Journal of Small Business Management 2001 39(4), pp.

293–311

Quality Practices for a Competitive

Advantage in Smaller Firms
by Donald F. Kuratko, John C. Goodale, and Jeffrey S. Hornsby

This exploratory study examines the quality practices used in smaller en-
trepreneurial firms. The current literature defines flexibility as one of the primary
competitive priorities for smaller firms. This study develops an exploratory proposition
that relates the characteristics of quality systems used by small firms, and their value,
to the competitive priority of flexibility. A survey of 184 small firms in the U.S. was
conducted using the classification scheme for quality systems consistent with the
Malcolm Baldridge National Quality Award (MBNQA) performance criteria. Overall,
the results support the proposition that small firms tend to employ quality practices
that enable change and that position the firm to pursue flexibility as a competitive
priority. The paper concludes with a discussion of the insights generated by the findings
and directions for future research.

Small businesses are mighty min- gies, skills, processes, or products

nows, reflecting the competitive
spirit that a market economy
needs for efficiency; they provide
an outlet for entrepreneurial tal-
ents, a wider range of consumer
goods and services, a check to mo-
nopoly inefficiency, a source of in-
novation, and a seedbed for new
industries; they allow an economy
to be more adaptable to structural
change through continuous initia-
tives embodying new technolo-
(Ibielski 1997, p. 1).
Small business productivity has been
the driving engine of the U.S. economy for
the past two decades. With the beginning
of the new millennium, the degree of pro-
ductivity demonstrated by smaller firms
will be vital to a continued economic
surge. Stressing quality can produce the
desired productivity results (Deming
1986). The general definition of productiv-
ity is the ratio of outputs to inputs. In this

Dr. Kuratko is the Stoops Distinguished Professor of Entrepreneurship and founding director
of the Entrepreneurship Program in the College of Business at Ball State University in Muncie,
Indiana. His research has concentrated in the areas of entrepreneurship, corporate entrepreneur-
ship and small business.
Dr. Goodale is an assistant professor of Management in the College of Business at Ball State
University in Muncie, Indiana. His research has concentrated in the areas of quality and operations
in service businesses.
Dr. Hornsby is professor of Management and director of the Human Resources Management
Program at Ball State University in Muncie, Indiana. His research has concentrated on corporate
entrepreneurship and human resource management issues in small business.

KURATKO, GOODALE, AND HORNSBY 293

context, pursuit of higher quality levels
leads to fewer inputs via less rework and
fewer failures, and more outputs via im-
proved competitive position and in-
creased demand (Gitlow, Oppenheim, and
Oppenheim 1995). Perhaps most impor-
tantly, a fundamental principle of the Total
Quality Management (TQM) philosophy is
an intense focus on customer satisfaction
(Noori and Radford 1995; Hodgetts 1998).
Focus on the customer enables the firm to
recognize changing market conditions and
effect appropriate change. Hence, the re-
lationships between productivity and qual-
ity go beyond operational efficiency and
incorporate the uncertain and dynamic na-
ture of the competitive environment in
which the smaller firm participates.
In this context, it is important to analyze
the role of quality practices that enable
smaller firms to pursue competitive priori-
ties, such as flexibility. Following the lead
of larger firms, smaller firms are moving
into quality programs at a “phenomenal
rate” (Meyer 1998). In examining the ob-
jective measures of quality in U.S. firms,
Andreichuk (1992) stated, “It’s a common
misconception that big firms with exten-
sive human and financial resources can do
a better job of educating and motivating
their workers to make quality improve-
ments. The truth is that smaller companies
can be even more successful at soliciting
employee support and involvement be-
cause there are fewer management layers
to permeate and fewer people to convince
of the benefits” (p.29).
As a way to improve the overall com-
petitiveness of U.S. industries, Congress
created the Malcolm Baldridge National
Quality Award (MBNQA) in 1987. Each
year there can be two MBNQAs given to
applicants in each of three categories:
manufacturing, service, and small busi-
ness. However, although total quality has
now become an expectation in contempo-
rary business, the debate continues as to
the real effectiveness of TQM programs.
Shin, Kalinowski, and El-Enwin (1998) ar-
gued that TQM programs fail due to an
294 JOURNAL OF SMALL BUSINESS MANAGEMENT
inefficient system for executing the quality
principles. In studies that have examined
TQM (Ernst & Young 1993; Black and Por-
ter 1996; Shin, Kalinowski, and El-Enwin
1998), it becomes apparent that there is
agreement on the guiding principles of
total quality. However, the actual imple-
mentation remains the challenge.
This exploratory study utilizes the
framework of the MBNQA to examine the
quality practices used in 184 small firms.
The purpose of the study is to identify
which quality strategies and tools are used
by the firms, and to relate their value to the
competitive priority of flexibility.
Competitive Priorities
in Smaller
Entrepreneurial Firms
Various entrepreneurial firm models
contribute insight on competitive priori-
ties and behaviors of these firms. As an
example, Jelinek and Litterer (1995)
l o o k e d a t t h e o r g an iz a tion o f en-
trepreneurial firms and found difficulties
analyzing them using traditional organiza-
tion theory. They proposed that a new
cognitive model be used to focus on cog-
nition shared among members of the firm.
They posited that this new model could
account for the constant innovation result-
ing from entrepreneurial activity and focus
it as systemic flexibility. They point to
shared management as a structural ele-
ment that facilitates an organizational
culture and strategy that achieves en-
trepreneurial activity. At the operational
level, control systems (for example, quality
control systems) are critical for recogniz-
ing anomalies (mindful alertness) which
can be information for coordinated deci-
sion-making that produces results (ex-
ploiting opportunities). So at the surface,
the purpose of control in entrepreneurial
firms is likely radically different than in
less entrepreneurial firms. Shared man-
agement and control systems in smaller
entrepreneurial firms have much to do
with the firms’ propensity for ambiguity
absorption. Ambiguity absorption de-
scribes the managerial system of the
smaller entrepreneurial firm and gives the
firm the characteristic of flexibility. The
ambiguity absorption factor seems to be
supported in previous models which have
approached entrepreneurship as behavior
and described entrepreneurial firms as or-
ganizations with entrepreneurial postures
(Covin and Slevin 1991; Herron and Sapi-
enza 1992; Johnson 1990; Naffziger, Horn-
sby, and Kuratko 1994).
In support of their model of en-
trepreneurial posture, Covin and Slevin
(1991) focused on frequent and extensive
product innovation as one of the defining
behaviors. The operational implications are
substantial. Designing systems for flexibility
is essential to taking advantage of opportu-
nities that arise as small business managers
and entrepreneurs are mindfully tracking
product/market life cycles and opportuni-
ties. Zahra (1993) reaffirms the view of Covin
and Slevin; however, he calls for deeper
specifications of entrepreneurial firm behav-
ior, structure, and strategy.
Chaganti, Chaganti, and Mahajan
(1989) surveyed 192 small manufacturing
firms and found “. . . a general lack of vari-
ety in the strategies that are associated with
profitable small firms” (p. 33). They used
two of Porter’s (1980) generic types of
competitive strategy—cost leadership and
differentiation—that address a competi-
tive environment driven by price and pro-
motion, respectively (Porter 1985).
Chaganti, Chaganti, and Mahajan (1989)
found that differentiation achieved by a
quality-image orientation contributed to
profitability if the firm was participating in
a market with high levels of promotion. In
addition, they found that a broad product
scope (flexibility) contributed to profit-
ability unless the firm was in a market with
high promotion. Their findings point to
the importance of a quality image in mar-
kets where smaller firms can gain substan-
tial headway. These researchers suggest
that smaller entrepreneurial firms with a
quality image and product scope (flexibil-
KURATKO, GOODALE, AND HORNSBY
ity) are more profitable when markets are
not focused on price competition. Markets
under price competition are generally
characterized by infrequent change, op-
erations with low unit-costs, and stand-
a r d i z e d p r o d u c t s a nd p r o c e ss e s .
Competing in markets with frequent
change, product scope, and flexible proc-
esses are more typical of the smaller firm.
Further, quality systems must enable entre-
preneurs to compete by positioning op-
erations in a manner that supports
exploiting opportunities in the dynamic
marketplace.
Recent Research on
Quality for Smaller Firms
The recent literature is replete with ar-
ticles on TQM related to world class learn-
ing (Luthans, Hodgetts, and Lee 1993);
training (Niehoff and Whitney-Bammerlin
1995); implementation (Shin, Kalinowski,
and El-Enwin 1998); employee involve-
ment (Lawler 1994); benchmarking (Ro-
gers 1998); planning (Thisse 1998); value
chain (Gehani 1993); control (Sitkin, Sut-
cliffe, and Schroedern 1994); and work
performance (Waldman 1994). There is
even the review of barriers to quality ef-
forts (Katz 1993; Whalen and Rahim 1994)
as well as the more significant failures as-
sociated with quality management pro-
grams (Harari 1993; Holoviak 1995;
Brown, Hitchcock, and Willard 1994;
Korukonda, Watson, and Rajkumar 1999).
Spencer (1994) conducted a critical evalu-
ation of the models of organization and
TQM, while Dean and Bowen (1994)
called for improved research and practice
regarding TQM.
In regards to the quality effort in small
businesses, there has not been a great deal
of research. There are a few studies, such
as Shea and Gobeli (1995) examining
the experiences of ten small firms with
TQM, and Hodgetts, Kuratko, and
Hornsby (1999) relating the scenarios
of MBNQA winners in the small business
category. However, the few articles that do
appear tend to be conceptual with little
295
empirical findings. A central theme in the
literature is developing a quality philoso-
phy throughout the firm (for example,
TQM). One would expect firm leadership
to implement programs that develop a
high-quality internal environment and are
consistent with strategic objectives of the
firm, such as flexibility in small firms.
Firm flexibility can take different forms
(DeMeyer et al. 1989). Product flexibility
addresses the firm’s ability to handle diffi-
cult, nonstandard orders; to meet special
customer specifications; and to produce
products characterized by numerous fea-
tures, options, sizes, and/or colors. Proc-
ess flexibility (product mix flexibility)
addresses the firm’s ability to produce
small quantities of products cost efficiently
so that changes in product mix are easy to
accommodate. Tangential to these two
types of flexibility, volume flexibility ad-
dresses the firm’s ability to rapidly adjust
capacity in order to accelerate or deceler-
ate production in response to changes in
customer demand. Chaganti, Chaganti,
and Mahajan (1989) identified product
scope as the relative breadth of the firm’s
product line. Thus, product flexibility clearly
maps well to their product scope, and proc-
ess flexibility has some overlap with product
scope. It could be argued that small business
managers that compete with flexibility
would employ quality strategies and tools
that facilitate the ability to design and pro-
duce a variety of items. Therefore the main
exploratory proposition is:
Of the quality strategies and tools con-
sidered by smaller entrepreneurial firms,
the most used and most useful strategies
and tools will include ones that promote
flexibility in product, process, and vol-
ume in order to facilitate competition
with strategies that focus on product and
service scope.
Quality Strategy and
Tools: An MBNQA Context
The premise of this study is that there
are quality strategies and tools that are
consistent with the strategic objectives of
296 JOURNAL OF SMALL BUSINESS MANAGEMENT
smaller entrepreneurial firms. This section
describes the seven categories of the
MBNQA framework presented in relation
to our focus on smaller entrepreneurial
firms. This meta-framework of quality
strategies and tools helps provide the
boundaries for strategies and tools consid-
ered in this study. These categories were
used as the basis for the instrument that
was newly developed and utilized for this
research effort.
Leadership
This category comprises the guidance
the firm receives from senior leadership.
Guidance consists of different roles that
impact the values of the organization. Key
areas of focus in the MBNQA are the lead-
ership system and company responsibil-
ity/citizenship. The leadership system
involves how senior managers build and
sustain a company-wide system dedicated
to high expectations, high performance,
individual development, initiative, organ-
izational learning, and innovation (Ireland
and Hitt 1999). Examples of strategies and
tools used by small firm leadership to fur-
ther quality include philosophies like TQM
(Spencer 1994), Deming’s Philosophy
(Deming 1986), or Six-Sigma (Defeo
1999), as well as developing organiza-
tional structures and high-level improve-
ment processes that enhance quality.
Strategic Planning
The strategic planning performance
category addresses the planning under-
taken by the firm. How a company devel-
ops and sets its strategic directions are key.
Documentation is important, as it permits
tracking and control of progress and per-
formance. Also, effective use of strategic
planning includes passing higher-level
strategy and objectives to operations in
order to develop operational systems for
meeting business and customer perform-
ance requirements. A systematic approach
to this communication is a vital compo-
nent to this category. The strategic plan-
ning process is very established in the
management literature and is used in
many smaller organizations (Lyles et al.
1993; Kuratko and Naffziger 1992;
Naffziger and Kuratko 1991). Besides for-
mal strategic planning processes, exam-
ples of quality strategies and tools used by
small firms in this category include pursuit
of ISO9000 standards (Noori and Radford
1995), and disseminating customer re-
quirements and expectations (Reed, Le-
mak, and Montgomery 1996).
Customer and Market Focus
The customer is at the center of quality
strategies and is linked to many quality
tools (Rucci, Kirn, and Quinn 1998; Ander-
son and Narus 1998). This category spans
a large domain, beginning with developing
knowledge about the customer, to exam-
ining the performance of companies
through complaint resolution. Under-
standing the customer and the market-
place involves listening to customers and
studying customer satisfaction data (Beck-
ett-Camarata, Camarata, and Barker 1998).
Firms that are effective in this will have
processes set up to communicate with,
and receive communication from, custom-
ers. The systems that serve as customer
interfaces are key. The MBNQA framework
also accounts for customer satisfaction
and relationship enhancement. Uncondi-
tional service guarantees is an example of
this kind of quality strategy or tool used by
small firms (Hart 1988).
Information and Analysis
The information and analysis category
examines the central communication net-
work of the high-quality firm. Information
is the key for aligning operations with the
firm’s strategic objectives (Brynjolfsson
and Hitt 1996). Further, effective use of
information drives the firm’s continuous
improvement in performance and com-
petitiveness. Examples of quality strategies
and tools in this category include system-
atic collection and dissemination of the
company’s cost, sales, net income, and
market share data (Profiles 1992).
KURATKO, GOODALE, AND HORNSBY
Human Resource Focus
Creating a high-performance work-
place and developing employees that em-
br a c e ch a n g e are im po r ta n t
responsibilities of the human resource
management (HRM) function (Burk
1997). HRM should be integrated with the
operations of the firm and aligned with the
strategic objectives of the firm. Research
suggests that smaller entrepreneurial firms
generally have key challenges with HRM
because the small size of the firm often
does not warrant hiring professionals ex-
clusively dedicated to HRM activities
(Hornsby and Kuratko 1990; Wager 1998;
Bacon et al. 1996). Critical to the viability
of smaller entrepreneurial firms is foster-
ing the climate of embracing change and
making change work to the firm’s advan-
tage (Duberley and Walley 1995). Exam-
ples of quality strategies and tools in this
category include training and education
programs (Niehoff and Whitney-Bammer-
lin 1995), employee involvement pro-
grams (Lawler 1994), and employee
empowerment (Goodale, Koerner, and
Roney 1997).
Process Management
Efficient and effective processes require
integrated tasks from product/service de-
sign to post-sale customer service. Quality
has historically taken a process-focus at the
front end, with programs like quality func-
tion deployment (QFD) which turns the
interfacing of customers and product de-
sign into a manageable system. Just-in-
time (JIT) operating systems, albeit much
less sophisticated than typical material re-
quirements planning (MRP) systems, are
consistent with rigorously raising quality
levels by minimizing waste. In addition, JIT
systems may be appropriate for small and
entrepreneurial firms by focusing process
improvement on increasing flexibility. One
promising innovation is JIT II (Pragman
1996), where suppliers provide repre-
sentatives of the supplying firm (called in-
plants) inside the buying firm in order to
facilitate efficient and effective management
297
of the relationship (that is, interfacing
product design and management of in-
bound logistics). Lastly, statistical process
control (SPC) takes a number of different
forms, but essentially improves process
variability in a very rigorous fashion.
Business Results
The business results category takes the
form of data pertaining to customer
satisfaction, company finances, supplier
performance, and company-specific op-
erations. The dissemination of business
results is a key issue in any firm. Smaller
entrepreneurial firms usually do not re-
quire the information infrastructure or so-
phistication that larger firms need. The key
for smaller firms is collecting the data and
developing employees in order to be able
to understand the feedback and how to
incorporate it into their decision-making
(Rucci, Kirn, and Quinn 1998).
Method of the Study
Data for the analysis conducted for this
study were collected from 184 owner/
managers of small businesses located in
the U.S. Midwest (Indiana, Ohio, Michigan,
and Kentucky). These owner/managers and
their businesses were randomly selected
from Chamber of Commerce directories
and were interviewed by students in a
small business course using a structured
interview format that resulted in a ques-
tionnaire being returned for each firm.
Sample and Procedures
A total of 30 students were trained in
the administration of the questionnaire.
The owners were contacted by telephone
and advised that the study was part of an
ongoing university effort to study small
businesses. They were then asked to
participate and an interview time was es-
tablished.1 Only a few of the owners con-
1The student research assistants were instructed to conduct at least six interviews each in Indiana,
Ohio, Michigan and Kentucky. Many students’ families were located in these states which made
it easier for some of them to work from their homes during university breaks.
298 JOURNAL OF SMALL BUSINESS MANAGEMENT
tacted refused to be interviewed. Those
who chose not to participate typically gave
reasons such as they were too busy or they
never participate in surveys. During the
interview, a pre-tested, structured ques-
tionnaire developed by the authors was
completed for each firm. A structured
survey instrument was used to limit the
variation among interviewers. Also, demo-
graphic questions were asked first, fol-
lowed by questions about the firm’s
quality practices. Although more-in-depth
probes or open-ended questions would
have been helpful to clarify thought proc-
esses, a structured approach was used in
this study to increase reliability and validity
in responses obtained. The student re-
search assistants were required to include
a business card from the respondent with
every completed survey. Respondents
were called to verify accurate completion
of the instrument. This data collection pro-
cedure has been used in similar studies of
entrepreneurial firms (McEvoy 1984;
Hornsby and Kuratko 1990; Lyles et al.
1993).
Instrumentation
The quality practices survey developed
and utilized for this research was com-
prised of 120 questions. The first five ques-
tions assessed respondent demographics
while the remaining 115 items covered
quality practices and tools from the quality
literature. The authors divided the items
among the seven MBNQA categories dis-
cussed earlier in this article. For each item,
the respondents were asked to indicate the
extent to which their organization used
the quality tool or strategy and to rate its
value to the firm. If the respondent did not
use a particular set of strategies or tools,
they were instructed to skip that section.
Use. The first measure was designed to
measure the frequency of a particular
item’s (quality tool or strategy) use. If the
respondent indicated that they were using
or planning to use a tool or strategy, it
was recorded as a positive response. The
positive responses were summed for the
extent-of-use measure. A binomial vari-
able and standard deviation were used
for testing statistical significance be-
tween items.
Value. The second measure was de-
signed to measure the value-added contri-
bution of each item to the firm’s business
success. The research assistants were in-
structed to ask the respondent to estimate
the value-added contribution of the qual-
ity strategy or tool to the firm’s business
success. Value-added was defined here as
the actual increase of utility from the
viewpoint of the customer (Cox and
Blackstone 1998). The response possi-
bilities were: +2 = High contribution,
+1 = Moderate contribution, 0 = No con-
tribution, –1 = Minor problems, and
–2 = Created severe problems. For the
purpose of this exploratory study, the fre-
quencies of the responses were reported
for each quality strategy or tool being used.
Results
This section presents some descriptive
results from the survey of quality practices
in small businesses. The majority of re-
spondents came from the service sector
(45 percent) and the manufacturing sector
(29 percent). The remaining respondents
came from retail (19 percent) and whole-
sale (3 percent). Four percent of the re-
spondents refused to classify their industry
type. The average size of the firms surveyed
was 83.5 employees (22.4 salaried and
61.1 hourly). The average age of the firm
was approximately 33 years, and the aver-
age years under current ownership was
approximately 20 years.
In analyzing the data, the focus was on
determining the quality strategies or tools
that generated the five highest values for
the number of firms indicating their use.
This standard was defined somewhat arbi-
trarily by observing natural breaks in the
KURATKO, GOODALE, AND HORNSBY
data, which seemed appropriate for this
exploratory study. Frequency data are re-
ported for the value-added categories. Ad-
ditional quality strategies and tools are
reported if the Value Added Weighted
Average (VAWA) was among the five high-
est when categories were assigned:
Created severe problems = –2, Minor
problems = –1, No contribution = 0,
Moderate contribution = +1, and High
contribution = +2. The results are broken
out by MBNQA categories.
Leadership
Table 1 shows the five most frequently
used quality strategies and tools address-
ing the Leadership category in the
MBNQA performance criteria, as well as
any other quality strategies and tools that
were among the highest based on the
VAWA. As shown, official communication
of high expectations and customer orien-
tation were among the most used (ap-
proximately 50 percent of all firms) and
among the most valuable. Interestingly,
although high expectations may be an
organizational value, official communi-
cation of organization values, though
widely used, was not one of the practices
considered the most valuable by the re-
spondents. Quality strategies and tools
in the Leadership category that were con-
sidered valuable but not widely used by
these firms were organizational struc-
ture designed for flexibility, improve-
ment processes personally used by
senior executives, and a total quality
management (TQM) program.
Although small firms considering an
organizational structure designed for
flexibility to be valuable supports the
exploratory hypothesis, the relatively
low number of firms actually using it
does not. Flexible organizational struc-
tures are purposefully designed to be
“flatter,” have fewer functional areas,
widely use information technology, and
widely use the team approach. Although
on the surface small firms appear to be
naturally positioned to pursue this
299
 Table 1
Results for the MBNQA Leadership Category:
Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Minor
Problems None Moderate High

Official communication
of organization values 1a 98 0.0 3.4 43.2 53.4
(53.3)
Official communication
of high expectations 1a 93 1.2 2.4 39.8 56.6
(50.5)
Official communication
of customer orientation 3a,b 87 0.0 0.0 33.8 66.2
(47.3)
Organizational structure
designed for flexibility 4b 70 3.1 0.0 23.1 73.8
(38.0)
Improvement processes
personally used by
senior executives 4b 69 0.0 3.1 28.1 68.8
(37.5)
Total Quality Management
(TQM) program NR4 60 0.0 2.0 40.8 57.1
(32.6)

1
Multivariate F-test of equal means rejected at p < .01.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
NR = Not ranked among five highest in use, however VAWA is among the five highest.
Note: letter superscripts a and b identify groups with significant differences using Duncan’s
multi-range test (p < 0.05).

strategy, the purposeful pursuit of this
strategy is not apparent in Table 1.
Strategic Planning
The five most frequently used quality
strategies and tools in the Strategic Plan-
ning category based on the number of
firms using it, as well as the quality strate-
gies and tools that were among the highest
based on VAWA, are shown in Table 2. A
formal and documented company mis-
sion, strategic objectives and goals, and
strategies to achieve goals were among the
five most used and among the most valu-
able. Although stating a quality focus in the
mission statement is widely used, it was
not one of the strategies or tools among
the highest in value. Other quality strate-
gies and tools that were among the highest
in value but not among the most used were
formal and documented company action
plans to execute strategies and systematic

300 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 2
Results for the MBNQA Strategic Planning Category:
Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Minor
Problems None Moderate High

Formal and documented

company mission 1a 99 0.0 12.4 49.4 38.2
(53.8)
Formal and documented
company strategic objectives
and goals 1a 95 0.0 1.2 48.2 50.6
(51.6)
Formal and documented
company strategies
to achieve goals 1a 93 1.3 2.5 40.5 55.7
(50.5)
Quality focus stated
in company mission 1a 93 0.0 7.3 41.5 51.2
(50.5)
Formal and documented
company action plans
to execute strategies 5b 74 1.5 1.5 44.6 52.3
(40.2)
Systematic dissemination
of customer and company
performance requirements NR4 66 0.0 3.2 33.9 62.9
(35.9)

1
Multivariate F-test of equal means rejected at p < .01.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
NR = Not ranked among five highest in use, however VAWA among the five highest.
Note: letter superscripts a and b identify groups with significant differences using Duncan’s
multi-range test (p < 0.05).

dissemination of customer and company
performance requirements.
These results reflect the wide use of
strategic planning in these small firms.
However, the use of operational plan-
ning or action plans was significantly
less frequent. This appears to be con-
sistent with the exploratory hypothe-
sis, because the nature of strategic plan-
ning is relatively general. On the other
hand, the nature of action plans is struc-
tured and detailed. Committing to the
structure of an action plan, as op-
p o s e d t o o p e r a t ing m o r e f le x ib ly
within strategic objectives, appears
counter to the exploratory hypothesis.

KURATKO, GOODALE, AND HORNSBY 301

In fact, this finding suggests that a poten-
tialgapinstrategicplanninginsmallfirms
is a method for controlling detailed tasks
without action plans.
Customer and Market Focus
Table 3 presents the five most fre-
quently used quality strategies and tools
addressing the Customer and Market Fo-
cus category, as well as the quality strate-
gies and tools that were among the highest
based on the VAWA. Measurement of cus-
tomer satisfaction and service quality were
both among the most used and among the
most valuable. Measurement of customer
retention and systematic evaluation of fu-
ture customer needs were among the most
used but were not practices among the
most valuable. Other quality strategies and
tools in the Customer and Market Focus
category that appeared valuable but were
not among the most used were official
complaint resolution programs, value-
added analysis, and unconditional service
guarantees.
The high value placed on official com-
plaint resolution programs, value-added
analysis, and unconditional service guar-
antees reflects the recent codification of
traditional and operational processes
commonly known as “good business prac-
tice.” In other words, only recently have
these quality tools been receiving substan-
tial attention by researchers. This is an
important finding, since codification of
these practices helps establish these opera-
tional tools as systematic in a small firm.
Information and Analysis
The five quality strategies and tools
most used for the Information and Analysis
category in the MBNQA performance crite-
ria, and the quality strategies and tools that
contribute the most value based on VAWA,
are shown in Table 4. Systematically col-
lecting company sales data, cost data, and
net income data were among the most
used and among the most valuable. Other
valuable quality strategies and tools in the
Information and Analysis category that
302 JOURNAL OF SMALL BUSINESS MANAGEMENT
were not among the most used were analy-
sis of return on quality (ROQ) and the
systematic collection of company market
share data.
The results reflect a purposeful effort by
small firms to distribute financial data to
decision-makers in the firm. Even distrib-
uting market share data, which was not
widely used, was considered to be valu-
able. However, aiding decision-makers
with systematic forecasting or charting of
performance measures did not appear to
be among the most valuable quality strate-
gies and tools. This may reflect how finan-
cial data is used to make decisions in these
small firms. Decision-makers are appar-
ently finding the data useful, but not the
analysis of the data. This demonstrates a
gap in the use of financial data by small
firms.
Human Resource Focus
Table 5 shows the five most frequently
used quality strategies and tools address-
ing the Human Resource Focus category in
the MBNQA performance criteria and the
quality strategies and tools that contribute
the most value based on the VAWA. Train-
ing programs for quality and employee
involvement programs were both among
the most used and among the most valu-
able. Employee/team financial reward pro-
grams were among the five most widely
used quality strategies and tools but not
among the most valuable. Other valuable
quality strategies and tools in the Human
Resource Focus category that were not
among the five most used were employee
empowerment programs and employee
recruitment strategies that consider qual-
ity issues.
The results point to two areas in small
firms that are usually addressed by the
entity responsible for human resource
management (HRM) and indicate the
need for strong HRM in small firms. First,
the results indicate that training programs
are one of the most widely used quality
strategies and tools when considering all
items on the survey instrument. Taking
 Table 3
Results for the MBNQA Customer and Market Focus
Category: Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Minor
Problems None Moderate High

Measurement of
customer satisfaction 1a 112 0.0 2.0 26.3 71.7
(60.9)
Measurement of service quality 1a 103 0.0 2.3 24.1 73.6
(56.0)
Measurement of
customer retention 3b 82 0.0 1.5 41.2 57.4
(44.6)
Official complaint
resolution program 3b 78 0.0 1.4 38.4 60.3
(42.4)
Systematic evaluation of
future customer needs 3b 68 0.0 5.9 29.4 64.7
(37.0)
Value-added analysis NR4 41 2.9 0.0 28.6 68.6
(22.3)
Unconditional service
guarantee NR 52 0.0 7.0 25.6 67.4
(28.3)

1
Multivariate F-test of equal means rejected at p < .01.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
NR = Not ranked among five highest in use, however VAWA is among the five highest.
Note: letter superscripts a and b identify groups with significant differences using Duncan’s
multi-range test (p < 0.05).

advantage of state-of-the-art quality strate- knowledgeable about identifying individ-

gies and tools appears to be a priority for
small firms, and appears to be valuable.
Second, employee recruitment strategies
that consider quality issues appear to be
very valuable. One might feel that this hap-
pens naturally in the employee hiring
process, but considering small firm size,
hiring decisions may be made by non-HRM
personnel and perhaps by personnel not
ual differences.
Process Management
Table 6 shows the five quality strategies
and tools with the highest number of firms
employing each strategy or tool, and the
most valuable based on VAWA average.
These quality strategies and tools address
the Process Management category in the

KURATKO, GOODALE, AND HORNSBY 303

 Table 4
Results for the MBNQA Information and Analysis Category:
Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Created
Problems None Moderate High

Company sales data

systematically collected 1a 126 0.0 3.4 25.6 70.9
(68.5)
Company cost data
systematically collected 1a 125 0.0 4.3 19.7 76.1
(67.9)
Company net income
data systematically collected 1a 120 0.0 5.2 26.1 68.7
(65.2)
Forecasting used on company
performance data in order
to improve 4b 77 2.95 4.4 50.0 42.6
(41.8)
Charting used on company
performance data in order
to improve 4b 69 0.0 5.4 48.2 46.4
(37.5)
Return on quality (ROQ)
analysis NR4 37 0.0 3.3 46.7 50.0
(20.1)
Company market share
data systematically collected NR 51 0.0 10.2 36.7 53.1
(27.7)

1
Multivariate F-test of equal means rejected at p < .01.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
NR = Not ranked among five highest in use, however VAWA among the five highest.
5
One respondent indicated that strategy or tool created severe problems; one respondent indi-
cated that strategy or tool created minor problems.
Note: letter superscripts a and b identify groups with significant differences using Duncan’s
multi-range test (p < 0.05).

MBNQA performance criteria. Perhaps due
to the large number of available alterna-
tives in this category, there were no strate-
gies or tools that were considered both
among the most used and most valuable.
Table 6 does reflect strategies and tools
that were valuable. Documentation of all
business processes, a team approach to
job design, formal quick-response pro-
grams, formal and documented continu-

304 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 5
Results for the MBNQA Human Resource Focus Category:
Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Minor
Problems None Moderate High

Training programs for quality 1a 114 1.0 0.0 36.4 62.6

(62.0)
Employee involvement
program 2b 89 0.0 3.8 33.8 62.5
(48.4)
Employee/team
financial rewards 2b 84 1.4 8.1 39.2 51.4
(45.6)
Employee/team
recognition program 2b 81 2.9 5.8 36.2 55.1
(44.0)
Formal education program 2b 72 0.0 1.5 39.7 58.8
(39.1)
Employee empowerment
program NR4 46 0.0 4.5 34.1 61.4
(25.0)
Employee recruitment
strategies that consider
quality issues NR 39 0.0 2.9 38.2 58.8
(21.2)

1
Multivariate F-test of equal means rejected at p < .01.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
NR = Not ranked among five highest in use, however VAWA is among the five highest.
Note: letter superscripts a and b identify groups with significant differences using Duncan’s
multi-range test (p < 0.05).

ous improvement programs, and formal Business Results

programs for incorporating customer re-
quirements into product/service design all
appeared to be valuable.
Interestingly, a formal quick response
program achieved the highest VAWA out of
all items on the survey instrument. How-
ever, the number of firms employing it was
low—a key finding in this study.
Finally, the quality strategies and tools
used to address the Business Results cate-
gory in the MBNQA performance criteria
are presented in Table 7 (only four items
were included in this part of the survey).
Only collecting and disseminating cus-
tomer satisfaction results throughout the
organization was among both the most

KURATKO, GOODALE, AND HORNSBY 305

 Table 6
Results for the MBNQA Process Management Category:
Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Minor
Problems None Moderate High

Brainstorming 1 79 2.7 4.1 37.8 55.4

(42.9)
Documentation of all
business processes 1 75 0.0 5.3 28.1 66.7
(40.8)
Team approach to job design 1 71 0.0 1.8 30.9 67.3
(38.6)
Customer satisfaction
questionnaires 1 65 0.0 12.7 40.0 47.3
(35.3)
Documentation of all
production processes 1 63 0.0 1.9 23.1 75.0
(34.2)
Formal quick-response
program NR4 33 0.0 7.7 7.7 84.6
(17.9)
Formal and documented
continuous improvement
process NR 43 0.0 2.7 24.3 73.0
(23.4)
Formal program for
incorporating customer
requirements into
product/service design NR 54 0.0 2.2 26.7 71.1
(29.3)

1
Multivariate F-test of equal means not rejected at p < 0.05. Duncan’s multi-range (p < 0.05)
did not identify any significant groups.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
NR = Not ranked among five highest in use, however VAWA is among the five highest.

used and the most valuable in the MBNQA
Business Results category. Although not
among the most used, collecting and dis-
seminating financial results and costs
of quality were among the highest with
respect to the VAWA in the MBNQA Busi-
ness Results category.
The results indicate that quality strate-
gies and tools in the MBNQA Business
Results category were not widely used or
valuable relative to the other items on the
survey instrument. It may be perplexing
that in Table 7 the collection and dissemi-
nation of company financial results were

306 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 7
Results for the MBNQA Business Results Category:
Most Used and Highest Value Strategies and Tools
Strategy Use Rank1 Number of Firms Percent Responding
or Tool Using Strategy2 to Level of Value Added3
(percent)

Created
Problems None Moderate High

Customer satisfaction
results collected and
disseminated throughout
organization 1a 84 0.0 2.7 41.1 56.2
(45.7)
Company financial results
collected and disseminated
throughout organization 2b 60 1.7 8.6 37.9 51.7
(32.6)
Company costs of quality
collected and disseminated
throughout organization 3c 36 0.0 6.7 46.7 46.7
(19.6)
Supplier and partner results
collected and disseminated
throughout organization 3c 25 5.04 10.0 45.0 40.0
(13.6)

1
Multivariate F-test of equal means rejected at p < .01.
2
n = 184 respondents.
3
Respondents rated items: created severe problems, minor problems, no contribution, moder-
ate contribution, and high contribution.
4
One respondent indicated that strategy or tool created severe problems.
Note: letter superscripts a, b, and c identify groups with significant differences using Duncan’s
multi-range test (p < 0.05).

not found to be widely used whereas in disseminating it to decision-makers in

Table 4, sales, costs, and net income items
were shown to be widely used. The cate-
gories and the category headings may have
influenced these findings. Respondents
may have had a more operational mind-set
when considering the items in the MBNQA
Information and Analysis category, and
viewed the MBNQA Business Results as
official data for year-end or tax purposes.
Because of the number of financial items
in Table 4 that were widely used, it can be
asserted that collecting financial data and
small firms are widely used and valuable
practices.
Discussion and
Conclusions
Based on the findings of this explora-
tory investigation, there are a number of
interesting observations and implications
about quality management and flexibility
in smaller firms. Systematic collection of
business performance information (sales,
costs, and net income), measurement of

KURATKO, GOODALE, AND HORNSBY 307

customer satisfaction, and training pro-
grams for quality were the most widely
used (60–70 percent) practices in the
MBNQA performance criteria. In addition,
these practices were considered to be
among the most valuable to the firm.
This study views the adoption of any
high-level quality practices in the MBNQA
Leadership category as consistent with
managing small firms in dynamic environ-
ments. These practices provide direction
when employees are under shared man-
agement and require ambiguity absorp-
tion (Jelinek and Litterer 1995). This
facilitates management of systemic flexibil-
ity (Covin and Slevin 1991) and therefore
supports the main proposition of this
study. Based on the same logic, the overall
structure provided by the items in the Stra-
tegic Planning category supports the main
proposition of this study. Interestingly,
more operational planning practices like
action plans when competing in a dynamic
environment were not as widely used as
one might expect.
Results from the Customer and Market
Focus, Information and Analysis, Business
Results, and Human Resource Focus cate-
gories also support the main proposition.
In terms of Customer and Market Focus,
the most widely used and most valuable
practices focused on developing the firm’s
customer knowledge. Designing systems
to be flexible requires excellent communi-
cation between decision-makers in small
firms, and the results from the Information
and Analysis and Business Results catego-
ries support the practice of systematically
collecting and disseminating customer
and company data. Recognizing employ-
ees as valuable assets is key to managing
small firms in dynamic environments. Be-
cause responsiveness is key to flexibility,
practices that enable employees to act on
behalf of the firm effectively leverage the
firm’s competencies. Employee training and
involvement programs address these behav-
iors. Results from the Human Resource Fo-
cus category show these programs as widely
used and valuable in the firms surveyed.
308 JOURNAL OF SMALL BUSINESS MANAGEMENT
The results from the Process Manage-
ment category reflect firms using a wide
variety of alternatives. However, some key
findings were the high value reflected by
the responses to: (1) the team approach to
job design, which is consistent with an
effective method for enabling shared man-
agement and ambiguity absorption; and
(2) the formal quick-response programs
which enable flexibility in responding to
customers.
It is important to note that there are
limitations to this exploratory study. Al-
though there was an attempt to be as
nearly comprehensive as possible in
specifying quality strategies and tools for
the respondents to consider, the instru-
ment can never achieve complete speci-
ficity. For example, according to Table 3,
112 responding firms (60.9 percent) in-
dicated that measurement of customer
satisfaction was a quality strategy or tool
that they used. However, only 65 firms
(35.3 percent) indicated that customer
satisfaction questionnaires was a quality
strategy or tool used by the firm. The
correlation (Spearman’s rho) between
these two variables was significant at
p < .01 (two-tailed). Thus, the former
statistic does not completely specify the
methods used to measure customer sat-
isfaction. It is believed that in this case
the remaining 47 firms used other op-
tions for measuring customer satisfac-
tion be sides customer satisfaction
questionnaires. Other widely used meth-
ods for measuring customer satisfaction
include counting customer complaints
and counting products returned under
money-back guarantees. Unfortunately,
neither of these quality strategies or
tools were items on the questionnaire.
Future research in this area should fo-
cus on at least three questions. First, what
impact do the various quality practices
have on business success criteria such as
sales growth, productivity, and profitabil-
ity? Second, are there demographic differ-
ences such as geographic location, size,
industry type, and age of the small business
in the implementation of quality practices?
Finally, what impact are larger client or-
ganizations having on smaller firms and
their strategic focus relating to quality?
In summary, the results of this study
provide a reflection of quality manage-
ment practices in small firms participating
in dynamic markets. Furthermore, the data
provide direction toward examining impli-
cations of small firm size on quality man-
agement and practices.
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