Maintaining the benefits
The debate about the impact of ISO 9001 on an organization’s financial performance has been raging for over ten years. Although this debate is far from resolved it has produced ever more sophisticated research methodologies to assess the influence of ISO 9001 on financial performance. Tom Nicholls looks at the facts
To date, the most significant findings have come from longitudinal studies that compare the performance of companies that choose to certify with companies that do not over several years. These studies have brought to light an interesting issue that could have profound implication for a company’s long-term quality management strategy.
Denmark and Spain
Two European studies, Haversjo (2000) in Denmark and Heras et al (2002) in Spain looked at the performance of 400 or more organizations before and after certifying to ISO 9001 compared with a control group that did not.
Figure 1 (below): The ISO 9000 sample's average percentage deviation in ROA before and after certification compared to non-certified organizations
Considering the two studies were conducted in different countries the results are remarkably similar. Both lines show that the financial performance (return of assets) of ISO 9001 certified companies is consistently higher than that of non-certified companies. The studies indicate that prior to the decision to seek certification the performance lead of those companies that later sought certification declines.
Companies that are performing well are likely to be expanding. Companies that are expanding rapidly may find it difficult to control quality. When they begin to loose control of their QMS their performance begins to decline until they seek help with the process by implementing ISO 9001.
The performance relative to the control groups begins to increase again one year before certification as companies begin to reap the benefits of ISO 9001. For the next three years certified companies increase their lead over non-certified companies.
The US
Two studies using comparable methods have been conducted in the US. The first focused on small and medium sized enterprises (SMEs), Wayhan et al (2002). They matched companies that sought certification with companies that had similar revenues but did not seek certification three years prior certification. The results for gross profit are presented below.
Figure 2 (below) demonstrates that companies’ performance peaks and declines up to one year before certification. Benefits are maintained for four to five years, and then decline.
Figure 2: The change in percentage gross profit of ISO 9000 registered companies above a control of non-registered companies.
The second American study, Corbett et al (2002), matched companies two years prior to certifying on return on assets (ROA). See Figure 3 (below).
Figure 3: Performance of certified and non-certified companies in the industrial machinery and computer industry.
This graph demonstrates a divergence between companies that certify and those that do not. However even in this study, which stands towards pro ISO 9001 end of the spectrum, it can be seen that the benefits are derived early in the certification process. The rate at which the ROAs stop diverging indicates that there may be more potential for growth before the plateau appears if the process could be reinvigorated at this point. Although no one study gives clear evidence, when viewed together there appears to be a discernable, although not proven pattern:
- ISO 9001 certified companies perform better than non-certified companies
- some studies indicate that ISO 9001 may be responsible for this difference
- the benefits of ISO 9001 plateaux or decline 2-4 years after certification
Just a short-term solution?
At first glance these graphs seem reminiscent of a product lifecycle model, and span the time one might expect a new management initiative to sweep through an organization. However, ISO 9001 does not fit this model for three key reasons:
- ISO 9000 has been around for over 15 years and is growing worldwide. It has support from some of the world’s most successful companies
- from the findings above we know that ISO 9001 certified companies perform better than non-certified companies, with some evidence that ISO 9000 might be responsible for this change, neither of which is necessarily true of management fads
- ISO 9001 is a global standard that many companies must have to tender for business or to clearly communicates their commitment to quality management. Unlike most fads ISO 9001 is universally recognized, valuable and established
ISO 9001 is often misunderstood. Quality managers and senior executives want fresh impetus to reinvigorate and drive quality improvements. A focus on ISO 9001 can fall by the wayside and be maintained simply as a certificate on the wall rather than a driver for quality.
Researchers examining ISO 9001 often comment that companies do not monitor financial performance in relation to their QMS. A further risk is that once an organization has gained the initial benefits of implementing ISO 9001 an organization may become complacent.
Therefore organizations should monitor a greater variety of performance indicators in relation to their quality management system. Secondly organizations should view ISO 9001 as a competitive tool not just for marketing but for overall performance. This should prevent ISO 9001 being viewed as a fad.
Reinvigoration
ISO 9001 seems to bring benefits which might decline later. Vigour and dynamism can be maintained by adding new management initiatives if they are integrated carefully into the solid bedrock of ISO 9001. Six sigma training has a history of success and supports the key principles in ISO 9001. Its processes are derived from the proven ‘plan, do, check, act’ cycles.
Research demonstrates that ISO 9001 brings economic benefits. However, performance might drop off two to four years later. Companies may be failing to recognise the benefits they may gain, or are growing complacent with respect to quality management. Organizations realise benefits of the standard and add other management initiatives to support them, but are failing to achieve continual improvement through them.
These possibilities indicate that continual improvement strategies must recognize the competitive and economic value of ISO 9001 and base continual improvement on this solid foundation.
BSI has developed a methodology called BenchMark to help organizations enhance their systems over and above the conventional ISO 9001 requirements. BenchMark takes the management principles of the standard and applies these to organizations in an approach that involves the top management team and potentially all other staff.
About the author: Tom Nicholls graduated from Cambridge University with a bachelor of arts in geography. He is currently employed by BSI where he has worked in management systems UK and global marketing. For further information about BenchMark visit www.bsi-global.com
Further reading:
Casadeus, M and Gimenez, D (2000), The benefits of the implementation of the standard: empirical research in 288 Spanish companies, total quality management, Vol 12 No 6
Corbett, CJ, Montes, MJ, Kirsch, DA, Alvarez-Gil, MJ (2002), ‘Does ISO 9000 Certification Pay?’ ISO Management Systems July-August 2002
Haversjo, T (2000), ‘The Financial Effects of ISO 9000 Registration for Danish Companies’, Managerial Auditing Journal
Heras, I, Dick GPM, Casadesus, M (2002), ‘ISO 9000 registration’s impact on sales and profitability: A longitudinal analysis of performance before and after acreditation. International Journal of Quality and Reliability Management, vol 19 no 6
ISO (2004), ‘The ISO survey of ISO 9001:2000 and ISO 14000 certificates – 2003’. Available at www.iso.org/iso/en/iso9000-14000/pdf/survey2003.pdf
Poksinska, B, Dahlgaard, JJ, Antoni, M. (2002), The state of ISO 9000 certification: A study of Swedish organizations. The TQM Magazine.vol 14, iss 5
Terziovski, M, Power, M, Sohal, AS, The effects of the ISO 9000 certification process on business performance over time. Operations Management Division Submission.
Wayhan, VB, Kirche, ET, Khumawala, BM (2002) ‘ISO 9000 certification: The financial performance implications.’ Total Quality Management, vol 13, no 2.
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