Impact of ISO 9000 on Business Performance

Impact of ISO 9000 on Business Performance Introduction International Organisation for Standard (ISO) is based in Geneva. It is a worldwide body founded in 1946 to promote and develop the international standard and related activities to facilitate the exchange of goods and services nationwide (Randall, 1995). ISO inaugurated a technical committee on quality management and quality assurance to develop a universally accepted set of quality standard. In 1987 ISO published the ISO 9000 standard series on quality management and assurance based on the commendable work of the committee (Hoyle, 2006). These standards were also revised in 1994 and 2000 respectively, and the most recent called ISO 9000:2000 family of standard. Many writers have come up with several but related definition of ISO 9000. Hoyle (2006) defined ISO 9000 as: â€Å"A criteria that apply to the management of an organisation when determining customers needs and expectation and supplying product and services that are intended to satisfy those needs and expectations.† Martinez-Costa et al.(2004) also defined ISO 9000 as an effective system for the evaluation of the ability of an organisation to design produce, and deliver quality products and services consistently. Sun et al.(2004) also has it that the standard provides guideline for organisations for establishing of their quality management systems â€Å"by focusing on procedures, control, and documentation†. The Science and Engineering policy Studies Unit (SEPSU) came up with a more summarized definition for the ISO 9000 family of standard. ISO 9000 was defined as being about quality systems and about consistency. It aims to give customers confidence in their suppliers by assuring them that the suppliers have in place management processes that deliver consistency (SEPSU study,1994).The study also stated that IS0 9000 encourages but never in itself directly assures product quality. From the above definitions, it could by deduced that ISO 9000 is only a criteria or process to be followed to achieve quality, and not the quality itself. Research problem and study purpose The definition given by SEPSU study clearly explained the role of ISO 9000. Still, many issues remains unaddressed. Firstly, surveys has it that despite the fact that several organisations spend so much resources in obtaining certification of the ISO 9000 standard , there seems to be other motive for seeking the certification and which therefore influences the outcome of the their business (Gotzamani and Tsiotras,2002; Idris et al.,1996).There are organisations that seek certification just for market purposes (Hoyel, 2007), and some also consider it as path of continuous improvement for the company (Stone,2003; Goetsch and Davis, 2005). However studies have shown that customers prefer products from suppliers that are ISO 9000 certified (Taylor, 1995a; Witcher, 1993). This means organisations are now forced to obtain certification in whatever way possible. As a result of these hurry for certification, the European Commissions Directorate for industry which is a high profile regulatory group has questioned the effectiveness of the certification since many European firms are not sure if the certification actually infuses quality into their organisations (Stratton, 1994). The purpose of this paper is to address the problem above by examining critically if the ISO 9000 standard does improve business performance or not, by testing the strength of the relationship between the ISO 9000 certification and organisational performance. Research Question and study objectives â€Å"ISO 9000 is only a beginning; it provides a mechanism with which to bring about systematic improvement but it does not improve performance byitself†. Paying attention to the above statement made by Hoyle (1994) on the value of ISO 9000 certification and its diverse nature, the following questions will be clearly investigated in this work: Does ISO 9000 certification have a significant positive effect on business performance? What is the organisational attitude towards ISO 9000 certification? Providing answers to these questions above will lead to a clearer understanding of the impact of ISO 9000 certification on business/organisational performance. It will also guide to a realistic management expectation of business value of ISO 9000 certification in an organisation and the knowledge that gaining an ISO 9000 certification is noting similar to creating quality organisation. Research methodology This research seeks to review some extant theoretical literatures and web-based sources on the impact of ISO 9000 on business performance. It is important to acknowledge that major researches on ISO 9000 have been conducted via postal questionnaire (Magd, 2003, 2004, 2008; Bhuiyan and Alam, 2005, Douglas et al., 2003; Batchelor, 1992) which is a more standard, practical approach and gives less room for bias. Literature review The literature review identified quiet some articles that deals with impact of ISO 9000 on businesses in quality and reliability management studies. Despite the perceived benefit of the ISO 9000 certification, only few studies have examined if ISO 9000 certified organisations do actually perform good than non-ISO 9000 certified organisations. These studies include 🙠 Magd, 2008; Terziovski et al., 2003; Lee, 2003; Chow-chua; 2003; Sun, 2000; Dick et al., 2002; Heras et al., 2002a etc.). Several papers associated with ISO 9000 are mainly focused on the qualitative benefits associated with its certification, like communication and general understanding of the companys process, and not the quantitative benefits. Some literatures also focused on what to do to gain ISO certification. Perceived benefit of ISO 9000 certification ISO 9000 certification bodies such as the British Standards Institute (BSI), Lloyds Registers Quality Assurance (LRQA) and SGS, have claimed some benefit of ISO 9000 such as: Bringing recognition and reputation at the market place, increasing customers satisfaction, high profit margin (www.BSI-GLOBAL.com). Reduction in waste, competitive advantage, formalize management system (www.SGS.com). Magd (2008) listed some benefits like improvement in documentation and improvement in efficiency of the quality system are among the top perceived benefits of ISO 9000 in an empirical survey conducted on the Egyptian manufacturing sector. In another investigation in a servicing company in the UK industries, Douglas et al. (2003) found that the main external benefit of the ISO 9000 was the higher perceived quality from the customers, and the main internal benefit being â€Å"good documentation procedure†. In another research carried out by chow-chua et al. (2003), highest numbers of respondents agreed that expansion in international market was the internal motive, and improvement in customer satisfaction as the external factor for seeking ISO 9000 certification. However, an empirical study conducted by Heras et al (2002a) conclusively stated that the major benefits sought from ISO 9000 is profit improvement (see Table i below for illustration). In another negative vein, in a st udy conducted in China involving 194 manufacturing and servicing sector, a good number of respondents expressed the view that ISO 9000 will not have direct effect on companies business performance (Dang, 2007). In fact; Lima (2000) also supports this view. This variation in survey results only proves a point â€Å" That the implementation and the impact of ISO 9000 standards vary from organisation to organisation and from country to country†, these variation is as a result of the various organisational context and the level of the countries awareness of quality management practice ( Magd , 2004). ISO Certification Quality management system Quality improvement Business performance Profitability Certified to ISO 9000 standard The approved quality Management System brings an Increased emphasis on quality and how it may be achieved consistently Internal: Less waste and duplication of effort External: quality received by customers improves Reduced costs Improves Competitiveness Fewer customer defections so sales increase Badge of quality opens more sale opportunities Cost of sales reduces leading to increased profits Profitability benefits from scale economies and lower sales acquisition cost Driving forces for seeking ISO 9000 certification Juran (1995) has said that the main reason for an organisation seeking quality certification is â€Å"maintenance or market expansion†. In a survey by Madg (2008), the question was the deferent reasons for seeking of certification. These options were being limited to 14. The response rate was 35 percent, (see Table ii next page). The participants were asked to rate the significance of these reasons on a five- point scale. In response to improve the efficiency of the quality system and to achieve customer satisfaction took the top position. However, improve employees relations and capturing workers knowledge came below the list. (Table ii): Driving forces for seeking ISO 9000:2000 certification RANK DRIVING FORCES M SD 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. To improve the efficiency quality of the quality system To achieve customer satisfaction Pressure from competitors/foreign partners To maintain/increase market shears Avoid potential export barrier To meet government demands, requirements or pressure To achieve quality improvement To market product in the international arena To use ISO as a marketing promotion tool To be a step towards TQM To achieve cost reduction To meet corporate objectives To improve employees relation Capturing workers knowledge 4.71 4.68 4.64 4.62 4.60 4.56 3.71 3.64 3.47 3.29 3.19 2.24 2.17 2.14 0.42 0.48 0.49 0.50 0.57 0.60 1.02 1.10 1.42 1.30 1.27 1.20 1.18 1.09 NOTE: The Mean score is based on participants level of agreement with each statement on a scale of 1 = strongly disagree to 5 = Strongly agree; a mean score above 4 indicates high, between 3 and 4 indicates moderate and a score of less than 3 indicates a low level of agreement; SD = Standard Deviation. Another good example is the Science and Engineering Policy Studies Unit in the UK (SEPSU study,1994).This study took 28 survey on many different issues among these were the same as Magd (2008), reasons organisations seek certification and the effectiveness of the certification. There appears to be a motive some managers adopt certification. The commonly cited driving force for seeking ISO 9000 however, was customer pressure. This, therefore, results in less improvement in organisational performance (Park et al., 2007; Singles et al., 2001). The problem with this type of analysis is that it lacks the strength to show the relationship between ISO 9000 certification and organisational performance .However, it gives some useful results. Business value of ISO 9000 A more comprehensive empirical survey on quality practice is the International quality study (American Quality Foundation,1991).The study surveyed 500 banking, computer, automobile ,and health care organisations in Japan, Canada, USA, and Germany. The result of this survey was that some quality practices, most especially supplier certificate and process improvement which is aided by ISO 9000 indeed have some significant effect on performance. (Prubhu et al., 2000) also supports this fact. Similarly, a study in Australia by the Australian Manufacturing council (AMC study, 1994) whose approach was to analyze the methods and approach used by the Australian and New Zealand manufacturing organisations in quality management practice. The result was that more than 50 percent of the ISO 9000 certified firms agreed that ISO 9000 certification was a significant factor in the improvement of their business performance. Managers of certified firms has therefore agreed that certification increases customer perception of product quality, and such perception can often be effective in wining new customers (Cermen Escanciano et al.,2001). Firms are been advised in the AMC study ( 1994) that certification is not a substitute for quality product and services. The AMAC study has been criticized for its data analysis methodology (Terziovski et al.,1997). Organisations can achieve certification but still produce a poor quality product (Zuckerman, 1997; Hertz; 1997). Furthermore, certification could cause managers to have a self-satisfied attitude towards quality. There is this risk of also bringing in some poor practices through the certification process. It will be the best practice if organisations could set a quality standard for themselves well above the minimum being outlined by ISO 9000, and also seek ways to improve (Terziovski et al., 2003). Batchelor (1992) surveyed 647 certified manufacturing and service companies in the United Kingdom, and discovered that 15 percent of the respondents that participated thought they had gained business value on nine dimensions of organisational performance, which include: â€Å"customer satisfaction, waste and cost, market share, new customers, procedural efficiency, staff motivation, staff attitudes, and error rate†. A quite impressive body in management and quality literatures has pointed out that the major reason backing organisations decision to adopt ISO 9000 system is due to perceived marketing benefits (Lloyds Register, 1993). A survey carried out by Sun (1999) did some remarkable investigations on ISO 9000 certified firms in Norway. The survey reveals that â€Å"ISO 9000 and quality are correlated†. This was known to be in respect of the reduction of customer complaints, defects, and improvement of business performance in productivity and profitability. Supporting these facts Heras et al.(2001) reported that organisations that has implemented ISO 9000 standard have successfully been able to project themselves to achieve continuous improvement, competitive advantage, and are better-run organisation. Zairi and Baidoun (2003) also supports this fact. Magd (2003) in another study conducted at Saudi Arabia involving 140 ISO 9000 certified manufacturing firms. Using a questionnaire as a means of primary data collection, this relied on the use of five-point likert scale. The study suggested 20 possible benefit of ISO 9000 of which the respondents were asked to rate the extent to which ISO 9000 affect these elements. These rating were to be from â€Å"crucial effect† to â€Å"no effect†. From the results of the survey, improvement in efficiency of the quality system, increased quality awareness in the firms, improvement in customer service, and increase in quality of product was seen as of benefits ISO 9000 certification among the Egyptian manufacturing companies. McAdam and canning (2001) in another assessment of the impact of ISO 9000 on the performance decided to focus his study on the building construction companies in Northern Ireland. The methodology used was to conduct a semi interview with six surveying practitioners on their view on ISO 9000.This finding obtained was then used to develop and structure a questionnaire towards the study purpose. Out of about 66 questionnaires posted, 52 usable ones were returned. The result was that ISO 9000 certified firms indicated some internal benefit in varying degree. 35 percent agreed that they have improvements in management systems, 24 percent had improved service quality, 12 percent agreed they had developed clearer communication, and 6 percent of the respondents believed that ISO 9000 â€Å"increases profit ratio†. In summary, this research brings to light that majority of the respondents share the view that ISO 9000 has a significant impact on business performance, because of there is more benefit as compared to the demerits. In a survey conducted by Douglas et al.(2003) questionnaires were being forwarded to 200 quality managers/representatives in UK industries. Among these 200, 120 were from the service sectors while 80 were from the manufacturing sector. The simple task was for them to indicate the financial benefit of the ISO 9000. 104 usable questionnaires were received. 53 percent claimed they dont perceive any benefit with regards to staff motivation. 45 percent of the respondents said that their organisation did not achieve any benefit with regards to cost and waste reduction. Despite the contradictory figures a whopping 75 percent believe ISO 9000 to be a good value for money. This reaction may likely be in connection with the fact that they now gained the ability to tender for contracts previously not realistic. Another investigation was carried out by Musa et al (2003) which involves a different approach altogether. This survey compared the performance of ISO 9000 certified and non-certified Turkish firms by using their stock market returns. The list of the monthly returnes of these firms was gotten from the Istanbul Stock Exchange ISE (2001) market of Turkey from January 1977 to December 2000.One hundred and three (103) of these firms are ISO 9000 certified while one hundred and seventeen (117) where non-satisfied. Based on the objective of the research, two main hypotheses were made: H1 – ISO 9000 certified firms have higher stock market returns than non-ISO 9000 certified firms H2 – ISO 9000 certified firms have lower variability. This type of analysis of using the stock market returns of firms has some limitation since limited number of companies might meet the criteria to be listed in the stock market. Also the survey was measuring only the exports excluding the regional returns in this analysis. Considering the literature review so far, it appears that some managers have failed to distinguish conformance from performance. This is because they have not yet understood the primary role of ISO 9000 certification. ISO 9000 is a conformance specification that shows that the company has a system which is capable of giving a quality goods and services (Teziovski et al.; 1997). The willingness of the management and the employees to use and accept the standard in their day to day activities also depends on this capacity. Askey and Dale (1994) has it that managers tend to divert from the original practices after gaining ISO 9000 certification, which often result in managers engaging their workforce in preventive actions, after much damage has been done already (Brown, 1994). Performance specification on the other hand falls on the tools and techniques, and requires the employees to use the certification process as part of improvement initiative (Allan, 1993). The major problem that emerges from the review is the managers perception of the ISO certification as the answer rather than a tool to an answer. There is a general view in the literature that certification is a potential path to Total Quality Management (Sun, 2000). Barrier to ISO 9000 effective implementation Some assessments were performed to identify the perceived barriers that might add to the ineffective implementation of ISO 9000 in Egyptian manufacturing organisations by Magd (2008). Some numbers of barriers were extracted to perform this study. The respondents were being required to rate these barriers on a five point scale. From â€Å"strongly disagree†=1 to â€Å"strongly agree†=5. As explained in the research there was consecutive agreement among the Egyptians manufacturer that top management commitment, lack of qualified personnel, insufficient quality education and training, lack of financial resources, and failure to define responsibility were among the top barriers for an effective implementation for ISO 9000. Top management commitment was the most important barrier because if an organisation is lagging in management commitment, the employees do not tend to prioritize the quality management system, which will therefore affect the implementation of the quality m anagement (Lee, 2004; Magd, 2003; Bhuiyan and Alam, 2005). Boiral and Marie-Josee (2007) made it clear that lack of managers and employers commitment, difficulty in understanding the quality management system, meeting and system development, time involved in training and difficulty in overcoming the communication barriers are common factors against the implementation of ISO 9000 standard. Another similar study conducted in Singapore by Quazi and Padibjo (1998) explained that high cost of implementation, extra effort in documentation, shortage of manpower, resistance at supervisory levels, lack of management commitment and employee resistance to change are among the top barriers. These finding should be a significant factor to stakeholders in a business. The barrier to be eliminated can easily be identified so that the standard could be implemented effectively. Criticism of ISO 9000 certification Seddon (1997a) a strong critic of ISO 9000 expresses the view that a number of operations that are associated with ISO 9000 are actually not fully optimized within the work place. According to Douglas et al. (2003) the view of some critics of ISO 9000 is that â€Å"some organisations whose objective was TQM (Total Quality Management), implementing ISO 9000 took them away from achieving that objective†. The issue of cost of registration and implementation has also been stressed (Dick, 2000), in that the costs are greater than the desired benefit. (Douglas et al.,2003) in their survey asked participants to indicate a five-point scale the extent they agree with some statement against ISO 9000 (See table iii). From the survey, 53 percent of the respondents did disagree with Gotzamani and Tsiotras (2001) on the view that ISO 9000 sub-optimize performance in a workplace. On the argument about continuous improvement, Lee (2004) argued that 1SO 9000 only introduces improvement through prevention and correction of non performance. These critics has argued that achieving ISO 9000 certification does not mean quality as organisation may still be certified and still give poor quality output. The consistency and the role of the assessors of this standard have been questioned by previous researches (Killman and Stanford, 1996). Criticism Strongly disagree Disagree Neither Agree Strongly agree ISO 9000 promotes action which results in sub-optimization of performance. ISO 9000 a step backwards in the guess of TQM. ISO 9000 relies too heavily on other, in particular assessors interpretation of quality. ISO 9000 can only be effective if accompanied by a culture change. It is easy to be ISO 9000 certified yet produce poor quality output. ISO 9000 will only control output; quality is about improving output. 12 14 8 0 1 9 53 65 44 8 19 35 27 19 22 14 9 20 9 2 23 54 54 33 0 0 3 24 18 4 Findings From the random-sample carried out in this research, it will be practical to conclude that quality studies have been able to identify two main sections of which quality impacts business performance: In terms of manufacturing aspect which involves the increase in employee quality awareness, improve in internal quality process, reduction in production cost and increased productivity, reduces defect and wastage, improves operational performance. Marketing aspects where it increases costumers satisfaction, and market performance, and ability to tender for business. It also exposed how companies clutch for ISO 9000 certification as if it was a remedy for their quality control problem. Limitations of the study Several limitation of this study must be mentioned. In contrast to previous studies, which used survey, questionnaires and average monthly stock market returns of the organisations to examine their performance, which is wide, more stable, consistent and provides less room for bias or error. This study is based on collection of secondary data on the impact of ISO 9000 in business performance. Conclusions and Recommendations This work did analyze the result of implementing the ISO 9000 standard in business. From the opinions of researches reviewed in this paper it is of no doubt that the implementation of these standards has an effect on organisational performance. There is a very high consensus regard to the influence of ISO 9000 on a companys results, mainly through operation improvement, and the cost of companies internal activities. Despite the numbers of surveys on the impact of ISO 9000 on business, this review identified that few surveys have focused on Africa. 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