Issue 44 – November 2012
This article by Basak Manders and Henk J. de Vries first appeared in ISO Focus+ October 2012 and is summarised here with permission.
In 1987, ISO published the first ISO 9000 series of quality management Standards (QMS). Since then, more than one million organisations in 178 countries have achieved ISO 9001 certification. But have they enjoyed financial benefits from doing so? This article summarises key results from 42 scientific studies showing that implementing the Standard does indeed enhance financial performance – but organisations aiming at real internal quality improvements gain more than those using ISO 9001 as a 'quick fix' in response to quality problems or customer pressure.
Although dozens of scientific studies on ISO 9001 have been published to date, a confusing picture of the impact of ISO 9001 on financial performance remains. While many concluded that ISO 9001 implementation and certification had a direct and positive financial impact, others found no significant effect. Beyond the direct link between the QMS and financial success, some studies highlighted other variables that may have an influence.
To obtain more reliable and valid conclusions, we decided to analyse research findings from a total of 42 empirical studies* showing that ISO 9001 implementation had an impact on business, using the meta-analysis procedure developed by Lipsey and Wilson. Meta-analysis is 'the quantitative cumulation and analysis of effect sizes and other descriptive statistics across studies' (Hunter & Schmidt, 1990).
We studied the extent to which the financial efficiency of an organisation improved after ISO 9001 certification and if this performance was higher than that of similar, but non-certified, organisations. We looked at financial indicators such as return on assets, sales, investment and equity, profit margin, profitability, increased sales, and market share.
Enhanced financial performance
The analysis shows that ISO 9001 certification does indeed enhance financial performance, and that this is achieved mainly through increased sales. This can be explained by looking more closely at the relationship between ISO 9001 mechanisms and the internal, external, and signalling benefits that can lead to increased financial performance.
First, ISO 9001 implementation can bring internal benefits, although organisations may not become financially more efficient immediately after being certified. Second, increased process control, quality, productivity, and efficiency may improve customer satisfaction and, therefore, provide some external benefits. Lastly, the ISO 9001 certificate itself may provide benefits by signalling quality.
According to signalling theory (Spence, 1973), an information asymmetry exists in markets in the sense that customers often do not have full knowledge of the characteristics of the product and its supplier. Quality management Standards like ISO 9001 can partly solve this problem by signalling the quality of the organisation. Our study indicated that ISO 9001 certification increased sales, but it remains unclear if this is caused by increased customer satisfaction, or by the signalling effect.
Internal or external motivation?
There may be some moderating factors to explain the different outcomes of the various studies, and the differences between the performance improvement companies observe. Motivation and internalisation are the two most discussed variables that organisations should take into consideration when implementing ISO 9001.
First, the motivation for implementing ISO 9001 can influence its effect on financial performance. Organisations may wish to obtain certification for external reasons such as pressure from customers, markets, or governments, or for internal reasons such as improving productivity and efficiency. Those targeting short-term external benefits could expect to gain mainly external benefits, while those aiming at real quality improvement could expect to achieve higher overall benefits.
Second, the degree to which ISO 9001 principles are adopted internally is dependent on the motivation of the organisation, and is thought to be critical to successful implementation. Organisations with external motivation tended to implement measures prescribed by the Standard as a quick fix to quality problems, while those with internal motivation were more likely to use the Standard and the underlying principles in day-to-day decision making to improve quality. Internalisation of ISO 9001 principles is considered necessary in achieving the most significant performance benefits from the QMS Standard.
Good reason to implement ISO 9001
Our research has some theoretical, societal, and business implications. First, analysing the many existing ISO 9000 studies to draw reliable and valid conclusions enriches the knowledge of ISO 9001 certification, and helps to resolve the debate on its impact.
Second, using the meta-analysis method gives future researchers a starting point by summarising the studies carried out to date. It is also important for organisations considering ISO 9001 implementation since the process of obtaining certification and maintaining the system involves time, money, and effort — and they need to know if these costs outweigh the benefits of better business performance.
Our findings indicated that, on average, ISO 9001-certified organisations achieve benefits, particularly from increased sales. Policy makers at the national level may see this as a good reason to encourage ISO 9001 implementation in their country.
* This article is based on Basak Manders' MSc thesis 'The financial impact of ISO 9000 certification: a meta-analysis', which won the 2011 Dutch National Quality Management Research Award organized by the Dutch Network for Quality Management. For more information contact BManders@rsm.nl.
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