedes their depart-
the nonsignificant coefficients. ment’s nonfinancial performance if they do not
According to Schoonhoven (1981), the reporting
of the two-way interaction ought to be supple-
mented with establishing the nature and the form of
the interaction relationship. A further insight into
the relationship between hotel department manag-
ers’ perception of market competition and their use
of TQM practice on nonfinancial performance is
provided by determining the partial derivative of
the TQM practice as shown in equation 3.

δY/δC = β1 + β3Q (3)

The unstandardized coefficient values for TQM

practice (β1) and the interaction of TQM practice
and market competition (β3) from Table 3 (nonfi- Figure 1.  Interaction of market competition and TQM prac-
nancial performance) are substituted in equation 3. tice on hotel departmental nonfinancial performance.
206 Patiar, DAVIDSON, AND WANG

embrace TQM practice in managing their respective performance independently but interactively. The
operations (i.e., Food and Beverage, and Rooms). findings in relation to H1 and H2 collectively imply
an indirect interactive impact of TQM and market
competition on financial performance existing
Discussion
through nonfinancial performance. For instance,
A department’s performance can be affected by a researchers (i.e., Banker, Potter, & Srinivasan,
wide range of environmental and organizational 2005; Kaplan & Norton, 1992; Kaynak, 2003;
factors. Focusing on hotels, this research investi- Patiar & Mia, 2009; Rust et al., 1995; Sila, 2007)
gated the impact of two such factors: the use of have argued that nonfinancial performance drives
TQM and the intensity of market competition, on financial performance.
performance at departmental level. Consistent with previous researchers we also
Theoretically, TQM may impact on financial found support for the proposition, implying that
performance directly and indirectly (Rust et al., those departments performing well in nonfinancial
1995). Nevertheless, empirical findings in this performance indicators are likely to experience
regard have generated mixed results. The coeffi- improved financial outcomes measured in terms of
cient of the two-way interaction effect of TQM and revenue and customer spending, and in meeting the
market competition on financial performance is not operating budget. This finding is expected as the
significant, demonstrating no support for H1. nonfinancial performance indicators such as over-
Supporting H2, a department’s nonfinancial per- all customer satisfaction, repeat business, and
formance was found to be determined jointly by the employee morale are generally regarded as ante-
manager’s use of TQM and his/her perception of cedents of profitability. This is because greater sat-
the intensity of market competition. Chong and isfaction is associated with higher retention rate,
Rundus (2004), Patiar and Mia (2008a) and Santos- which in turn can positively affect profitability
Vijande and Álvarez-González (2007) revealed (Zeithaml, 2000). Furthermore, there is a general
that TQM practices impacted on firm performance belief that satisfied customers are willing to pay
to a varied degree under different levels of market higher prices, which subsequently increases reve-
competition. These studies were conducted either nue and profit. Empirical evidence obtained pri-
outside the tourism and hospitality industry, or with marily outside of the hospitality industry suggests
a focus on a single dimension of TQM. In line with that those firms achieving high customer satisfac-
these studies, the present study extends the findings tion also enjoy high profitability through enhanced
to TQM application in hotels and concludes that customer loyalty or positive word of mouth (e.g.,
hotels are more likely to benefit from a holistic Anderson, Fornell, & Lehmann, 1994; Anderson,
quality management program in a competitive Fornell, & Rust, 1997; Chi & Gursoy, 2009;
­market. It was also suggested that as a department Helgesen, 2006; Reichheld & Sasser Jr., 1990). The
manager adapts to TQM practices, the existing same can be applied to hotels that are able to pro-
relationship between market competition and duce premier quality in their products and services.
departmental performance may change. Evidence of the interactive effect of TQM and
The results presented in Figure 1 revealed the non- market competition, and of the link between nonfi-
monotonic nature of this relationship. In departments nancial and financial performance is important.
where the manager used TQM favorably, the rela- This is because it provides justification for invest-
tionship between nonfinancial performance and ing in quality improvement and market-oriented
competitive intensity was positive; however, this activities by clarifying the roles that TQM and mar-
relationship was negative in departments where ket play in contributing to greater customer satis-
TQM practices were less favorably used. This find- faction, leading in the longer term, to greater
ing may offer another explanation for the nonsignifi- financial performance. Hotels are profit-oriented
cant results reported in some studies regarding the businesses in which any expenditure is considered
TQM–performance and market–performance links. an investment. Budget and resource constraints
As suggested by this study, TQM and market compe- require hotels to direct scarce financial and human
tition do not exercise their influence on nonfinancial resources towards the more profitable elements.
 hotel total quality management practices 207

Rust et al. (1995) asserted that expenditure on orientation within hotels and the broader tourism
quality management would be considered dis­
­ and hospitality industry. The study concluded that,
cretionary, if it does not generate sufficient return first, there is a direct interaction effect of TQM and
on investment. market competition on nonfinancial departmental
When the competition is low under conditions performance; second, there is no such an effect on
such as a very strong demand or monopoly/oligop- financial departmental performance; and third,
oly market, hotels may be able to stay profitable there may be an indirect interaction effect of TQM
without investing heavily on market-oriented activ- and market competition on financial performance
ities and quality improvement (i.e., Au & Tse, existing through financial performance. These find-
1995). However, most hotels, particularly those in ings have theoretical and practical implications.
urban areas, operate under monopolistic competi- The findings of this study extend previous stud-
tion, a common market structure with features of ies and contribute to fill a number of knowledge
competitive and monopoly markets. The competi- gaps identified in literature. Existing studies (Sila
tive market feature refers to a large number of & Ebrahimpour, 2002; Wilkins et al., 2007) have
hotels in the same geographic area engaging in acknowledged a lack of research on the application
intense and dynamic competition, while its monop- of TQM in a tourism and hospitality context as well
oly element features competition based on differen- as a need to move from individual dimensions of
tiated products with the intention of making the TQM to TQM as a whole. Responding to these
demand less elastic to gain more control over price needs, this study is concerned with TQM overall
(Tribe, 2005). Strong market/customer orientation rather than its individual dimensions; it also extends
is vital in such a situation, and hotels need to be the limited research on TQM and market competi-
competitive and at the same time meet customer tion to the hotel industry. By recognizing the exter-
expectation. If a hotel can consistently deliver dif- nal effects on the effectiveness of TQM practice
ferentiated and not easily duplicated quality experi- and organizational performance as well as investi-
ences, a positive relationship with its customers can gating the combined effect of TQM and market
be created and maintained. competition on hotel departments’ ability to per-
It is argued that quality is a moving target as cus- form. This study also makes a contribution to
tomer expectation may increase in association with enhance our understanding of how environmental
intensified competition and marketing activities and organizational factors interact with quality
(Chacko et al., 2005; Knox, 2007). This dynamic practices, an area on which little research has been
nature of service quality creates the need for con- conducted (Chong & Rundus, 2004; Hendricks &
tinuous improvement, which in turn, requires TQM Singhal, 2001; Nair, 2006; Patiar & Mia, 2008a;
to be implemented in hotels. Without a doubt man- Santos-Vijande & Álvarez-González, 2007). Addi­
agers must recognize TQM as an integrated quality tion­ally, this study addresses Banker et al.’s (2005)
improvement philosophy that encompasses all areas call for more investigations of the relationship
of business and considers not only the external cus- between different measures of performance. It dis-
tomers but also internal customers: the employees. tinguishes financial performance from nonfinancial
The MBNQAP introduced earlier provides a useful performance and provides empirical support for the
starting point from which to implement TQM prac- proposition that superior performance in nonfinan-
tices in hotels. cial measures can lead to financial success.
There are also practical implications associated
with the research findings. First, the findings
Conclusion and Implications
encourage the use of TQM within hotels by sug-
This study was undertaken to examine the rela- gesting that hotels subscribing to TQM philosophy
tionships between TQM, market competition, and would be in a better position to thrive on competi-
departmental performance in hotels. The findings tion. Second, the findings also demonstrate to hotel
are useful to both practitioners and academics who managers that their investment in quality manage-
are interested in the consequences of develop- ment can be paid back. However, a long-term com-
ing a TQM philosophy and a culture of market mitment to TQM practices is needed because the
208 Patiar, DAVIDSON, AND WANG

return on TQM investment might not be reflected implementation using a longitudinal study approach.
immediately in hotels’ financial statement. Rather, Additional organizational characteristics should
it is achieved through an improved nonfinancial also be included as control variables. Additionally,
performance in a competitive market. Third, pro- performance was measured at the departmental
grams must be established to build hotels’ market level where, although a reasonable amount of
sensing and customer linking capacity. Such pro- autonomy exists, management is still heavily influ-
grams should regularly monitor the status of market enced by top managers (i.e., general manager). This
competition and more importantly, keep managers restricts the applicability of results to the organiza-
informed of the intensity of competition that the tional level. In future, this study can be extended to
department is facing so as to maintain a continuous include other departments or entire hotels. Finally,
state of awareness and responsiveness to any future studies can also consider the effect of TQM
changes in the market. Forth, in light of the result on human resources outcomes (e.g., employee turn-
that the interactive effect of TQM and market com- over rate, employee absenteeism, and employee job
petition did not vary across different control vari- performance), operational effectiveness, and con-
ables, it seems that there is little need for tailored sumer results demonstrated by customer retention
implementation of TQM programs based on depart- and perceived value for money.
ments and star ratings.
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