Total Quality management and Competitive Advantage
Total Quality Management (TQM) is a paradigm used in business and organizational management in ensuring that the quality of products and services are appealing to customers. TQM is a business management tool that is being embraced by many business firms as they work on improving their competitive advantage. Service and product quality are one way through which companies attain and maintain customers. Thus, total quality management is a basis on which firms are increasing their competitiveness. Total quality management bases on a number of principles. These principles are customer satisfaction, continuous improvement, employee involvement, and long-term patterns of healthy relations between the firm and its suppliers (Watson, 2012).
Total quality management impacts positively on the financial performance of firms. In the recent times though, there have been arguments by a number of gurus in management, that TQM does not have a significant impact on financial performance. However, research has ascertained that TQM indeed has a significant impact on financial performance of firms. Among the arguments opposing the relevance of TQM on financial performance, is the subject that TQM is extremely expensive to maintain total quality programs in firms. This was evident when firms began applying this paradigm. For the last ten years, companies have started to realize the benefits of total quality management. With effective total quality management programs and the implementation of the programs, payoffs on financial performance are being recorded. Research shows that most firms that have well established and functioning total quality management programs are recording profits. The profits of the general activity of TQM are being replicated in financial outcomes of firms. It is when firms are able to implement TQM that they can realize improvement or better outcomes in financial performance (Watson, 2012).
Total quality management is implemented differently. There are different total standardization certifications that have been set by the International standards organization. All the codes aim at meeting quality standards of products and services being produced by the firms applying the code of standards. Total quality management helps in creating awareness about product quality on the side of the employees. The organizational employees need to be fully informed about the specification and expectations of quality in products. Total quality management involves the focus on organizational employee through training them on how to achieve quality in goods and services (Watson, 2012).
Total quality management is a quality enhancement tool in the organization. Therefore, TQM raises the quality of the products or services of a company. All aspects of quality management are centered on improving processes that are used in the production and delivery of products and services to customers. The increase in quality of products and organizational services has many benefits to the organization. It leads to a reduction in the number of nonconforming which by effects reduces the complaints from customers. This bolsters the rate of customer satisfaction. Customers will often feel more satisfied with the firm when the products or services they are receiving are of satisfactory quality and are meeting their expectations. A rise n the quality of products due to improved quality often culminates to the risen demand of the products (Moccia, n.d).
With increased competition by different companies in the economy, companies use different methods in making their products or services unique in the market. Companies use distribution as a means of differentiating their products and services in the market. Different methods of distribution are used by companies’ for instance online distribution, showrooms, direct distribution (Ma, 1999).
Product market segmentation is another method used in differentiating products and services of companies. Some companies would prefer to focus on a smaller segment of their larger market. The companies specialize and fully exploit the market segment they have chosen. Customer services are also a focus of many companies as they work towards ensuring that they have attained uniqueness in the market. By offering superior services to their customers, companies get to be identified by their customers in the market (Bacon and Pugh, 2003).
Product and service differentiation can be attained through branding. Apart from fulfilling aspects of qualities, companies are struggling to turn their products into recognizable brands. Brand recognition adds value to the product in the eyes of customers. Other strategies used in product differentiation are pricing, market size and dominance strategies and also through behaviors (Ma, 1999).
The product differentiation strategies being used by companies have proven to be effective in increasing the competitive advantage of many companies in the market. Distribution strategies have helped companies dealing in similar products such as Amazon. There are many booksellings and advertising companies, but because of the online system of differentiation, Amazon has attained high competitiveness over other companies that are using traditional methods in distributing the products (Ma, 1999).
Branding has also helped many companies in beating the competition from their competitors. Branding makes customers be attached to the products of the company which ties them to the products. Many large companies have used their names as brands (Ma, 1999).
Market segmentation helps to create specialty in a given line of products. This has helped companies like Starbucks. Starbucks, which operates in the restaurant business, chose to specialize in preparing and selling coffee and has thus been known to offer high quality and varieties of coffee (Bacon and Pugh, 2003).
1Pricing also plays a vital part in differentiation of products. Some companies choose to minimize their profits by setting a slightly lower price on their products. They are identified by the lower prices of their products hence end up making more sales by that virtue (Bacon and Pugh, 2003).
Marketing Plan for Inter-Tech
More businesses and business firms continue to crop up every day. This further affects the already competitive business environment which is prevailing. The need for marketing plan cannot be overemphasized here. It is becoming a necessary condition for firms which either want to enter the market for the first time of or those that want to enter new markets. This marketing plan comprises of a background which gives an overview of the company. It also contains an overview of the market situation as is with the company. It also carries a SWOT analysis of the marketing situation. It also analyses the customer and competition. The plan highlights the main strategies that will be used in marketing company and the financial costs and implications.
Inter-Tech is a new company that was launched one year ago. It is a virtual company that carries out its activities on the internet. It is a Canadian-based company. The company deals with the production and selling of software programs, movies, music, videos, and games, movies and academic materials like books and other articles. For the short time it has been in operation, the company has managed to capture a reasonable size of customers in Canada. It is now focusing on capturing a wider market in Canada, United States and the wider Europe and later the other parts of the world. The company aims to provide products and services to its customers by employing the best technologies and the best customer services.
As it stands today, the use of the internet and online services has grown considerably. There are many companies marketing their products online. There are also many virtual companies dealing in similar products. These companies operate both in Canada and across the world. These companies include the famous Amazon among many other companies. As Intertech prepares to expand and introduce its products and services to the larger Canadian and international market, it is aware of the many companies some of which have made themselves a big name in the business.
Organizational product and services overview
The company is dealing in making and selling of software programs for computers and other technological gadgets. It is also dealing with the selling of books and other academic materials. Also, it wills refines and sales all kinds of music in all forms, videos, video games and movies. The company targets a bigger market that is technologically conscious. Its products and services are wide and relevant in most of the institutions and companies. The company provides products in the most advanced way and offers technical advisory services to customers. With a recognizable presence in the major cities of Canada, the company has a solid basis on which its product will be absorbed into new markets.
Strengths of the company
The company is operating in an industry which has a growing demand. The utilization of high advantage and the use of advanced technologies in offering products and customer service are likely to attract people to the company. Moreover, the company has established its services and has already captured a sizable number of customers.
Weakness of the company
The major weakness of the company is a young company which has not yet established its brand. The company is operating in a legal environment that is full of competitors some of which have well established brands.
The company has technology specialists who have excellent skills in software processing and management. They can use these experts in gaining many customers.
This is a company that entirely depends in the internet and information technology to offer products to customers. Lapses in technology will often have devastating effects in marketing of their products.
Customers and competition
The potential customers for this company are academic institutions, software companies, academic institutions, music stores, video production companies and individuals. The company has a large field from which they can acquire and develop customers. Marketing strategies will be key to gaining and maintaining the customers in the market.The company expects a stiff competition from both the firms already doing such business. It has prepared to compete fairly through using and continued check on its marketing strategies as it adjusts to competition.
The company uses highly advanced technology in its products and services. This will form part of its key entry mission in the new markets. More people and companies are adapting to new and most advanced technological products. The company focuses here, and this forms one of its key strengths in the market. The other key thing, which the company will use in differentiation its services in the market, is the expert advice which will come along with their products. The advice will come at a highly subsidized fee for customers, and fees will be further reduced once customers establish a permanent relationship. The company will adjust its prices so that they can favor their customers. Pricing will form part of its strategy of differentiating its products and services. Massive advertisement of the company and its product offering will be done on the internet.
This is an extensive plan, and more money will be spent by the company as it seeks to gain new customers in new markets. Advertisement is projected to cost the company the highest amount of money. As it expands, the firm will also have to employ more experts and expand its network with its suppliers. This will also consume a sizable amount of money as will be reflected in the budget.
AorTech International plc
Gross Loss/net sales =(2059)/1362= 1.5117
Operating income/ net sales = 306/1362= 0.2247
Net profit/net sales = 1923/ 1362 = 1.4119
Return on equity (ROE)
Net income/average shareholder equity = 719/39.79 = 18.07
Return on investment
Net income /average total assets = 719/6036 = 0.119
Return on assets
Net income/ Total assets = 719/ 5413 = 0.1328
Return on Equity
Net income/net sales = 719 / 1362 = 0.5279
Return on capital
[EBIT(1 – Tax Rate)] /Invested capital = [1923(1-16) / 623 = 0.2058
Return on capital employed
EBIT / Capita; Employed = 1923/623 = 3.0866
Current assets / current liabilities = 3894/ 623= 6.2504
[Current assets – (inventories + prepayments)] / current liabilities = [3894 – (150+859)]/623 = 4.6308
Cash and marketable securities / current liabilities = 2885/623 = 4.6308
Operation cash flow ratio
Operating cash flow/ total debts = 2050/ 623 = 3.2905
Debt ratios (leveraging ratios)
Total liabilities / total assets = 623 /6036 = 0.1032
Debt to equity ratio
Long term debt + value of leases / average shareholders equity = (0 + 5413)/5413 = 1
Long-term Debt to equity
Long term debt / total assets = 0 / 6036 = 0
Earnings per share
Net earnings / number of shares = 719 /
Dividends/ earnings = 12082/ 719 = 16.8038
Earnings per share / dividend per share = 1923/12082 = 01591
These are ratios which are used to determine the efficiency of the company in using the resources to create profits. For AorTech International plc, the gross margin ratio was negative because a loss was registered during the financial year 2010. A gross margin of 1.5 and profit margin of 1.4 was made during the financial year 2010. This indicates that the sales were few. As such, there is need to improve on the sales management so that profits can be made from the operations of the company. Return on equity was high (18.07), while return on investment was low (0.119). This indicates that the company is making few investment programs to promote the growth of the business. On the other hand, the company has acquired enough assets to facilitate business operations. This is indicated by the return on assets of 0.13. In addition, the company has improved its equity because the equity ratio is high (0.53). Shareholders get a fair share of the profits made by the company. This is indicated by the return on capital of 0.21.
The market ratios show that the company has maintained the current assets at a manageable level compared to current liabilities. The current ratio of the company is 6.25, and this shows that the company has minimized the amount of current liabilities. On the other hand, the acid-test ratio indicates that the company has increased the amount of current assets. Cash ratio indicates the cash and marketable securities have increased by a great extent. In addition, the operating cash flow ratio shows that the company has maintained low number of current liabilities.
Debt ratio expresses the amount of debts that a company has in comparison to the assets owned by the company. A debt ratio of 0.10 is favorable because it indicates that the company can repay all debts, and maintain a high number of current assets. The company has not acquired any long term debts, and this is an indication that there is adequate liquidity.
The company has maintained higher returns to the shareholders by providing high payments for the capital invested. This is indicated by the high payout ratio. In addition, the shareholders get a favorable share value. This shows that the company is willing to attract as many investors as possible so that a lot of resources can be available for investment.
Internal Growth of an Organization
The focus of growth of organizations is often looking at from two perspectives. We have internal growth and external growth. It has been noted that the growth of any company is based on a set of strategies that are designed to guide the development process. In the de2velpopmet of companies through planning, internal growth is given a first priority. It by nature extends the prevailing capabilities of the company. Internal growth directly touches on the assets of the company. A strong base on internal growth eases external growth. External growth is more elaborate than internal growth. Companies resort to external growth when they want to increase their growth capacity within a short time. Both the internal and external growth of companies is affected by any factors. Internal growth of organizations is impeded by many factors emanating from without the organization (Ma 1999).
External factors that impede internal growth in organizations include economic, political, social, technological, cultural, customer, competitors, legal and environment. These factors are prevalent in either the micro or the macroenvironment in which an organization operates (Cooney and Malinen, 2004).
The general working of the economy has an effect on the internal operations of a company or organization. An example is the shift in the rates of interest. When interest rises, the organization will have paralyzed operations due to reduced borrowing. At times when the rates go low, the organization is likely to borrow more hence they will implement their internal growth plans. There are many other economic factors resulting from economic policies and different economic forces. These are the rate of growth of the economy, nature of trading practices and inflation which affect business (Zakić, Jovanović and Stamatović, 2008).
Social factors have both a direct and indirect impact on internal growth. The taste of consumers keeps changing and may either impact the organization positively or negatively. Taste of consumer change due to changes in beliefs, opinion, level of education and preferences among others. Market research is the only solution which can be adopted by organizations in solving this problem. Political can be barriers to market entry. The political climate for instance political stability affects the operations of a company. When there is political stability, business is likely to flourish and by effect organization will strengthen, the reverse is true. Government policies on industries or organizations are a common thing. Changes in different policies; for instance, taxation will automatically affect the organization (Davidsson, 2006).
Technological changes can be both liabilities and assets to the organization. When new technologies emerge, organizations are forced to adopt the technology by acquiring the technological tools. This consumes resources from the organization. However, these tools help in making the organization more competitive. Hence, the tools raise the productivity by boosting internal growth (Davidsson, 2006).
Organizations adjust their activities in the market relative to the competitors. The activities or moves adopted by competitors often affect the organization. Some measures taken by competitors may force organizations to adjust their internal structures thereby affecting the internal growth patterns (Zakić, Jovanović and Stamatović, 2008).
Legal factors appear in different aspects of the external environment. Legislative changes may pressure organization to change their structures so that they can meet the new requirements. Legal changes may stiffen the operating environment of a given organization. It may also favor the environment in which and organization exists thus boosting growth (Zakić, Jovanović and Stamatović, 2008).
Even though, internal growth forms the basis of growth for an organization, it must be understood that external factors have a significant influence on internal growth. Political and economic factors are more prevalent in micro and the macro-environment and have an enormous effect on the internal growth of the organization. While formulating internal growth strategies, organizations must learn to recognize the possible pressures in the external environment. These pressures are discovered through research. Research helps organizations to establish certain levels of predictions. There predictions can help companies to put in place measures of coping with the changes that are embedded in the predictions made through research (Davidsson, 2006).
Organizations must consider three aspects, which as is proposed in the model of organizational growth by Davidsson. These are ability, need as well as the opportunity. Growth is affected by these three factors. The focus on these factors helps in achieving predictability. Predictability helps organizations to plan on how to deal with occurrences in the external environment. In either the economic, political, social, technological or even the cultural spectra and which are likely to impact on internal plan implementation. As organizations are plan on growth, they have to plan they must factor in uncertainties. These risks or uncertainties may not be generated within the organization; they mostly originate from the external environment. However, this does not mean that there are no internal factors affecting growth. Internal problems are mostly generated from the management and if they combine with external factors, the growth of the organization can be put to halt (Zakić, Jovanović and Stamatović, 2008).
Bacon, T R & Pugh, D G 2003, Winning behavior: What the smartest, most successful companies do differently. AMACOM,New York, NY [u.a.
Cooney, T&Malinen, P 2004, New Perspectives on Firm Growth. European Council for Small Business and Entrepreneurship,Turku.
Davidsson, P 2006, Research on Small Firm Growth: A Review,Viewed 29 May 2012,
Ma, H 1999,”Creation and preemption for competitive advantage”, Management Decision, Vol. 37 no. 3, pp. 259 – 267.
Moccia, S n.d., The Role of Personal Values in an Advanced Perspective of Total Quality Management, viewed 29 May 2012
Watson, GH 2012, ‘A Comprehensive Approach to Quality Aims at Inclusive Growth’, Journal for Quality & Participation, vol. 34 no. 4, pp. 16-20.
Zakić, N, Jovanović, A&Stamatović, M 2008, ‘External and Internal FactorsАffеcting the Product and Business Process Innovation.Economics and Organization Vol. 5 no. 1, pp. 17 – 29.