ISO 9000 And Financial Performance Of Firms: A Comprehensive Analysis

Impact of ISO 9000 on Financial Performance of Firms

Question:

Discuss About The Journal Operations Production Management?

Quality of the management is one of the key concerns of all industries. As a result therefore, ISO 9000 was developed and introduced to provide the guidance and tools to the companies and organizations which have the focus of consistent production of goods and services that meet the requirements of the customers and also ascertaining for their improved quality. Popularity of ISO has increased in the past years for both small and big companies since it articulates how the management operations of the companies should be conducted. The international standards organizations ensure that all the products and services are designed and created in manner that they conform to the predetermined standards. More than 100 nations have adopted ISO 9000 in their companies’ management and quality assurance. This report is developed and aimed at meeting the following objectives; i) Determining the impact of adoption of ISO 9000 on the financial performance of a firm and ii) Determining the effects of certification with ISO 9000 on a firm’s management. Meeting these two stated objectives will help to clarify the understanding of impacts created by ISO 9000 and also the certification effects on the firm’s management.

Numerous researches have been carried out around the globe concerning ISO 9000 since its invention and development on the effects and impact on business performance with the same results being arrived at. Different researches will therefore be reviewed in this report with various literatures portraying different framework and methods that are used to measure certification impact. Some of the studies have advocated that certification of ISO leads to improved financial performance. According (Chatzoglou et al, 2015), holistic overview by studies to cover all the components that can be seen to have effects and relationship on how the financial performance can be achieved can result to obtaining positive financial benefits. The impact of ISO certification can be indirectly measured to determine the financial performance of a company by using comprehensive conceptual framework. The impact of certification success is determined by the degree of certification effectiveness, this is according to (Posmas et al, 2013). Operational performance is directly improved that have direct effect in increasing the financial performance though direct relationship might not be there between ISO and financial performance. According to (Ismyrlis & Moschidis, 2015), they argued that external perspectives form the most important benefits of certification. This was so as obtained from evaluation of impacts of the implementation of ISO. Some of the most important benefits derived from ISO are external in nature that portray higher operational performance.

Effects of Certification with ISO 9000 on Firm’s Management

Adoption of ISO 9000 in business was with the aim of adding quality and value to the management of the business. Incorporating and adopting ISO 9000 should be for development reasons to realize the optimum benefits other than when companies acquire it for non-developmental purposes, this will make them realize less benefits from it, this is according to (Papadimitriou & Westerheijden, 2010). In response to that, companies are supposed to be evaluated depending on their objectives and categories separately to determine their benefits from ISO 9000 (Franceschini et al, 2010). When carrying out market differentiation strategy, certified companies by ISO 9000 show profit increase when operationalizing cost leadership strategy (Lafuente et al, 2010). The benefits derived from ISO 9000 certification are motivational factors that are significant in giving positive predictions. ISO has been undergoing updates to uphold the changes available in businesses environment and focus on quality improvements. Compared to non-ISO companies, companies certified by ISO 9000 show higher levels of improvement in their practices (Zaramdini, 2007). Time has been a very important factor in almost all the activities carried out in any business operation. In regards to that, companies that had been certified for long period of time portray better improvements of TQM results. Companies certified in the recent past years with updated ISO 9000 of other versions enjoy more benefits with time as compared to their counterparts certified with traditional ISO 9000. Business financial performance improvement can be visualized and analyzed for ISO 9000 certified companies by applying 3 to 5 years of post-certified period (Chow-Chua et al, 2003).

Companies and businesses of any size have adopted the ISO 9000 in their management (Bernardo et al, 2015). Process of ISO 9000 is not affected by the business or company size on the impacts it create to the business. All the factors determining the size of the company such as the number of employees do not show any evidence of becoming more likely to be certified since the size of the company does not have any effect in the relationship between the organization performance and implementation of ISO 9000 (Psomas et al, 2012). Certification of a company by ISO 9000 shows significant and positive effect on the company’s operational performance. Among other benefits that are enjoyed by a firm are external benefits from ISO 9000 certification since they enable the companies to bid for tenders thus improving their performance.

Research Studies on ISO 9000

Emergence of ISO 9000 in 1980s have made the companies to acquire and adopt it for their quality management. The number had grown enormously for the companies that have adopted ISO 9000 in more than 100 countries. Questionnaires form one of the most used common type of survey methodology. The type of survey have experienced increase since after 1980s more so for the quality management in the area of operations management field. In this case census was carried out by National Bureau of Statistics of China on the service firms. There were a total of 5717 service firms that data were collected from which covered the entire population of the service firms in china. In order to accomplish this smoothly, the questionnaires were sent to all the firms where the relevant authorities (managers or the managing directors for smaller firms) provided all the provided details concerning their firms cutting across the number of employees, year of certification of the company, the year when the companies were found, sales of company and many more. All the companies in the region were then required to fill the questionnaires presented to them by the National Bureau of Statistics of China. The census method is expensive and time consuming since all the firms irrespective of their locations, they were to be reached since they formed part of the population (Hajian & Domingo-Ferrer, 2013). No sampling method is applied in this case and therefore no information is left to chance for any of the service firms in the country.

All the collected data were then entered in excel and the SPSS version 20 for the analysis of data. These two statistical software were used to represent the data in both tables and graphs for easy understanding and interpretation. Statistical tools that were used to derive the meaning from data were descriptive statistics and also inferential statistics. Census was used in the collection of data so that no service firm is left out and the entire population of service firms covered. This ensures that all the information that will be obtained from this kind of data will be a reality but not a representation from a proportion. The statistics that will be obtained will be population parameter that will stand as the point of reference for the sample data from this dataset for the future studies. These data can therefore be relied upon in the determination of impact of the adoption of ISO 9000 on the financial performance and the determination of the certification of the firm’s management with ISO 9000.

Census Survey of Service Firms in China

This is the part of the report that will help to derive meaning from the data as contained in the dataset and have the results presented for easy understanding. Both descriptive and inferential statistics will be presented in this part to quantify the information and easily draw conclusions on whether or not ISO 9000 had impact on the financial performance in the service firms.

Table 1: Descriptive Statistics
	N	Minimum	Maximum	Mean	Std. Deviation
l	5717	11	969	44.96	74.378
l_yjs	5717	0	161	1.38	5.688
l_benke	5717	0	530	11.85	28.453
l_dz	5717	0	490	12.92	24.306
l_gaozhong	5717	0	689	12.26	31.290
l_chuzhong	5717	0	568	6.54	25.980
revenue	5717	1000	869176	11698.57	32873.609
profit_operating	5717	17	296176	2067.97	7158.417
ksum	5717	1000	978548	16473.16	54666.560
equity	5717	-1367	877989	7693.77	31012.079
kpaid	5717	10	402110	4765.67	17120.175
kstate	5717	0	402110	1201.12	11264.936
koversea	5717	0	150000	348.87	4598.814
kother	5717	0	400000	3215.68	11765.554
ROS	5717	.01	.51	.1911	.12397
ROA	5717	.01	1.02	.2236	.20858
FDIpercent	5717	.00	1.00	.0245	.14937
agefirm	5717	2	61	7.62	7.074
Valid N (listwise)	5717

Among the censured companies, a companies that recorded the least number of employees had 11 employees while 969 is the highest number of employees recorded by other companies. The mean number of employees across all the companies 45 with a standard deviation of 74. In regards to level of education of the employees, some companies had no employees with either master or doctorate degree while others had a relatively big number of such employees at 161 with the mean and standard deviation being 1.38 and 5.688 respectively. As well, some companies were not having employees with bachelor degree as other had a total of 530 of such employees with their mean and standard deviation being 11.85 and 28.453 respectively. The highest number of employees with diploma recorded by companies was 490 as other companies recorded none of such employees and their mean and standard deviation in all the companies was 12.92 and 24.306 respectively. Employees with high school education in some companies was 689 with their mean and standard deviation being 12.26 and 31.290 respectively. Junior high school employees and below was maximum at 568 while other companies had no such employees and their standard deviation and mean being 25.980 and 6.54 respectively. Minimum sales recorded by the companies was 1000 while some companies recorded the maximum sales of 869176. The mean and standard deviation of the companies’ sales was 11698.57 and 32873.609 respectively. The least profit recorded by the companies was 17 dollars and maximum of 296176 with mean and standard deviation profit of 2067.97 and 7158.417 respectively. 1000 formed the least total assets other companies had while the maximum assets was recorded at 978548, the mean and standard deviation of the companies’ total assets was 16473.16 and 54666.560 respectively. The minimum equity of some companies was -1367 and other had highest equity at 877989 and the mean equity of the companies was 7693.77. The minimum total capital censured was 10 with a maximum of 402110 and the mean of 4765.67. Some companies received no capital from the government while others received as high as 402110 with the mean capital from the government being at 1201.12. The average capital that came from overseas to the companies was 348.87 but some companies never had overseas capital. Capital from other sources stood at 400000 in some companies and the average of 3215.68. Return on sales was as low as 0.01 in some companies and highest in other companies at 0.51 with the censured average being 0.1911. On the other hand, minimum recorded return on assets was 0.01 and the highest recorded was 1.02 with their average being 0.2236.

Data Analysis

Hypothesis

H₀: There is no correlation between the sales of a company and the total number of employees a company has

H₁: There is correlation between the sales of a company and the total number of employees a company has.

Correlations
	l	revenue
l	Pearson Correlation	1	.471**
Sig. (2-tailed)		.000
N	5717	5717
revenue	Pearson Correlation	.471**	1
Sig. (2-tailed)	.000
N	5717	5717
**. Correlation is significant at the 0.01 level (2-tailed).

From the correlation testing, the significance value was less than p-value (.05) which therefore makes us reject the null hypothesis since the sales of the company showed weak correlation with Pearson correlation (r) being 0.471 thus showing that there was a weak relationship between the number of employees in a company and the sales a company makes. We then conclude that there was a relationship between sales of a company and the total number of employees a company has.

Correlations
	certification	revenue
certification	Pearson Correlation	1	.161**
Sig. (2-tailed)		.000
N	5717	5717
revenue	Pearson Correlation	.161**	1
Sig. (2-tailed)	.000
N	5717	5717
**. Correlation is significant at the 0.01 level (2-tailed).

Though there is statistical significance in the test of relationship between certification of a company with ISO 9000 and sales of a company, the Pearson correlation value being 0.161 means that there was a weak positive relationship between the two tested variables.

The size of a company is directly related to the number of employees a company has. Recording as low as 11 employees in a company means that there were small companies among the censured companies. The mean number of employees being 45 marketing that most of the censured companies were relatively big. Employees with all levels of education were represented in companies in various departments and positions that have not been revealed by the data in this report. Employees with master and doctor degrees were not mostly hired as compared to employees with other levels of education that showed means of 11.85, 12.92and 12.26 for bachelor, diploma and those with high school education respectively. Employees with junior high school or below were not also highly hired but their number in the companies was higher than that of master and doctor employees. Skilled employees have great impact in the contribution towards the achievement of a company or any business organization (Palpacuer et al, 2011). As a result therefore, the managerial department is advised to stay keen on the skills and educational background of the employees. Having more number of employees with low education level and less skills would be detrimental to the management and performance of the company. From the taste of hypothesis about the correlation between the number of employees and sales of a company, a significant relationship was recorded. From this therefore, the number of employees in a company should be considered by the management and regulated not to be too high or too low but at a good ratio to the work to be handled. Certification of companies with ISO 9000 showed significant relationship with sales a company make. Due to this, companies’ management are advised to adopt certification of ISO in their companies to enjoy financial benefits.

The outlined questions in the questionnaires in the data collection process was limited to financial performance of the certified companies with ISO 9000 but did not cover the management qualities. To better understand the quality improvement in the company management, future research should focus basically on the impacts of ISO certification to the company management quality. To meet this, it should be reflected right from the questions used to collect data.

References

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Chatzoglou, P, Chatzoudes, D and Kipraios, N, “The Impact of ISO 9000 certification on firms’ financial performance”, International Journal of Operations and Production Management, 35(1), 145-174, (2015)

Chow-Chua, C., Goh, M., & Boon Wan, T. (2003). Does ISO 9000 certification improve business performance?. International Journal of Quality & Reliability Management, 20(8), 936-953.

Ismyrlis,V and Moschidis, O, “The effects of ISO 9001 certification on the performance of Greek companies”, TQM journal, 27(1), 150-162, (2015)

Franceschini, F., Galetto, M., Maisano, D., & Mastrogiacomo, L. (2010). Clustering of European countries based on ISO 9000 certification diffusion.International Journal of Quality & Reliability Management, 27(5), 558-575.

Hajian, S., & Domingo-Ferrer, J. (2013). A psychology for direct and indirect discrimination prevention in data mining. IEEE transactions on knowledge and data engineering, 25(7), 1445-1459.

Palpacuer, F., Seignour, A., & Vercher, C. (2011). Financialization, Globalization and the Management of Skilled Employees: Towards a Market?Based HRM Model in Large Corporations in France. British Journal of Industrial Relations, 49(3), 560-582.

Psomas, E. L., Kafetzopoulos, D. P., & Fotopoulos, C. V. (2012). Developing and validating a measurement instrument of ISO 9001 effectiveness in food manufacturing SMEs. Journal of Manufacturing Technology Management,24(1), 52-77.

Psosmas, E, pantouvakis, A and Kafetzopoulos, D, “The Impact of ISO 9001 effectiveness on the performance of service companies”, Managing service Quality, 23(2), 149-164, (2013)

Lafuente, E., Bayo?Moriones, A., & García?Cestona, M. (2010). ISO?9000 Certification and Ownership Structure: Effects upon Firm Performance. British Journal of Management, 21(3), 649-665.

Papadimitriou, A., & Westerheijden, D. F. (2010). Adoption of ISO-oriented quality management system in Greek universities: reactions to isomorphic pressures. The TQM Journal, 22(3), 229-241.

Zaramdini, W. (2007). An empirical study of the motives and benefits of ISO 9000 certification: the UAE experience. International Journal of Quality & Reliability Management, 24(5), 472-491