Abstract
We analyse Total Quality Management (TQM) from an economic and organisational perspective. We find that TQM is a new organising technology that is science‐based, non‐hierarchical and non‐market‐oriented. It improves productivity by encouraging the use of science in decision‐making and discouraging counter‐productive defensive behaviour. It also encourages effective creation and use of specific knowledge throughout the organisation. Effective implementation of TQM generally requires major changes in all three components of the organisational rules of the game, namely systems for allocating decision rights, performance measurement systems, and reward and punishment systems.