Quality has become imperative as the economy has globalized. At each successive level and scale of competition, the quality of competing goods and services increases as competitors “one-up” each other to gain market share. Companies that used to compete only on a local, regional, or national level now find themselves competing against companies across the world, and many companies find the competition to be more intense than anything ever encountered. Today, only those who are able to produce world-class quality goods/services can compete; thus, it is imperative that an organization incorporates a vision of overall quality, known as Total Quality Management, or “TQM,” that permeates throughout its entire organization and contributes to a sustainable competitive advantage.

Competitive advantage denotes a firm’s ability to achieve market superiority over its competitors. In the long run, a sustainable competitive advantage provides above-average performance. Typically, a company’s competitive advantage and the strategy to attain one are achieved through two main components:

• Cost Leadership: Many firms gain competitive advantage by establishing themselves as the low-cost leader in an industry. They emphasize achieving economies of scale and finding cost advantages from all sources. A cost leader can achieve above-average performance if it can command prices at or near the industry average. However, it cannot do so with an inferior product. The product must be perceived as comparable with competitors or the firm will be forced to discount prices well below competitors’ prices to gain sales – otherwise, this could cancel any benefits that result from cost advantage.

• Differentiation: To achieve differentiation, a firm must be unique in its industry along some dimensions that are widely valued by customers. It selects one or more attributes that customers perceive as important and positions it uniquely to meet those needs. Often, a firm with a differentiation strategy can command premium prices and achieve higher profits. However, a firm that uses differentiation as its source of competitive advantage must make its products or systems difficult to copy. Often this involves culture, habits, and sunk costs.

Competitive advantage has been traditionally pursued through marketing and finance, which typically tried to pursue competitive advantage through an either/or approach to either cost or differentiation. Quality was a derivative of the strategic route chosen, which could fluctuate either way depending on whether you pursued cost leadership (typically quality suffered as costs decreased), or differentiation (quality was higher but costs increased); however, total quality, with a focus on people and its incorporation into a company’s central operating strategy, has shown that it can lead to improvements in both areas:

• Cost Leadership: Quality processes lead to fewer defects and scrap, which reduces costs throughout the process.

• Differentiation: In many industries, the presence of quality in its offerings may serve to differentiate a company, and, once attained to a certain level, can be very hard to replicate by competitors who do not embrace the same quality philosophy in their processes.

Thus, TQM can help create a stronger, more sustainable competitive advantage. The value of product in the marketplace is influenced by the quality of its design. Improvements in performance, features, and reliability will differentiate the product from its competitors, improve a firm’s quality reputation, and improve the perceived value of the product. This allows the company to command higher prices and achieve an increased market share. This, in turn, leads to increased revenues that offset the added costs of improved design and provides sustainable basis for the competitive advantage. In one form or another, many global companies have embraced this approach, and the early-adopters are among the leaders in their industries (Toyota, Ritz-Carlton, FedEx).

The role of quality in achieving competitive advantage has also been quantitatively demonstrated by several research studies. PIMS Associates, Inc. maintains a database of 1,200 companies and studies the impact of product quality on corporate performance. Among the findings were the following:

• Product quality is the most important determinant of business profitability.
• Business offering premium quality products and services usually have large market shares and were early entrants into their markets.
• Firms with products of superior quality can more than triple return on sales over products perceived as having inferior quality.
• A strategy of quality improvement usually leads to increased market share.
• High quality producers can usually charge premium prices.

There is no consensus on what exactly constitutes TQM. Almost every organization defines it differently or calls it something other than TQM. However, the TQM philosophy has one common thread across all industries: it essentially mandates a never-ending process of improvement, which is essential for competing in an endlessly more competitive environment.

Works Cited

“Total Quality Management and Sustainable Competitive Advantage” Reed, Lemak, Mero; Journal of Quality Management Volume 5 Issue 1 Spring 2000

“Total Quality Management and Global Competitive Advantage” Author Unknown. Linked from: http://free-books-online.org/management/total-quality-management/total-quality-management-and-global-competitive-advantage/