- The document discusses the impact of ISO 9000 quality management systems on business performance. It reviews literature that has used various indicators to measure this impact, such as return on investment, market share, price, sales growth, and customer satisfaction. - Most studies found that ISO 9000 certification improved internal factors like processes and quality awareness, but results were mixed in terms of financial performance impacts. The degree of benefits depended on factors like company motivation and a quality-focused culture. - Small and medium enterprises tended to report more positive impacts on business performance from ISO 9000 certification compared to larger companies, which may have already implemented similar best practices.

1. Impact of ISO 9000 on Business Performance
Varun Soni
MSc Student at the University of Strathclyde, Glasgow, U.K. - 2007-2008
Abstract
There is a wealth of literature on ISO 9000 quality management systems and their
impact on an organisation. However, there is ambiguity in the criterion to measure
business performance. This article aims at identifying the key indicators that
researchers have used to show the impact of ISO 9000 quality management systems
on an organisation. Using the findings of studies conducted by researchers in different
countries such as the UK, Tehran, Singapore and the U.S.A. concludes that the degree
of success or failure of a quality management system depends on the willingness with
which the organisation pursues it. Those organisations that pursue the ISO 9000
certification as a necessary evil demanded by their customers are less likely to benefit
from the exercise than those that pursue the certification with the right attitude of
improving all aspects of their business.
Key words: ISO 9000, Business Performance, Quality Management and Performance
Measurement.
Introduction
The International Organisation for Standards is a network of the national standard
institutes of 163 countries and is the largest developer and publisher of international
standards. The standards developed by the organisation are called the ISO standards
and till date, there are more than 19,500 international standards published by the
organisation, that are applicable to various fields such as agriculture, construction,
mechanical engineering, medical devices and information technology. The ISO 9000
family of international standards comprises of 14 generic quality management
standards. The first version of these standards appeared in 1987 and was revised in
2001. The advice on the ISO website is that “the greatest value is obtained when you
use the entire family of standards in an integrated manner. It is suggested that,
beginning with ISO 9000:2000, you adopt ISO 9001:2000 to achieve a first level of
performance. The practices described in ISO 9004:2000 may then be implemented to
make your quality management system increasingly effective in achieving your own
business goals”. ISO 9001 focuses on achieving customer satisfaction (not simply
specified requirements) and following the advice in ISO 9004 enables you to satisfy
all interested parties (not simply customers) (Hoyle 2006). However, the ISO 9000
family is best known for ISO 9001:2000, which is the standard that establishes the
requirements for a quality management system. By the end of 2006, 897 866 ISO
9001:2000 certificates had been issued in 170 countries and economies (ISO website/
News).
1

2. The ISO 9000 family addresses “quality management”. This means what the
organisation does to fulfil (ISO website):
• The customer’s quality requirements, and
• applicable regulatory requirements, while aiming to
• enhance customer satisfaction, and
• achieve continual improvement of its performance in pursuit of these
objectives.
The growth in numbers of certification in the recent years has been more in the
developing countries, which have only recently started widely adopting quality
standards while ISO standards have been widely used for a longer time in most
European countries. This is why ISO has been mistaken by people in the past as a
European standard. The International Quality Standards ISO 9000 requires a high
level of documentation plus audited evidence that the intended quality is being
delivered to the customer.
Literature review
Indicators of Business Performance
On examination of the literature, we can find researchers using different indicators to
measure the impact of the quality certifications on the performance of the
organisation.
Although most studies report performance improvements, some find that
performance benefits are limited. For instance, Redman et al.’s (1995) survey of 880
firms in the UK showed fewer than half the firms claiming even a minor improvement
in sales or profitability as a result of quality management initiatives. To better
understand the factors of quality that influence business performance, it is worth
noting results from a few more detailed studies. Jacobson and Aaker (1987) used
return on investment, market share and price to indicate business performance. They
found that improved product quality had a positive impact on all of the three and
hence on business performance.
Another comprehensive study on the impact of quality on business performance by
Forker et al. (1996) of 65 firms in the U.S.A. furniture industry used the following
criteria to measure business performance:
• Return on Assets (ROA)
• Return on Investments (ROI)
• Growth in the return on investment
• Sales growth
• Market share
• Market share growth
• Return on sales (ROS)
• Growth in return on sales
The study found eight dimensions of quality that contributed to the above
mentioned criteria. These were mainly:
2

3. • Quality (conformance to specifications)
• Product reliability
• Product durability
• Design quality / Design innovation
• Product improvement
• Brand image
• Company reputation
• Customer service
The results of the survey showed that the above mentioned dimensions of quality
are highly correlated with business performance, at least in the furniture industry. The
notable links were the effects of design quality / design innovation on the marketing
and financial performance. The study concluded that superior design quality / design
innovation and product improvement contributed largely to business performance in
the sample industry. These findings indicate the powerful impact that better
conformance can have on reducing costs and through better product quality attracting,
and retaining, customers.
Flynn et al’s. (1995) study of the transportation, electronics and machinery
industries found that the philosophy of good internal quality (made right first time)
was associated with greater employee involvement and better process control. Using
employee involvement and better process control as indicators, the study suggests that
these factors are part of good quality management systems. This indicates that better
process control should lead to lower rework and diminishing costs of quality.
Findings from the World-class Manufacturing Project (Flynn et al., 1997) indicate
that achieving conformance to specification with low levels of rework has a direct
effect on competitive advantage, while management perception of the plant’s product
quality and customer service, relative to its competitors (quality differential), had an
even greater impact. Reduced wastes with the “Right first time” philosophy, and
quality differential were shown to be linked with better process management and
quality control. Lower rework also indicated better product quality.
Bayati and Taghavi (2007) in their study of impacts of ISO 9000 certification on the
performance of SMEs in Tehran, use internal and external advantages identified by
the sample certified companies as criteria to measure overall business performance.
The criteria identified by them are shown below in table I:
Advantage/Criteria Internal / External
Business improvement
Quality improvement
Cost reduction
Proper use of resources
Documentation and standardisation of procedures
Increasing customer satisfaction
Teamwork and organisation communication
improvement
Internal and External
Internal and External
Internal
Internal
Internal
Internal and External
Internal
Table I: Selected advantages or criteria for measuring the impact of ISO 9000 certifications in
SMEs in Tehran. Source: Bayati and Taghavi (2007)
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4. In the above study, though the authors have identified the criteria, there is some
vagueness and it is left to the readers to define what would be measured under some
of the criteria like business improvement and quality improvement because these
terms could span a wide range of activities in an organisation. However, the study
concludes that apart from cost reduction and the proper use of resources, all other
criteria have been positively met in ISO 9000 certified SMEs in Tehran. We can only
use these indicators to conclude that the ISO 9000 certification in SMEs in Tehran has
had a positive impact on various aspects of performance.
A study commissioned by Lloyds’s Register Quality Assurance (1993) in the UK
used the importance of the ISO 9000 certificate for an organisation to measure the
impact on business performance. In the study, 69 per cent of the managers said that
the ISO 9000 certification improved the business performance of their organisations
because it allowed them to bid in tenders and opened more business opportunities for
them, from which they would otherwise have been excluded due to lack of the
certification.
Terziovski and Power (2007) in their study on increasing the benefits of ISO 9000
certification in organisation in Australia, use issues such as productivity, waste
reduction, internal systems, sales and customer satisfaction to measure the value of
the certification for an organisation. They found a moderately strong positive link
between quality culture and the contribution of ISO 9000 certification to improved
business performance. This relationship was found to be strongest in SMEs certified
for longer periods and it was interpreted as a process of organisational learning due to
the interaction of culture and ISO 9000 certification.
Mann and Kehoe (1994) noted that quality certification was associated with
improved business performance at the operational level. They identified business
performance measures as Strategic Business Performance (SBP) measures and
Operational Business Performance (OBP) measures. SBP measures refer to those
measures that are typically addressed by the Corporate Management Board. They are
concerned with measuring an organization’s performance in terms of its major
corporate goals. OBP measures refer to measures which are addressed throughout the
organisation by both management and employees. OBP measures are concerned with
recording on a daily or weekly basis the everyday running of the organisation. This
study was the most comprehensive study and the measures of business performance
identified by the research are shown below in tables II & III.
Strategic Business Performance measures
Profitability
Growth
Social responsibility
Environmental control
Return on capital employed
Sales revenue
Exports
Productivity
Total costs
Employee welfare
Shareholder dividends
Table II: Strategic Business Performance measures. Source: Mann and Kehoe (1994)
4

5. Review of the above literature gives us an in-depth view of the criteria that have been
used by various researchers to measure the impact of quality systems on business
performance in the past. Though some of these criteria have not directly been used to
measure the impact of ISO 9000 certification on business performance, it is safe to
use the same criteria for measuring the impact of ISO 9000 certification because the
ultimate goal of all quality systems is to work towards quality improvement in all
aspects of the business.
Table III: Operational Business Performance measures. Source: Mann and Kehoe (1994)
Operational Business Performance measures
1) Supplier relationship measures:
• Vendor performance
• Supplier certification
• Supplier delivery performance
• Material availability
• Supplier communication
2) Process measures:
• Work in progress
• Lead time
• Product Quality
• Preventive maintenance
• First time pass rate
• Product standardisation
• Capacity utilisation
• Number of engineering changes
• Rework
• Internal customer/supplier
performance downtime
3) Policy deployment measures:
• Business control
• Operating expense
• Quality costs
• Working to schedule
• Departmental performance
• Departmental spending
4) People measures:
• Performance appraisal results
• Output per employee
• Per cent of employees involved in
teams
• Absenteeism
• Education and training
5) Customer relationship measures:
• Customer complaints
• Supplier Product Quality
• Number of suppliers
• Lost production due to supplier
material
• Supplier price
• Machine breakdowns
• Downtime
• Process capability
• Setup reduction
• Throughput rate
• Cycle time
• Flexibility to execute changes
• Capacity utilisation
• Scrap
• Number of defects
• Sales forecast accuracy
• Team performance
• Targets/goals
• Quality audit results
• Common understanding of
strategy
• Skill level of employees
• Employee morale
• Department communication
• Employee communication
• Market research
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6. • Customer service
• Customer communication
• Deliver as promised
• Customer satisfaction survey
results
• Product returns
• Product replacement
• Product liability
• Quality reputation
We now look at some more findings from the literature to analyse the impact of ISO
9000 certification. Heras et al. (2002) conducted a study on the impact of ISO 9000
on sales and profitability of 400 certified firms in the Basque region of Spain. They
compared the performance of certified firms to those of 400 non-certified firms. The
basis of their study was the assumption that quality certification is associated with
good quality systems, leading to better quality, improved business performance and
hence better profitability. On comparing the pre and post registration profitability for
the certified firms, they concluded that there was no improvement in profitability of
these firms post registration. They conclude two possible reasons for this. They
suggest that one reason could be the cost associated with certification. Since the
systems required by ISO certification involves a substantial cost to implement and
maintain, it is more likely that firms with higher profitability opt for ISO certification
than firms with lower profitability. The second reason they cite for insignificant
financial performance post certification is that since the firms in the study are
pioneers in ISO implementation, they are already exposed to international trade and
international standards and may already be emulating “best practices” prior to seeking
certification. Thus, pre and post certification business performance did not differ
much.
Terziovski et al. (2003) in their study that there is a positive relationship between
the quality culture of an ISO certified organisation and the benefits derived from
certification. They attribute factors such as organisational system, an organisational
quality based vision, mission and goals, consistent formal and informal organisational
structures, compatible reward system, appropriate technology and job design, and
attention to important personnel issues. The study also confirms that the motivation
for certification can be used as a predictor of the value derived from the certification.
Organisations that pursue the ISO 9000 certification willingly and positively across a
broad spread of objectives are more likely to report improved organisational
performance. Terziovski and Power (2007) confirm the above in their subsequent
study.
Bayati and Taghavi (2007) conclude from their study of the impacts of ISO 9000
certifications on SMEs in Tehran that the certified organisations reported to have
achieved business improvement, quality improvement, documentation and
standardisation of procedures, increased customer satisfaction, increased quality
awareness in the organisation, improved teamwork and communication within the
organisation. However, they also state that a similar study on large organisations in
Iran did not conclude any improvement in their performance. This finding once again
supports the findings of Heras et al. (2002) that the larger organisations may already
be emulating the “best practices” due to their larger exposure to the business
environment.
Deming (1986) reasons that as quality improves, waste is eliminated, costs are
reduced, and financial performance improves.
Quazi and Padibjo (1998) in their study on SMEs in Singapore concluded that the
sample companies identified a number of benefits of the ISO 9000 certification. Some
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7. of these benefits are increased customer preference, improved company quality image
and competitiveness in the market, compliance to customer requirement, streamlined
procedures and documentation, increased consciousness for preventive and corrective
actions, and provision of a foundation in the pursuit of TQM. Also, 81 per cent of the
non certified organisations in the study expressed their intention to get a certification
within the next five years.
Buttle (1997) conducted the largest ever survey of 1,220 ISO 9000 certified UK
companies and the top ten benefits reported by certified organisations was that 99 per
cent of the organisations surveyed reported an improvement in efficiency followed by
improved awareness of procedural problems, better management control, using ISO
9000 certification as a promotion tool, increased customer satisfaction, improved
customer service, facilitating elimination of procedural problems, improving staff
motivation, keeping existing customers and gaining new customers.
The most significant benefits are related to internal factors such as raising quality
awareness, improved awareness of problems, improved management control,
improved customer service, improved product and service quality, consistency across
the organisation (Williams et al. 2001).
From our earlier review of literature and the findings studied in this section, we can
safely conclude that even though there are very few direct measurements of the
impact of ISO 9000 certification on business performance, all the factors mentioned
in the literature contribute towards business performance. The diversity in experiences
of companies in different parts of the world and across various industries can lead us
to safely determine the impact of ISO 9000 certifications on performance.
Discussions
Review of the literature leads us to some common findings that have been emphasised
by most studies. The main reason for organisations to implement the ISO 9000
certification is: to be considered for tenders that otherwise might not have been
achievable (Douglas et al. 2003, Lloyd’s 1993). Science and Engineering Policy
Studies Unit (1994) confirm that there appears to be a relationship between the
manager’s motives for adopting ISO 9000 certification and the effectiveness of the
benefits of certification. Those organisations that pursue the certification willingly,
without customer pressure which has also been considered as a major factor driving
organisations towards certification, are more like to be successful at implementing the
systems laid out by the ISO 9000 standards. One cause that has been cited for this
attitude is that managers misunderstand the role of ISO 9000 certification. ISO 9000
is a conformance specification that demonstrates that the organisation’s systems are
potentially capable. On the other hand, the conformance to these standards requires
targets to be set and efforts to be made to pursue those targets by employees who are
capable and willing to use the ISO 9000 quality certification system. Binney (1992)
who conducted a study on the implementation of ISO 9000 quality certification
systems comments: “ISO 9000 confirms that a company has an effective quality
management system. It does not guarantee that the goods and services the company
produces are of quality: that depends on whether the systems serve the interest of the
customers and are supported by a quality culture”.
The one factor that has been predominantly emphasised by most researchers is that
ISO certification based on an internal motivation results in improved performance
(Singels et al. 2001).
7

8. Ebrahimpour and Withers (2000) identify some of the important reasons for seeking
ISO 9000 certification among American firms such as: process improvement,
competitive pressure, improving employee relations, improving communication and
improving product quality.
The ISO 9000 family of standards have been criticised for the high level of
paperwork involved in maintaining records. Employees often perceive the system as a
hindrance to their efficient functioning due to the requirement maintaining data
records rather than a positive step towards quality improvement. Apart from this, the
system has also been criticised for the high costs involved in pursuing the
certification. This often deters the small-and medium-size enterprises from pursuing
the system. This has been revealed by a study conducted on implementing ISO 9000
in Swedish SMEs (Gustafsson et al. 2001) and by a study on SMEs in Singapore
(Quazi and Padibjo 1998).
Some of the other barriers to ISO 9000 certification that have been identified are:
• Financial resources – The limited resources of smaller organisations deter
them from ISO certification because the certification and implementation of
the systems suggested by the ISO standards is expensive.
• Limitations in Human Resources – The ISO certification also demands a
detailed appointment of employees towards certain functions in an
organisation in contrast to the limited resources of organisation.
• Insufficient Time – The certification involves implementation of a few
changes that may be required to comply with the standards. These changes
cannot be implemented overnight and this is an ongoing procedure. The
employees and people behind the implementation often lack time and this is a
major barrier to the certification.
• The ISO 9000 certification in the past was believed to be more suitable for
manufacturing organisations than for service organisations, but this concern
had been addressed in the revised standards that were released in December
2000.
• Resistance within the organisation – Implementing the changes in systems that
are needed for the certification often faces resistance from the employees at all
levels.
• Commitment of the Top Management – The certification is often pursued as a
necessary evil, without looking at the larger benefits that could be achieved
from it. Thus, the commitment of the top management is often limited because
they are more interested in the certificate itself rather than applying the
changes and methods that are essential for the success of adopting the ISO
9000 system.
• Training and Education of Employees – The ISO standards also require
employees to be trained and educated about the various methods of quality
control. This calls for time, commitment and allocation of resources towards
this area and is often difficult to achieve.
• Extra effort in Documenting procedures – The standards call for intensive data
records to be maintained which requires a substantial amount of time to be
devotes towards this goal which often poses to be a barrier. Extra effort needs
to be put in by people at all levels in the organisation. This deters organisation
from pursuing the certification.
8

9. These barriers have been confirmed by studies conducted by Calingo et al.
(1995), Henricks (1992) and Haksever (1996).
Calingo et al. (1995) and Quazi and Padibjo (1998) reveal the advantages of ISO 9000
certification that have been experienced by certified organisation. These are listed
below:
• The ISO 9000 certification has added strength to the reputation of certified
companies. These companies have experienced preference from customers as
a result of their ISO certification. There have been cases where the ISO
certification was a requirement that was stipulated by the customers of these
organisations. Being certified helped these companies stay in business. The
certification has also given an image of quality to the customers. This has led
to improved sales and a higher profit for the certified organisations.
• The ISO 9000 certification in many organisations has increased the awareness
and appreciation of employees towards quality.
• The ISO 9000 certification has been an avenue for growth for many
organisations. It has been a source of competitive advantage for the certified
organisations.
• Certified organisations have experienced streamlining of procedures in the
organisation. The conflict within the organisations has also reduces drastically
because the ISO standards call for a clear documentation of responsibilities of
employees.
• The documentation that is a part of implementing ISO 9000 standards is often
very helpful to new employees. It serves as a manual for them to the
functioning of the organisation and helps them understand and better
appreciate the culture of the organisation.
• The procedures developed as a part of complying with the ISO standards have
been of assistance to conducting business properly and satisfying customer
needs.
• Increased awareness about quality within the organisation, as a result of the
ISO 9000 certification, has increased the quality consciousness of employees
driving them towards preventive and corrective actions towards the overall
quality.
• With the increasing awareness about Total Quality Management (TQM), the
ISO 9000 certification serves as a stepping stone towards organisation
pursuing TQM practices.
• The procedures and documentation in the ISO 9000 certification have helped
organisation in consistent product quality.
• The ISO 9000 certification has resulted in consistent production for many
organisations as a result of improved operations.
• The ISO 9000 certification and the change in systems have resulted in
improved employee morale in many organisations.
• The ISO 9000 certification has given access to organisations in the Far East to
the export markets of Asia and Europe.
• Certified organisations have experienced reduced quality problems.
• The ISO 9000 certification has encouraged teamwork with certified
organisations.
9

10. From the literature review we note that Bayati and Taghavi (2007) report that SMEs
in Tehran have not managed to reduce costs or improve the use of their resources with
the certification. These aspects can be related to poor management of the operation of
an organisation, and contradict the findings of Flynn et al. (1995) that quality systems
should have a positive impact on the operations and process control of an
organisation. Mann and Kehoe (1994) also conclude that quality certification lead to
improved performance at the operations level in an organisation.
Key Findings
From this study on the impact of ISO 9000 on business performance, the following
key findings have been observed:
• Quality systems and programs in an organisation can have a powerful impact
on reducing costs and improving product quality. The improved product
quality helps in keeping the existing customers satisfied and attracting new
ones.
• The deeper involvement of employees plays a vital role in the successful
implementation and maintenance of a certification like ISO 9000 in an
organisation.
• Successful quality control systems through ISO 9000 certification, can
improve the process control and operations of an organisation.
• Good quality control and better process management help in reducing wastes
in an organisation.
• The ISO 9000 certification increases business opportunities for an
organisation by making the organisation eligible to participate in tenders
where the ISO 9000 certification is a prerequisite.
• The vast recognition of the certification globally also opens up oversees
market opportunities for organisations.
• The quality culture of an organisation and the overall quality awareness of the
employees of an organisation can help organisations pursuing the certification;
successfully move towards better quality management systems.
• The practices of the ISO 9000 quality system provide a good stepping stone
for organisations who are working towards Total Quality Management
(TQM).
• The ISO 9000 certification is often used as: a promotion tool; a tool for staff
motivation; a tool for better management control; a tool to increase awareness
about quality and quality related problems in an organisation and to improve
product and service quality levels.
Conclusions
It is also noted that larger firms are more inclined towards the certification rather than
comparatively smaller ones because of the significant costs of certification and
maintenance of the standards.
While measuring the impact of the certification on the business performance, it is
important to study the records of the organisation pre-certification and post-
certification to get the right picture of the impact.
10

11. Finally, the ISO 9000 family of standards has been in existence for a long time. The
ISO 9000 certification has been perceived from being highly successful to merely
increasing workload and business costs. The European Commission’s Directorate
General for Industry, has recently questioned the effectiveness of the certification and
is considering reducing the emphasis on certification and promotion of the ISO
certifications. However, looking at the experience of organisations across the world
that have successfully pursued and are practising the ISO 9000 certification, we
cannot ignore the importance and benefits of the standards.
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