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This study aims to evaluate an organizational development programme (TQM) that was implemented at the tertiary‐care public hospital that showed the highest total factor productivity growth in Sri Lanka for the 1997‐2001 period.

Balanced score card approach is used to assess the performance of the hospital under study. Value chain analysis is conducted to identify the changes in organizational management following TQM implementation. Employee feedback is obtained by questionnaire‐based interviews.

Performance of the hospital with regard to service quality, employee‐performance, fixed‐asset‐performance, and social responsibility improved. Overall, value chain analysis shows that the differentiation was used to improve quality of services. Leadership, team‐work and continuous monitoring were the key factors that facilitated implementation of 5‐S based TQM.

The 5‐S system‐based TQM appears to be a feasible and promising system to initiate management improvement of public hospitals in developing countries.

This paper is of value for hospital managers and policy makers of developing countries, where there are chronic resource shortage and managerial constraints, particularly in government sector health services.

Five‐S, a simple tool was utilized as the initial step towards total quality management activities at a public hospital in Sri Lanka. This paper introduces the system improvement activities at the hospital which won several awards for quality of service at national level. Though there are multiple reasons for the significant improvement of performance at the hospital, the study team observes that Five‐S has contributed heavily towards the success. The unique feature observed was that Five‐S activity reorganizes the system radically compared to most of the continuous quality improvement (CQI) approaches which depend on problem solving. In the hospitals of developing countries, in which even the basic processes are unsatisfactory, Five‐S approach may be suited for the initiation of the CQI process. Further research is needed to evaluate the quality improvement activity based on standardized criteria and to assess the factors which influenced the process.