Quality management approaches and their impact on firms' financial performance – An Australian study Peter O’Neill n , Amrik Sohal, Chih Wei Teng Department of Management, Monash University, 26 Sir John Monash Drive, Caufield East, Australia article info Article history: Received 31 October 2013 Accepted 10 July 2015 Available online 21 July 2015 Keywords: Quality management Financial performance Manufacturing SME Quantitative Secondary data Australia abstract The study of small manufacturing firms typically focuses on issues of entrepreneurship, business or operations strategy. Alternate issues remain scarce, and the implications for organisational performance are modest. In the Australian context, managers have often been criticised for their failure to recognise that quality and innovation are a key driving force to performance. This research utilises the work of several authors to develop quality orientations for small Australian manufacturing firms (SAMFs) to purposefully bridge the gaps in the business literature, and enable the evaluation of various performance outcomes. Specifically, this study investigates whether a firm's stated quality orientation is useful in differentiating firm performance. The research utilises longitudinal panel data gathered by the Australian Bureau of Statistics growth and performance survey over four years from financial year 1995 to 1998. We demonstrate that firm quality management orientation does provide a statistically significant financial performance advantage (and by inference survival advantage) over those SAMFs who do not engage in quality management. The research is a significant addition to the quality – financial performance literature, and provides a pathway forward for the use of two new financial (productivity) ratios as performance measures. & 2015 Elsevier B.V. All rights reserved. 1. Introduction A lack of empirical evidence in the literature linking the operationalization of quality management (QM) systems with objective financial performance measures was the motivation behind writing this paper. Research was undertaken collabora- tively between the Australian Bureau of Statistics (ABS) and Monash University in Australia. It is an historical perspective, which incorporates longitudinal panel data from small manufac- turing firms spanning the financial years 1995–1998. High protection levels post-World War 2 characterised Austra- lian productive capacity up to the early 1980s. This resulted in the slow adoption of advanced technologies and quality systems, and the rapid decline in the competitiveness of the Australian manu- facturing industry. The floating of the Australian dollar in 1983 (depreciation by over 30 per cent to 1986), and the Button Plan of 1987 (a tariff reduction programme), heralded a period of massive rationalisation and restructuring to produce a more innovative, efficient and export oriented manufacturing sector. At the centre of this programme was a quality-based approach, from which firms sought to improve their operations, thereby enabling them to better meet the needs of local and export customers. Some key systemic changes associated with the Australian manufacturing industry have been:  Make to order and inventory management systems,  Integrated Quality Systems,  Strategic relationships with key value chain members,  Introduction of benchmarking systems to monitor and drive performance,  Outsourcing of non-core business activities. As a result, there was a rapid rise in the adoption of quality management (QM) practices from the late 1980s. However, it was not until the ABS's Growth and Performance survey (GAPS) that it was possible to determine, as well as measure, drivers of business performance and growth (i.e. from 1995 to 1998). An implicit challenge of the survey was to determine whether implementing quality management (QM) practices has a positive impact on a firm's financial performance. Many scholars have attempted to address this question, amongst the most recent, Klingenberg et al. (2013) and Duarte et al. (2011), but in general their results have failed to produce Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/ijpe Int. J. Production Economics http://dx.doi.org/10.1016/j.ijpe.2015.07.015 0925-5273/& 2015 Elsevier B.V. All rights reserved. n Corresponding author. E-mail addresses: peter.oneill@monash.edu (P. O’Neill), amrik.sohal@monash.edu (A. Sohal), chihwei.teng@monash.edu (C.W. Teng). Int. J. Production Economics 171 (2016) 381–393