The effects of total quality management TQM on financial performance of manufacturing companies in Kenya : case of East African Breweries Limited

Abstract

Many authors have postulated that the', best way to improve the performance of an organisation is to implement total quality management. Such a statement can be theoretical or may carry a missionary ardour that might be difficult to realize. This research project investigated the relationship between Total Quality Management (TQM) practice and financial performance of East African Breweries. The objective of the study was to investigate the relationship between TQM implementation and the financial ratios of a brewing manufacturing company specifically East African Breweries. The Malcolm Baldrige National Quality Award (MBNQA) 2005 criteria for performance excellence were used as an indicator of TQM practice. TQM Data were collected using Likert's scale questionnaire method, which was a self-administered questionnaire. Financial data were obtained from financial reports of East African Breweries. The financial ratios of the company were used to interpret the financial performance of East African Breweries. Ratios and percentages were utilised to analyse data from questionnaires and financial records. Multiple correlation analysis was used to give an insight into the relationship between TOM and financial performance. This was done with the help of the statistical package for social sciences (SPSS). The study used international standards organisation (ISO) certification as a proxy to quality implementation in conjunction with investigation questions, while financial performance was evaluated based on the trend of tile various financial ratios. Financial performance data were secondary from financial records, while TQM implementation data were primary from the questionnaires. EARL has successfully implanted TQM as indicated by the respondents. It was also established that profitability in EABL has consistently improved over the period between the year 2001 and 2007. TQM implementation is positively correlated with profitability. It is recommended that liquidity in the company be monitored to avoid situations where the company is holding so much liquid assets which could otherwise be invested in revenue earning assets. EABL should continue with its road to perfecting its quality systems to improve its profitability and customer satisfaction.