Impact of ISO 9001 Certification on Performance of Manufacturing Organizations in Sri Lanka.

Abstract

ISO 9001 standards are adopted by many organizations with the expectation that they will lead to an overall improvement in performance. However, in practice it is found that the performance measures in ISO 9001 certified companies show wide variations. This research attempts to study the causes for such variations in ISO 9001 certified companies in Sri Lanka. 18 Manufacturing companies were selected from listed companies from Colombo Stock Exchange., which have been ISO 9001 certified for a period of at least three years. Data will be collected through a survey and interviews with senior managers of the companies. study is to determine what is the impact of implementation of ISO 9001 and relationship with work outcomes such as job satisfaction, work involvement, organizational commitment as well as customer satisfaction and relationship with turnover intentions. The study also looks in to social exchange relationship between employees and the work outcomes and customer satisfaction .

Randika Perera- MBA

Keywords: Quality Management System, Core principles of ISO 9001, Social and

Economic exchange, Work outcomes, Customer satisfaction

1. Introduction

The manufacturing industrial sector contributed 17.4 % to the GDP in 2010. (Central Bank of Sri Lanka, 2010). This sector plays an important role in the economic development of Sri Lanka. Maintaining high quality standards is important for manufacturing industries in order to compete at local and global levels. Hence manufacturing organizations have increasingly shown an interest in adopting ISO 9001certification. ISO 9001 series has gained popularity globally as the panacea for quality problems. Costa et al., (2009) cite the ISO official website as reporting that at the end of 2006 there were 897,866 certified companies in the world, growing at an annual rate of 20%. In Sri Lanka, it is estimated that about 1000 manufacturing organizations are currently ISO 9001 certified.

Organizations seek ISO 9001 for varied reasons. While there are reasons such as buyer requirements, government requirements and use as a marketing tool, the major reason seems that organizations perceive ISO 9001 to lead towards enhanced overall performance of companies.

However, despite the adoption of ISO 9001 core principles through certification, the organizational performance of the certified companies is inconsistent. Performance results obtained from some certified companies exhibit wide variations and such findings are also supported by the available literature on the subject (Benner & Veloso, 2008).

The purpose of this study is to understand the factors which affect the sustained improvement in performance outcomes such as customer satisfaction, job satisfaction, and organizational commitment, turnover intentions, job performance and organizational citizenship behaviour in ISO 9001 certified manufacturing organizations.

The study would also help in understanding how the social/ economic exchange relationship between employees and organizations affect the relationship of ISO 9001 principles with work outcomes and customer satisfaction in ISO 9001 certified companies.

2. Research ProblemISO 9001 certifications are being increasingly sought by manufacturing companies. It is expected that ISO 9001 certification would improve and control their internal processes and result in external benefits such as improved customer confidence leading to improved overall performance. However, in reality, it has been observed that there are instances where ISO 9001 certified companies have failed to achieve consistent performance as anticipated despite adopting ISO 9001 principles. Pilot studies conducted in two food manufacturing

organizations which had been ISO 9001 certified for three years revealed wide variations in revenue growth, customer complaints, rework,market share, and employee turnover.

3. Research QuestionsThis study addresses two research questions.

a) What is the influence of implementing ISO 9001 core principles on work outcomes and customer satisfaction?

b) Does the nature of the exchange relationship between employees and the organization affect work outcomes and customer satisfaction in the implementation of core principles of ISO 9001?

4. Literature ReviewThe impact of ISO 9001 on organizational performance has been a much researched subject. The findings signal mixed results. According to Godzamani and Tsiotras(2001), who tried to analyze the controversial debate, the optimistic view (Henkoff,1993;Marsh & Marquardt, 1994:McQueen,1993 :Rayner&Porter,1991;Williams,1997 and Benner&Veloso,2008) is based on the fact that ISO 9001 standards offer a well structured tool to build the quality system on and make it easier to get top management commitment. The pessimistic view (Corrigan,1994:Henkoff,1993:Johannsen,1995; and Stephens,1994) is based on the fact that companies adopt ISO 9001 without real commitment to quality. Benner & Veloso(2008) find that a large body of literature on the effects of ISO 9001 share the general assumption that ISO 9001 adoption will improve an organization’s financial performance. They classify the performance through ISO 9001 into two possible sources. Firstly, performance improvement is expected from improved operational efficiencies that translate directly into cost reductions (Anderson et al.,1999;Corbett et al.,2005; Terziovski et al.,2003). Secondly, the additional source of performance improvement stems from increases in revenues as ISO 9001 certified companies gain access to new markets or customers. (Corbett et al.,2005;Terlaak&King,2006). Boiral & Roy(2007) reported that contrasting results are recorded regarding the improved performance of certified organizations. They say that while many studies (Sun, 1999; Gotzamani & Tsiotras,2002;Douglas et al.,2003) acknowledge progress in product quality, customer satisfaction, cost reduction, productivity and operating advantages, many other studies question the effectiveness of the standard or the possibility of measuring its real contribution to improved organizational performance (Ismail & Hashmi,1999;Heras et al.,2002; Simmons & White, 1999; Chin et al.,2002).The extensive literature review on TQM impacts by Sousa&Voss(2002) draw reference to several studies which have reported significant and strong impacts of practices such as workforce management, work attitudes,

employee fulfillment, employee empowerment, workforce commitment, use of teams, employee involvement, employee satisfaction, employee selection and development ,compensation and total human resource management on quality of operational and business performance (Choi & Eboch,1998;Adam et al.,1997; Flynn et al.,1995;Anderson et al.,1995; Samson & Terziovski, 1999 and Dow et al.,1999). An important objective of the ISO 9001 standard is to give customers an assurance

about the quality of products or services supplied (Carr et al.,1997). According to Hoyle (1998) and Conti (1999) cited by Singh et al.,(2010), ISO 9001 recognizes the contemporary reality of understanding and meeting customer preferences in order that organizations compete effectively. The study by Singh et al.,(2010) report from the works of Froehlich & Westbrook,(2001) and Vickery et al.,(2003) that there is evidence that integrating internal processes and customer interfacing activities can have a positive impact on performance.Yeung,(2008), who undertook studies on strategic supply anagement, qualityinitiatives and organizational performance, says that ISO 9001 certification appears tobe a foundation or a pre requisite for strategic supply management. He bases his argument on earlier studies by Naidu et al., (1996), who suggested that through ISO 9001 preparation and registration, an organization can develop its purchasing function more systematically, making supply management a strategic initiative for profitability. Singh et al.,(2010), in their research as to why organizations register for ISO 9001, state that amongst studies of organizations that seek such registration for internal process development needs are premised on the notion that the standard assists organizations to improve their internal organizational processes and performance Adams,1999;Benner&Tushman,2002;Boiral, 2003;Tzelepis et al.,2006;Benner & Veloso,2008). Singh et al.,(2010) also cite McAdam & McKeown(1999) that for organizations that successfully implement and utilize ISO 9001, the main benefit is the development of an effective system that assists in eliminating errors and thereby saves money that is otherwise spent on rework and scrap.The relationship between employees and their organizations has been described as an exchange relationship(Mowday,Porter&Steers,1982).According to Blau,(1964) social exchanges entail unspecified obligations so that when an individual does another party a favour, there is an expectation of some future return and as a result social exchange relationships depend on trust. Economic exchange relationships between parties are not long term or on going, but represent discrete, financially oriented interactions (Emerson, 1981).

In a study that examined the economic and social exchanges between employee and employer within a model which perceived organizational support and affective and continuance commitment served as predictors and performance, altruism citizenship behaviour, absence and lateness served as outcomes and concluded that only social exchange and not economic exchange, directly predicted performance outcomes (Shore et al., 2006). Angle & Perry(1981) have established the relationship between members’ commitment to their work organizations

and several indices of organizational effectiveness. Mowday, Porter & Steers(1982) emphasized the viewpoint that organizational commitment is characterized by a strong belief in and acceptance of the organization’s goals and values, a willingness to exert considerable effort on behalf of the organization and a strong desire to maintain membership in the organization. Tsui et al.,(1997) established that, in general, employees performed better on core tasks, demonstrated more citizenship behaviour and expressed a higher level of affective commitment to an employer when they worked in an environment of investment (by the employer) or mutual investment relationship.Deming(1982) argued that customer satisfaction was the most important outcome of TQM practices. TQM is generally viewed as a process oriented approach in improving customer satisfaction by offering goods and services of high quality (Mehra et al.,2001). A study by Das et al.,(2000) has reported a positive relationship between TQM practices and customer results. Timeliness of delivery was found to be a significant outcome of TQM practices by Anderson & Sohal(1999). Costa et al., (2009) who reviewed the debate on the performance of the ISO 9001 family of standards have cited Choi & Eboch(1998) that TQM practices have a significant impact on plant performance and customer satisfaction. Anderson et al.,(1994); Ahire et al.,(1996); and Blau & Alba (1982) also have reported positive effects of TQM measures on customer satisfaction. Their work has been based on premises that key TQM practices of employee involvement and empowerment, lead to a positive impact on customer satisfaction.

5. Study frameworkBased on above findings, the following conceptual framework was formulated for the study.

Hypotheses

H1: Implementation of core ISO 9001 principles is positively related to job satisfaction,work involvement, organizational commitment, job performance, organizational citizenship behaviour and customer satisfaction.

1 Core Principles of ISO 90012. Leadership3. Workforce involvement4. Customer Relationship5. Management6. Supplier Relationship7. Management8. Internal Process9. Management10. Economic11. Exchange

12. Social13. Exchange14. Work outcomes15. Job Satisfaction16. Organizational17. Commitment18. Work Involvement19. Turnover Intentions20. Customer21. Satisfaction

H2: Implementation of core ISO 9001 principles is negatively related to turnover intention.H3: The relationship between implementation of core ISO 9001 principles and job satisfaction, work involvement, organizational commitment, turnover intention, job performance, organizational citizenship behaviour and customer satisfaction is moderated by social exchange.

H4: The relationship between implementation of core ISO 9001 principles and job satisfaction, work involvement, organizational commitment, turnover intention and customer satisfaction is moderated by economic exchange.

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