Examining nonlinear relationships between quality management and financial performance

A thorough analysis of nonlinear relationships between quality management (QM) and organizational outcomes has largely been ignored in the current empirical QM literature, which can have profound theoretical and managerial implications. The existence of nonlinear relationships implies taking a contingent view in that QM practices are more effective depending on their level of implementation in an organization. The purpose of this paper is to focus on this possibility and undertake an in-depth study of the sparse nonlinear relationship suggested by the literature.

The authors introduce an empirical study carried out on a sample of 168 service firms belonging to sectors experienced in QM and, through polynomial regression analysis, identify the nature of the relationship between QM and financial performance (return on assets).

The results, by showing an S-shaped curve, support a nonlinear association between these two variables. The presence of this functional form provides a satisfactory solution to the growing debate among researchers who, from a linear perspective, defend the positive effects of QM on organizational outcomes, those who find no significant effect, and still others who claim that QM has a negative effect.

The results show that in organizations with a low level of QM implementation, managers should increase investment in QM, even though this increase will not be correspondingly beneficial in the same proportion. In contrast, in organizations with a high level of QM implementation, managers are advised to reflect on undertaking projects that represent an additional investment in QM, with the aim of finding their optimal level.