Determinants Of The Adoption Of ISO9000 And Its Impact On Firm Performance

General Objective

ISO certification has over the past years been viewed as a managerial tool that targets to achieve a better performance at both the plant and firrm level by continuously upgrading their techniques as well as procedures (Pekovic, 2010). This report sought to analyse and find out what the determinants of the adoption of ISO9000 are and the impact of ISO9000 on firm performance.

The objective of this study is to examine the impact of ISO certification on companies’ performance.

More specifically, the study is aimed to achieve the following objectives:

• To study the impact of ISO 9000 certification on profit of the companies.

Research by Fatima (2014) conducted in Pakistan found out that ISO 9000 certification has a significant impact on improving the financial performance for both medium sized and large enterprises. However, in her study she established that ISO 9000 certification was quite ineffective for small firms.

Boiral (2012) did perform a systematic review where he concluded in his study that ISO 9000 certification had positive impact on the company performance.

According to Terlaak and King (2000) organizations that have implemented practices such as ISO 9000 have higher organizational performance and therefore they possess real competitive advantage over those which have not implemented.

Bell and Omachonu (2011) suggested that, organization’s standards and practises such as ISO 9000 must be well customized to the company’s needs. For instance, they observed that activities that are led by employees trained and nurtured in the company are bound to succeed more as opposed to those led by outside consultants.

Pinar, et al. (2003) conducted a survey on 107 different organizations both ISO certified and non-certified organizations that were listed in the Istanbul Stock Exchange. The authors established that there were no evidence of significant differences in the average stock market returns between the ISO certified and the non-ISO certified firms. However, they noted that the non-ISO certified firms’ returns exhibited greater volatility.

Lee, et al. (2009) opined that consistency must prevail between the existing and the new practices. Organizations need to establish links between the new practices and the old ones. Failure to do this might not result to little or no improvement in the performance of the organizations.

This both a correlational research and a descriptive research. It is descriptive since it is used to obtain information concerning the current status of the phenomena to describe “what exists” with respect to variables or conditions in a situation (Cooper & Schindler , 2008). It is also correlational because it was conducted to establish the presence of a relationship among variables and not causality among variables.

Specific Objectives

Data was obtained from the National Bureau of Statistics of China which had conducted an Economic Census of the service firms in 2008. The list of the companies included in the study is given in table 1 below;

Table 1: Companies surveyed

Sector	Surveyed companies
Storage and transportation;	392
Telecommunication	184
Computer service	365
Software	390
Business services	2722
Research and Development	222
Specialized technology services	1200
Technology exchange and promotion	242
Total	5717

Data was entered into Statistical Package for Social Sciences (SPSS) for analysis purposes. However, both SPSS and Excel were used to analyze the dataset.

Table 2: Certification of companies

Certification	Count	Percent
Not certified	5257	91.95%
Certified	460	8.05%
Grand Total	5717	100.00%

As can be seen in the figure below as well as the table 2 above, majority (91.95%, n = 5257) of companies were not ISO 9000 certified. Only 8.05% (n = 460) companies were ISO 9000 certified.

Figure 1: Pie chart of certification of companies

On average, the companies made a profit of 2067.97 with the maximum profit being 296176 while the minimum being 17. In terms of revenue,

Table 3: Descriptive Statistics

	N	Minimum	Maximum	Mean	Std. Deviation
Revenue	5717	1000.00	869176.00	11698.5709	32873.60898
Profit operating	5717	17.00	296176.00	2067.9727	7158.41745
Valid N (listwise)	5717

Figure 2: Histogram of profit

As can be seen from the above figure (figure 2), the histogram clearly shows that the data is not normally distributed but is rather skewed to the right i.e. longer tail to the right.

Figure 3: Industry distribution

Figure 3 above shows that majority (48%) of the companies in the study were in business services followed by those in specialized technology services. Telecommunication were the least represented (3%).

Test of association between industry and certification

The first inferential statistics we conducted was to check whether there is significant association between industry and the certification of the company. The hypothesis tested is;

H₀: There is no significant association between the industry and the certification of the company

H₁: There is significant association between the industry and the certification of the company.

Tested at  α = 0.05.

Results are shown below;

Table 4: Chi-Square Tests

	Value	df	Asymp. Sig. (2-sided)
Pearson Chi-Square	381.455a	7	.000
Likelihood Ratio	361.226	7	.000
Linear-by-Linear Association	.963	1	.327
N of Valid Cases	5717
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 14.80.

Table 5: Industry * Certification Cross tabulation

% within Industry
	Certification	Total
Not certified	Certified
Industry	Storage and transportation	96.4%	3.6%	100.0%
Telecommunication	97.8%	2.2%	100.0%
Computer service	91.8%	8.2%	100.0%
Software	80.5%	19.5%	100.0%
Business services	97.4%	2.6%	100.0%
Research and Development	85.1%	14.9%	100.0%
Specialized technology services	81.8%	18.3%	100.0%
Technology exchange and promotion	95.0%	5.0%	100.0%
Total	92.0%	8.0%	100.0%

A chi-square test of independence was performed to examine the relation between industry and certification of company. The relation between these variables was significant,  Software companies were more likely to be ISO 9000 certified compared to the companies in other industries.  Companies operating specialized technology services were also more likely to be ISO 9000 certified compared to other companies such those in telecommunication.

This question would help us understand if being ISO 9000 certified would have some impact on the profit of the company. To test this, we ran an independent samples t-test. The following hypothesis was tested;

Literature review

Tested at α = 0.05

Where;

Group Statistics
	Certification	N	Mean	Std. Deviation	Std. Error Mean
profit_operating	Not certified	5257	1865.2564	6911.27428	95.32112
Certified	460	4384.6674	9237.03583	430.67902

Independent Samples Test
	Levene’s Test for Equality of Variances	t-test for Equality of Means
F	Sig.	t	df	Sig. (2-tailed)	Mean Difference	Std. Error Difference	95% Confidence Interval of the Difference
Lower	Upper
Profit operating	Equal variances assumed	82.963	.000	-7.271	5715	.000	-2519.41	346.49	-3198.66	-1840.16
Equal variances not assumed			-5.712	505	.000	-2519.41	441.10	-3386.03	-1652.79

An independent samples t-test was done to compare the mean profit of the ISO 9000 certified and non-ISO 9000 certified companies. Results showed that the ISO 9000 certified companies (M = 4384.67, SD = 9237.04, N = 460) had significant difference in terms of the profits when compared to the non-ISO certified 9000 companies (M = 1865.26, SD = 6911.27, N = 5257), t (5715) = -7.271, p < .05, two-tailed. The difference of 2519.41 showed a very significant difference.  Essentially results showed that ISO certified companies made huge profits as compared to non-ISO certified companies.  

From the above results, it is evident that ISO 9000 certified companies have an edge over the others in terms of their profit margins. It is clearly that ISO 9000 certified make an average more than double what the non-ISO 9000 certified companies make. It would be advisable for the managers of various companies to work towards ensuring that their companies are ISO 9000 certified to ensure they are at par with the other companies in terms of profit margins.

One of the major limitations of this study is the fact that data involved was a one-time data. Time factor could probably affect the profit margins as such creating a bias. Future study should therefore focus on utilizing panel data in order to minimize possibilities of bias that might arise as a result of time factors.

References

Bell, M., & Omachonu , V. (2011). Quality system implementation process for business success. International Journal of Quality & Reliability Management, 28(7).

Boiral, O. (2012). ISO 9000 and organizational effectiveness: A systematic review. Quality Management Journal, 19(3), 16-37.

Christmann, P., & Taylor, G. (n.d.). Firm self-regulation through international certifiable standards: determinants of symbolic versus substantive implementation. Journal of International Business Studies, 37(6), 863-878.

Cooper, D. R., & Schindler , P. S. (2008). Business Research Methods Mcgraw publishing Company limited.

Du, Y. Z., Yin, J. L., & Zhang, Y. L. (2016). How innovativeness and institution affect ISO 9000 adoption and its effectiveness: evidence from small and medium enterprises in China. . Total Quality Management & Business Excellence, 27(11-12).

Fatima, M. (2014). Impact of ISO 9000 on business performance in Pakistan: Implications for quality in developing countries. Quality Management Journal, 21(1).

Lee , P. K., To, W. M., & Yu , B. T. (2009). The implementation and performance outcomes of ISO 9000 in service organizations: An empirical taxonomy . International Journal of Quality & Reliability Management, 26(7).

Pekovic, S. (2010). The Determinants of ISO 9000 Certification: A Comparison of the Manufacturing and Service Sectors. Journal of Economic Issues (Taylor & Francis Ltd), 44(4), 895-914.

Pinar , M., Crouch, H. L., Yucel, T., & Guder , F. (2012). Examining the Impact of ISO9000 Certification on Business Performance Using Stock Market Returns.

Terlaak, A., & King , A. (2001). The effect of certification with the ISO 9000 quality management standard.