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Quality system implementation process for business success

Implementation process for business success

Michael Bell and Vincent Omachonu Department of Industrial Engineering, University of Miami, Coral Gables, Florida, USA Abstract

723 Received August 2010 Revised January 2011 Accepted March 2011

Purpose – The purpose of this paper is to examine the implementation activities involved in certifying a quality management system to the ISO 9000 quality management system standard. This includes developing the best business performance measures that will serve as indicators of an effective quality management system. This paper aims to establish a relationship between implementation activities involved in the quality system and specific business performance measures that can be used to assess the system’s effectiveness. Design/methodology/approach – Data were collected using an online survey combined with publicly available financial reporting information. Regression and other statistical techniques along with text clustering and association of the survey comments were used to analyze the data. Findings – Emphasis on implementing a documentation system were found to be linked to business performance as measured by the return on assets financial measure. Research limitations/implications – Future research should explore various documentation system aspects such as knowledge management and information sharing in greater detail. A larger sample focused on a specific industry might provide useful information for industry appropriate performance indicators. Practical implications – The practical implications of this research focus on the design and implementation of an organization’s quality management system in areas that will provide the most benefit to organizations seeking ISO 9000 certification. A baseline measurement can be used prior to implementing the system to strategically manage the implementation process. By understanding how best to implement the quality management system, fewer resources are wasted on ineffective quality management system certification projects and some of the skepticism around the implemention of an ISO 9000 certified quality management system is eliminated. Originality/value – Few quality system researchers target the implementation process for analysis. Combining survey data and publicly held financial represents is a new method for studying ISO 9000 implementation. Keywords Quality management, ISO 9000 series, Implementation process, Performance indicators Paper type Research paper

1. Introduction ISO 9001 is a standard developed by the International Organizations for Standardization and serves as a framework for quality organizational management systems. This framework is recognized by organizations and governments around the world and has consequently grown into the de facto standard for management systems. Organizations incur significant costs to obtain certification making it worthwhile to study the process to better understand the pertinent measures for certification success. ISO 9000 Quality Management System certification requires a focus on performance measures underscoring that an organization’s management systems is a valuable, non-tangible asset. The right business performance measures

International Journal of Quality & Reliability Management Vol. 28 No. 7, 2011 pp. 723-734 q Emerald Group Publishing Limited 0265-671X DOI 10.1108/02656711111150814

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help focus quality management systems to achieve desirable and required results according to ISO 9000 certification standards. In this study, an analysis was created to connect implementation activity with concrete and commonly used financial results.

1.1 Review of literature This section contains a review of the current ideas from previous research in the area of ISO 9000 quality management system implementation. This review will provide the foundation and framework for developing new understanding and knowledge of the process of effective management system implementation. Previous studies in the quality arena have highlighted quality system elements that impact on organizational performance. Mann and Kehoe (1994) examined the elements of total quality management that impact business success. Their research highlighted both procedures and a formal feedback system as two key components. Tsiotras and Gotzamani (1996) emphasized periodic review, formal corrective actions, and process focus as key elements of quality management systems that impact organizational performance. Carlsson and Carlsson (1996) identified better processes and better customer relations as benefits of implementing ISO 9000 in Swedish companies. Lee and Palmer (1999) cite monitoring day-to-day adherence to documented procedures and understanding of the corrective action process as significant challenges. Based on the prominence of these elements in the quality literature, the following ISO 9000 system elements, have been chosen for further study in this research study: . 4.2.3 Control of documents. . 5.2 Customer focus. . 5.6 Management review. . 8.5.2 Corrective actions. . 7.51. Control of provisioning. . 8.2.1 Customer satisfaction. Several past studies have focused on quality system implementation. Research by Lapointe and Rivard (2006) on the acceptance of new information technology systems in hospitals highlighted the importance of the implementation process. In addition, there is a growing understanding that the process of implementing new systems and execution of business systems are core competencies for companies today (Faull and Fleming, 2005 and Griswold and Prenovitz, 1993). Research to evaluate different quality management frameworks has been done by Carl Johannsen as part of the 1993-1994 Nordic Quality Management Project ( Johannsen, 1996). Experiences from the Nordic quality management project suggest that two important roles for management of successful implementation are; disturbance handler and resource allocator. De Macedo-Soares and Neves (2002) reports that creative application of quality elements in light of organizational culture is critical for implementation success. McLachlan (1996) highlights four ISO 9000 requirements that seem to cause difficulty for implementers: records, training, internal audits, and documentation. These elements can be tailored to the needs of each organization and still meet the intent of the standard.

1.2 Implementation process Murakami (1994) describes the steps that companies must take to attain ISO 9000 certification for their quality management system. In conjunction with the works of Smith (1994) and Jodoin (1998), the path to certification is clearly defined by these nine steps. (1) Gaining management commitment. (2) Employing external consultants. (3) Conducting an awareness campaign. (4) Creating an overall quality system manual. (5) Developing a documentation system. (6) Training employees on the system. (7) Creating work processes and procedures. (8) Conducting system wide reviews. (9) Pre-assessment audit. Organizations seeking certification may not necessarily use all of these steps, employing only some of these activities to varying degrees. Greater or lesser emphasis is placed on any one of these activities depending on the amount of resources applied in each area. Our hypothesis is that more emphasis on a subset of the implementation activities will correlate to one or more performance measures. 1.3 Performance measures Performance measures that actually demonstrate the value of an organization’s management systems can be difficult to develop, use, and interpret. Some organizations simply treat the cost of implementing quality management systems as a business overhead expense often hidden inside various budgets. However, the ISO 9000 quality management system and its associated industry specific standards remain popular as evidenced by the increasing numbers of certifications awarded each year (ISO Central Secretariat, 2008). Critics of the ISO 9000 standard contend that even certified organizations produce poor quality output ( Johannsen, 1996). Implying that certification is meaningless. However, the right business performance measures can help to focus the quality management system certification process to be more efficient and result in a more effective system. The cost and the benefits of implementing a quality management framework can be substantial. In the 1990s, many organizations demanded that their suppliers have a certified quality management system despite the financial and time considerations involved. In 1997, the typical cost of preparing a medium-sized US firm for ISO 9000 certification was $250,000. Obtaining management system certification can take up to a year of preparation. Given its widespread use and economic implications for industry, the ISO 9000 management system framework must be researched to understand which aspects are most beneficial to organizations and to identify the best ways to measure the benefits derived from adopting a management system framework. Various performance measures have been used to quantify the impact of certification on organizational performance. Some of these indicators include those shown in Table I.

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Table I. Performance measures investigated by researchers

Marquadt, 1992 Ebrahimpour et al., 1997 Quazi and Padibjo, 1998 Beattie and Sohal, 1999 Casadesu´s and Gime´nez, 2000 Haversjo, 2000 Singel et al., 2000 Aarts and Vos, 2001 Heras et al., 2002

Author/year

726

£

£ £ £

£

£

£ £

£ £

£ £ £

£ £

£ £

Return Profit Debt Return on margin Return Net to Return on Sales per Stock common on on on Sales Market equity Earnings profit Operating sales employee price sales capital equity costs assets increase share ratio per share margin

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Return on assets (ROA), sales increase, and market share have been used most frequently. Return on equity (ROE) is considered one of the four key financial ratios used to measure earnings performance. However, equity can be difficult to parse out to divisions of a large corporation so ROA is more commonly used (Kristy, 1994). ROA can be used to characterize the efficiency of an organization and is often used as an industry standard to indicate what the organization is capable of given what it has to work with; ROA indicates how many dollars of profits the organization can achieve for each dollar of assets the company controls (Sun, 2000). An organization with less rework and scrap is expected to have financial performance superior to organizations with higher levels of rework resulting from out-of-control and poorly documented processes. Therefore, an organization with an effective management system is expected to be more efficient with its resources than organizations without effective management systems. This research survey data will demonstrate whether a connection exists between ROA, and a quality management system implementation process. From the literature, the approaches used to study management systems have relied on collecting data via surveys, case studies, and examination of publicly available records such as financial reports and stock price records 2. Data collection The data for this study were collected over a 12-week period using an online survey form. Survey invitations were e-mailed to members of the Benchmarking Exchange and also placed in two consecutive issues of the Quality Digest electronic newsletter. Using this method of data collection, 150 responses were received. 2.1 Survey instrument The survey instrument consisted of 15 questions separated into four sections. Before the first set of questions, the company name and city were requested to assist with verifying the certification status of the respondent. Also, the respondent’s title and department name were collected along with the number of employees in the organization. A report of the survey findings was offered as an incentive for completing the survey so the respondent’s name and e-mail address were requested. The first section concerned the certification status, other quality initiatives undertaken by the organization, and motivation for seeking certification. By asking which sections of the standard were excluded from certification, a profile of the organization was developed in terms of the scope of quality management system and their focus on domestic or international markets. The second section focused on the process used for certification. Nine activities were presented as potential components to their path to certification. The respondents provided data on how much emphasis was placed on these activities or if the activities were simply not used at all. Unstructured free text comments were also collected about their experience with the certification process. The third section focused on the performance of the quality management system in five key areas. Respondents checked boxes on a scale to indicate their system’s performance. An area was provided for text comments about the system performance. The last section of the survey listed 17 performance measures and asked respondents to indicate whether each measure was an important measure, somewhat useful, or not useful at all for assessing organizational performance. At the end of the

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survey, the respondents selected their industry code from a drop-down list. The 2002 North American Industry Classification System (NIACS) categories were used. 3. Data analysis Subjects rated their use of the implementation activities on a Likert scale ranging from not done to very large degree. The adjective descriptors were converted to numerical values on a 1 to 5 scale and the average ratings were evaluated. Table II shows the ratings of the implementation activities sorted from highest usage to lowest usage. Examination of the data concerning the ISO 9000 implementation activities indicate that the use of external consultants was the implementation activity with the lowest mean and median, and is the implementation activity most often excluded. The use of external consultants also had the largest respondent rating variation. A non-parametric 1 sample sign test was performed with the null hypothesis that the median was less than 4, using alpha level ¼ 0.05. External consultants, quality management system training, and useful documentation system were rated significantly less than the other implementation activities. 3.1 Environment factors Further examination of the data were undertaken to compare the responses in relation to four environmental factors: large business vs. small business, internally motivated certifications versus externally motivated certification, newer certifications versus older certifications, and manufacturing organizations versus non-manufacturing organizations. Table III shows the results of a Kruskal-Walis median test of the environmental factors effect on implementation activities. The management commitment implementation variable was not affected by any of the environmental factors. Reason for certification (internal or external) had an effect on the rating of most of the implementation activities. Also, the industry (manufacturing or non-manufacturing) had an effect on the rating of most of the implementation activities. The survey asked participants to rate the usefulness of the performance measures that were commonly used to assess organizational performance. A plot of the ranking is shown in Figure 1. The four measures that were rated most useful were operating costs, net profit margin, sales increase, and defect rates. The financial measures were examined in relation to four environmental factors; large business versus small business, internally motivated certifications versus externally motivated certifications, newer certifications versus older certifications, and manufacturing versus non-manufacturing industry. Operating costs, sales increase, cost of quality, return on sales, collection period, return on equity, and sales per employee were not rated significantly different with respect to any of the environmental factors using a Kruskal-Walis median test (0.05 p-value). 3.2 Financial measures The survey respondents’ company data were matched with publicly available financial measures from Mergent Online. This company provides detailed financial reports of companies throughout the world and is an independent source of data that is processed through a rigorous multi-stage validation process (Mergent Online, 2009). Mergent provided financial data on 22 of the 120 companies represented by the sample. Five financial measures from the survey were available in the Mergent system; return on equity, return on assets (ROA), profit margin, operating margin, and annual revenue

Mean Median Mode Std dev.

Useful procedures 3.90 4 4 0.95

System manual

4.10 4 5 1.11

3.80 4 5 1.27

Management commitment 3.77 4 4 1.15

System reviews 3.64 4 5 1.60

Preassessment audit 3.62 4 4 1.27

Awareness campaign 3.55 4 4 1.27

Useful doc. system

3.46 4 4 1.14

Quality management system training

2.17 2 0 1.81

External consultants

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Table II. Use of ISO 9000 implementation activities

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730 Table III. Test of environmental factors effect on implementation elements (p-values)

System manual Useful procedures Management commitment System reviews Pre-assessment audit Awareness campaign Doc. system System training External consultants

Large vs small

Recent vs old certification

0.444 0.449 0.344 0.891 0.064 0.784 0.653 0.567 0.5

0.404 0.963 0.17 0.383 0.783 0.611 0.506 0.072 0.028

Primary reason for certification (internal vs Manufacturing vs nonexternal) manufacturing 0.016 0.041 0.077 0.018 0.729 0.009 0.015 0.004 0.861

0.227 0.045 0.17 0.009 0.02 0.26 0.402 0.024 0.61

Figure 1. Ranking of performance measures

growth. The distribution of financial data, were assessed to determine its suitability for a regression model. The ROA variable was the only one of the financial five figures, which were found to be normally distributed, based on an Anderson-Darling score of 0.218 (p ¼ 0:815). Subjects ranked ROA tenth out of 17 as a useful measure (see Table IV).

Table IV. Normality test of financial measure data

Anderson-Darling score p-value

Return on equity

Return on assets

Profit margin

Operating margin

Annual revenue growth

4.79 0.005

0.22 0.815

1.85 0.005

1.55 0.005

1.35 0.005

ROA is an indicator of how effective the company’s assets are used to produce profit. Merchant calculates the ROA from annualized net income and is expressed as a percentage of the average total assets. ROA data from 2006 through 2008 was downloaded from the Merchant system and analyzed. A regression equation was calculated to explore the connection between implementation activity and financial results. The emphasis placed on creating a useful documentation system during quality system implementation is predicted to have a statistically significant effect on the organization’s ROA. Tables V and VI display the regression output for ROA and documentation system. The p-value of the ANOVA (0.021) indicates that the relationship between ROA and documentation system use is significant at the 0.05 level. The R 2 value shows that 25.1 per cent of the variation in ROA is explained by the documentation system implementation activities. An equation relating the emphasis placed on creating a user friendly documentation system during management system implementation to the organization’s ROA seems to be valid. The survey also included a free text area so that respondents could provide comments about their experience becoming certified. A small percentage of these comments (12 per cent) were related to the amount of paperwork, procedures or documentation involved in certification.

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4. Discussion of results Only the documentation system implementation had a significant connection to ROA. The documentation system has been one of the elements of ISO 9000 that causes many complaints from implementers and results in audit findings (McLachlan, 1996). The regression output shows that the overall model fits the data; the slope of the equation is negative indicating companies that place a greater emphasis on creating a user friendly documentation system have lower ROA when certifying their quality management system. Larger, asset intensive companies might put greater emphasis on creating the documentation system during the management system certification process in order to become certified. This suggests larger companies that are very asset-intensive and The regression equation is: ROA three year avg. ¼ 20.43.78 documentation system Predictor Coef. SE coef. T Constant Documentation system

20.409 2 3.777

5.313 1.498

3.84 22.52

p 0.001 0.021

Notes: S ¼ 8.29767; R-sq. ¼ 25.1 per cent; R-sq.(adj) ¼ 21.1 per cent

Source

DF

SS

MS

F

p

Regression Residual error Lack of fit Pure error Total

1 19 3 16 20

437.47 1,308.18 220.43 1,087.74 1,745.65

437.47 68.85 73.48 67.98

6.35

0.021

1.08

0.385

Table V. Regression data for ROA versus documentation system

Table VI. Regression data for ROA versus documentation system – analysis of variance

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require expensive equipment to generate a profit have a greater need for information and process documentation to effectively use those assets. Also, return on assets was rated differently as a key performance measure based on company size; it was rated less useful by smaller companies than by larger companies. The ROA is useful for understanding the implementation process, however, it was not ranked by the subjects as one of the more important measures. In addition, the research demonstrates that the purely financial measures used in previous studies might not be applicable across all industries. Operating costs and sales increase were robust across all of the environmental factors (company size, industry, length of certification) can also be appropriate measures of system performance. Companies should select a performance measure or a set of measures to monitor prior to engaging in quality management initiatives to focus their implementation. The management commitment implementation variable was not affected by any of the environmental factors. The survey instrument described management commitment as: Management commitment for the ISO 9001 certification was evident in that; executives, supervisors and employees demonstrated support through their words and behaviors.

This might suggest a universal understanding of the concept and its importance that transcends industries, company size, and time. Emphasis on management commitment would provide leverage during implementation due to its strong correlation to all of the other implementation activities. Although critics of the ISO 9000 standard contend that an organization can become certified and still produce poor quality output, business performance measures could be used to focus quality management system certification to achieve better results. Top management from the early-adopter organizations may not have understood that their organization could experience greater results by focusing on the right performance measures. Organizations that are now following in their footsteps through ISO 9000 certification can learn from past mistakes and develop a cogent set of measures to ensure proper measurement throughout the process of certification; even small businesses can benefit from this advice. Knowledge management and information sharing throughout the organization can be a benefit of implementing a quality management system. 5. Implications of results New organizations are seeking ISO 9000 certification each year with no decrease in the rate of new certifications occurring. The knowledge gained from this research will enable organizations seeking certification to prioritize and focus their resources on areas that will provide the most benefit. Quality managers should customize their quality system by understanding the information needs of their documentation system. The research highlighted the interaction and utility of the activities in the ISO 9001 certification process. The study also provided an analysis of environment factors affecting management system certification, including industry, motivation, and size. 6. Study limitations and future research Areas of study to continue this research are to focus on very small businesses to enhance understanding of quality management processes. The research did not show significant differences due to the size of the business in the rating of element

performance. However, smaller businesses continue to be an area of interest for quality management. The global recession of 2008-2010 has shown that larger businesses will not be quick to hire employees until long after an economic recovery so that economic growth will likely take place in smaller businesses. Businesses of 50 employees or less would benefit from more study due to their increasing significance in the global supply chain. Counterfeit or poor quality components hidden inside the subsystem of a major manufacturer can have a bullwhip effect on supply chain quality. Implementing and maintaining an effective quality management system is an imperative for small businesses. Other areas for research are to look into the nuances of documentation systems to understand how this area can be implemented to provide the most benefit for a quality management system. Documentation system implementation was correlated with training and with useful procedures, so exploring the interaction between these three system elements will be worthwhile. Keeping the documentation up to date is an area of concern for all implementers of management systems. Advances in information technology continue to change the way quality objectives, work instructions, and policies are deployed and updated throughout the work environment. Therefore, capturing knowledge and lessons learned for continuous improvement must be applied to keep pace. Future research will also involve a larger sample to conduct a detailed analysis of industry classifications. References Aarts, F.M. and Vos, E. (2001), “The impact of ISO registration on New Zealand firms’ performance: a financial perspective”, The TQM Magazine, Vol. 13 No. 3, p. 180. Beattie, K.R. and Sohal, A.S. (1999), “Implementing ISO 9000: a study of its benefits among Australian organizations”, Total Quality Management, Vol. 10 No. 1, p. 95. Carlsson, M. and Carlsson, D. (1996), “Experiences of implementing ISO 9000 in Swedish industry”, International Journal of Quality & Reliability Management, Vol. 13 No. 7, pp. 36-47. Casadesu´s, M. and Gime´nez, G. (2000), “The benefits of the implementation of the ISO 9000 standard: empirical research in 288 Spanish companies”, The TQM Magazine, Vol. 12 No. 6, pp. 432-41. De Macedo-Soares, T.D.L.v.A. and Neves, J.A. (2002), “Implementing quality improvement strategies in Brazilian hospitals: a model for guidance of the initial stage of implementation”, International Transactions in Operational Research, Vol. 9 No. 1, pp. 3-17. Ebrahimpour, M., Wither, B.E. and Hikmet, N. (1997), “Experiences of US- and foreign-owned firms: a new perspective on ISO 9000 implementation”, International Journal of Production Research, Vol. 35 No. 2, pp. 569-76. Faull, N. and Fleming, P. (2005), “Turning intentions into outcomes: a quick scorecard to guide implementation”, Measuring Business Excellence, Vol. 9 No. 3, p. 5. Griswold, H. and Prenovitz, S. (1993), “How to translate strategy into operational results”, Business Forum, Vol. 18 No. 3, p. 5. Haversjo, T. (2000), “The financial effects of ISO 9000 registration for Danish companies”, Managerial Auditing Journal, Vol. 15 No. 1/2, pp. 47-52. Heras, I., Casadesus, M. and Dick, G.P.M. (2002), “ISO9000 Certification and the bottom line: a comparative study of the profitability of Basque region companies”, Managerial Auditing Journal, Vol. 17 No. 1/2, pp. 72-8.

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ISO Central Secretariat (2008), The ISO Survey of Certifications, ISO Central Secretariat, Gene`ve. Jodoin, C. (1998), “Getting started with ISO/ QS 9000 requirements”, Printed Circuit Design, Vol. 15 6, June, p. 46. Johannsen, C.G. (1996), “ISO 9000 a managerial approach”, Library Management, Vol. 17, pp. 14-24. Kristy, J. (1994), “Conquering financial ratios: the good, the bad and the who cares”, Business Credit, Vol. 96 No. 2, p. 14. Lapointe, L. and Rivard, S. (2006), “Getting physicians to accept new information technology: insights from case studies”, Canadian Medical Association Journal, Vol. 174 No. 11, p. 1573. Lee, K. and Palmer, E. (1999), “An empirical examination of ISO 9000 registered companies in New Zealand”, Total Quality Management, Vol. 10 No. 6, p. 887. McLachlan, V.N. (1996), “In praise of ISO 9000”, The TQM Magazine, Vol. 8, pp. 21-3. Mann, R. and Kehoe, D. (1994), “An evaluation of the effects of quality improvement activities on business performance”, International Journal of Quality & Reliability Management, Vol. 11 No. 4, pp. 29-44. Marquadt, D. (1992), “ISO 9000: a universal standard of quality”, Management Review, Vol. 81 No. 1, January, p. 50. Murakami, R. (1994), “How to implement ISO 9000”, CMA Magazine, Vol. 68 2, March, p. 18. Quazi, H.A. and Padibjo, S.R. (1998), “A journey toward total quality management through ISO 9000 certification – a study on small- and medium-sized enterprises in Singapore”, International Journal of Quality & Reliability Management, Vol. 15 No. 5, pp. 489-508. Smith, B. (1994), “A proven path to ISO 9000 registration”, Industrial Distribution, Vol. 83 7, July, p. 50. Sun, H. (2000), “Total quality management, ISO 900 certification and performance improvement”, International Journal of Quality & Reliability Management, Vol. 17 No. 2, pp. 168-79. Tsiotras, G. and Gotzamani, K. (1996), “ISO 9000 as an entry key to TQM: the case of Greek industry”, International Journal of Quality & Reliability Management, Vol. 13 No. 4, pp. 64-76. About the authors Michael Bell is a PhD student at the University of Miami. His work history includes Industrial Engineer in the electronics manufacturing industry, Business Management System Manager for the National Aeronautics and Space Administration and Instructor for the University of Phoenix. Michael Bell is the corresponding author and can be contacted at: [email protected] Vincent Omachonu is an Associate Professor of Industrial Engineering at the University of Miami. His research interests include quality management, health care delivery systems, productivity management, and process re-engineering. He has published books on total quality management and received the IIE Joint Publishers Award Book-of-the-Year Award.

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