A comparative study of Human Resource Management practices and advanced technology adoption of SMEs with and without ISO certification.

Abstract

This paper reports on an exploratory study recently conducted on small manufacturing firms with and without International Organisation for Standardisation (ISO) Certification in India. Through this study, the authors bring out certain significant differences in the adoption of Human Resource Management (HRM) practices and advanced technology of small manufacturing firms with and without ISO 9000 Certification. The findings show that there is a significant difference between firms with and without ISO 9000 certification with respect to the HRM practices and advanced technology adoption. It shows that small manufacturing firms have embraced advanced technologies overwhelmingly compared to non-ISO certified firms.

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Over the last two decades, many studies have reported the implementation of ISO certification and its impacts on Small and Medium Enterprises (SMEs) around the world. However, until recently, there have been only few attempts to empirically establish the link between Human Resource Management (HRM) practices and ISO 9000 certification.

SMEs, both in size and shape, are not uniform across the globe. The way they are defined depends on the stage of national economic development and the broad policy purposes for which the definition is used. The Small-Scale Industry (SSI) sector in India is different from the SME sector in other countries. There is no typology of medium scale industry in India and the Indian definition of SSI is investment specific, while in the rest of the world it is in terms of employment, assets or sales or combination of these factors (Krishna, 2004).

SSIs occupy a place of strategic importance in the economy of many countries owing to their significant contribution made to national income, employment, export, innovation, and developmental activities. They contribute significantly to social and economic development objectives such as labour absorption, income distribution, rural development, poverty eradication, regional balance, and promotion of entrepreneurship. In fact, they play an important role in the process of the country's industrial development. In developing countries, small labour-intensive industries have been favoured basically to create employment opportunities in an economy with abundant unskilled labour available even though such industries may not always be supported on grounds of economic efficiency. Small enterprises particularly, have been in vogue in manufacturing endeavour even before the dawn of industrial revolution (Lall, 1998).

In India, SSIs account for 95 per cent of the country's industrial units, 40 per cent of industrial output, 80 per cent of employment in the industrial sector, 35 per cent of value added by the manufacturing sector, 40 per cent of total exports and 7 per cent of net domestic product. Clearly, after agriculture, this is the single biggest group in the country's economic activities (Bhavani, 2004).

According to most of the researchers, SMEs have a number of strategic advantages, particularly in terms of flexibility, informality, and adaptability compared to larger ones. They also agree that SMEs have been more successful because of their structural adaptability and sustainability. This allows them to take advantage of rapid technological advances for their survival and competitiveness in the present context of global economy, and enables them to cope up with the higher levels of environmental uncertainty (Martin and Matlay 2001; Matlay 2000; Storey 1994; Hill and Stewart 1999; Gibb 1997; Hendrickson and Psarouthakis 1998; Marlow and Patton 1993; Pfeffer 1994; Whittington 1993).

Technological advances have eroded physical, cultural, economic, and political borders. These advances have revolutionised the nature of production, transportation, and communication systems and consequently the nature of work and workers (Baldwin, Gray and Johnson, 1995). The explosion in technology-use has fostered a concern about its impact on workers (Betcherman, 1995). Small finns need effective personnel policies particularly as every employee comprises a large percentage of the workforce for a small business (Gatewood and Field, 1987). During periods of rapid technological change, shortages of particular types of skilled workers emerge. Many forms of technological change are accompanied by changes in skill requirements. This is particularly true of the changes associated with the adoption of the new advanced technologies that are being implemented in the manufacturing sector (Doms, Dunne, and Troske, 1997).

Baldwin et al (1994) report that small and medium-sized firms have experienced that skilled labor is one of the most important factors contributing to their growth. To be successful in a global market, a small firm needs a highly motivated, skilled and satisfied workforce that can produce at low costs (Holt, 1993).

A common thrust among these studies points to the importance of good HRM practices. HRM has been defined as the "Process of attracting, developing, and maintaining a talented and energetic workforce to support organisational mission, objectives and strategies" (Schemerhom, 2001).

HRM practice in small business is undoubtedly quantitatively and qualitatively different from those in larger organisations. The growing small businesses need to develop their HRM practices, as increasing size inevitably brings increased complexity, necessitating a more professional approach towards managing the personnel (Gilbert and Jones, 2000).

Audretsch and Thurik (2000, 2001) argue that effective HRM practices are becoming increasingly important in the new "knowledge-based" economy, as companies face the double challenge of the need for more highly trained employees coupled with a shortage of qualified labour. These challenges, towards smaller firms in general, reinforce the need for effective HRM practices in the small firm. New trends in this area of HRM indicate that SMEs may have realised the importance of sound HRM practices (Damodar and Golhar, 1994).

Gilbert and Jones (2000) found that HR practices in small businesses are predominantly informal, ad-hoc and opportunistic; nevertheless, they are effective in small business. Yet, relatively little research addressed the nature and significance of these differences.

There is no consensus among researchers regarding the role of HRM in small-firm success (Deshpande and Golhar, 1994). HRM practices may be a leading cause of small business failures (McEvoy, 1984). Inadequate and inefficient HRM in SMEs may result in low productivity and high dissatisfaction and turnover among the staff (Mathis and Jackson, 1991).

Globalisation has thrown many challenges to SMEs. One of the greatest conceptual challenges is that on one hand, the individual SMEs would be fiercely competing with each other within the nation and beyond and on the other hand at the same time they would be forced to collaborate and work together than ever before to safeguard their own mutual interests to survive (Anil, 2003).

Even modern SMEs in many countries face competitive challenges in the emerging scenario. The threat has been one of the most important aspects of the larger competitive challenges posed to the SMEs by accelerating technological change, globalisation and liberalisation. The pace of change is so rapid, and its scope so wide, that some analysts see the emergence of new technological paradigm (Freeman and Perez, 1990). Traditional modes of competition, based on low costs and prices, are being replaced by the 'new competition', driven by quality, flexibility, design, reliability, and networking. A recent analysis of the pattern of export growth shows that trade dynamism is increasingly correlated with technology intensity (Lall, 1998).

Perhaps, the most radical change in the economic landscape at the end of the 20th century has been the shift in economic activity away from a local or national sphere towards a much broader international or global arena.

One of the major forces enabling economic globalisation has been technology. Increasing competitive pressures linked to globalisation are driving SMEs in developing countries to look for international partners in order to reduce costs and or facilitate the development of competitive advantages.

In the backdrop of the globalisation and rapid technological changes, small manufacturing industries are facing intense pressure to sustain and remain competitive in the global economy. This situation has forced them to seek certification such as ISO 9000 for their quality practices and be more recognised in the global arena.

The International Organisation for Standardisation (ISO) is a network of the national standards institutions in 147 countries, organised on a one member per country basis. Headquartered in Geneva, Switzerland, ISO serves as a monitoring organisation that meets the requirements of business and quality. International Standards provide a reference framework, a common technological language platform between suppliers and their customers. This worldwide agreement facilitates trade and the transfer of technology. ISO is the world's largest developer of standards. Standards play a crucial role in ensuring quality, safety, reliability, efficiency and interchangeability.

ISO 9000 is at best a framework for quality assurance; any progress beyond this point cannot be captured within the printed words of a standard, but must be foremost on the agenda of the manager (Williams, 1997).

ISO 9000 is not a quality standard per se, but is a management control procedure, which involves businesses in documenting the processes of design, production and distribution to ensure that the quality of products and services consistently meets the intended purpose and ultimately the needs of customers. In other words its goal is to ensure conformity to predetermined standards (Chittenden et al, 1998).

ISO Certification and SMEs

Various reasons for the ISO 9000 drive are identified in the literature (Brown and Van Der Wiele T, 1995; Street and Fernie, 1993; Wenmoth and Dobbin, 1994). There are several important driving forces for ISO 9000 series certification. Market-related factors, customer service, efficiency and as a kick-start for quality improvement all these feature as strong motivating forces. (Brown and Van Der Wiele, 1997). They include: customer demands and expectations, competitive pressures, a regulatory environment and internal forces. This worldwide push has probably impacted more on smaller organisations than larger ones. Many smaller enterprises face strong pressure to gain certification due to either customer requirements or to maintain their competitive position in the industry when other companies are also moving in this direction. Customers are increasingly demanding that their suppliers be certified (Brown et al, 1998).

Benefits of ISO Certification

The most significant benefits are in terms of raising quality awareness in an organisation. This reinforces the view that certification is a strong foundation to start the quality improvement process. Even though most SMEs go for ISO 9000 series certification for external reasons or being forced to do so, still the major significant improvements reported are related to internal improvements: greater quality awareness, improved awareness of problems within the organisation, and improved product quality (Brown et al, 1998).

Quazi and Padibjo (1998) found that ISO 9000-certified SMEs in Singapore reaped a number of benefits including: an increased customer preference, improved company quality image, 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 Total Quality Management (TQM).

In summary, specific benefits of ISO 9000 certification that have been reported by various authors are:

* Higher productivity and export sales (Elmuti and Kathawala, 1997).

* Better control of business, reduced costs, fewer customer complaints (McAdam and McKeown, 1999).

* Improved quality of work life, increased customer preference, improved company quality image and competitiveness in the marketplace, stream lined procedures and documentation; and increased consciousness for preventive and corrective actions (Quazi and Padibjo, 1998).

* Improved competitiveness, improved relationship with customers (Quazi and Jacobs, 2004).

Impediments of ISO Certification

Chan and Jeganathan (1996) found in an Australian study that high costs were the greatest inhibitor to ISO 9000 series certification by small business. McTeer and Dale (1994) found that time and lack of knowledge were the main problems faced by the smaller companies who placed considerable reliance on consultants to assist them.

For many SMEs, the ISO 9000 series certification is a completely new concept, so learning to understand the jargon and objectives also presented a challenge. Lack of commitment is the most frequently mentioned problem, and is related to commitment of the employees, managers and time (Brown and Van Der Wiele, 1997).

While ISO 9000 series certification may be important in gaining access to markets, by itself, it will not guarantee success. Industrial customers and governmental bodies are demanding ISO 9000 series certification as a general rule in relation to their vendor fist; however, those general rules are not strictly practised. ISO 9000 series certification is generally an expensive process for SMEs. Many SMEs experience disappointment with ISO 9000 series certification, with the increase in paperwork, and the costs involved.

Terziovski et al (1997) found that quality certification had no significant, positive relationship with business performance. The study of Simmons and White (1999) in USA did not support the claims that ISO certified companies help realise the advantages in operational performance over non-ISO certified companies. Sun (1999) also found that the ISO 9000 certification had little influence on market position and competitiveness, and no influence on employee satisfaction and environment protection.

ISO 9000 series certification has provided mixed experiences for SMEs. For many, it is a "necessary evil", forced upon them largely by purchasers, particularly large organisations and government departments (Brown and Van Der Wiele, 1997).

Chittenden et al (1998) have concluded in their studies that a high majority of the ISO 9000 certified firms have felt that the advantages of using ISO 9000 outweighed the disadvantages.

Although the above review of literature on ISO 9000 certification and SMEs revealed a little direct association between SMEs and ISO 9000 certification in terms of clear benefits, a number of studies have reported a mixed relationship between ISO 9000 certification and its impact on SMEs (Quazi and Padibjo 1998; Brown et al, 1998; Chan and Jeganathan 1996; McTeer and Dale 1994; Brown and Van Der Wiele, 1997). It appears that there are very few studies, which have systematically investigated the relationship between adoption of advanced technology and HRM practices in SMEs with and without ISO certification. This study strives to bridge the gap in the literature.

Research Objectives and Methodology

The objectives of this study were to examine the level of advanced manufacturing technology adoption, HRM practices and their perceived impact on small manufacturing firms with and without ISO certification. A survey methodology was used for the study. The data collected were analysed to bring out the differences between manufacturing SMEs with and without ISO 9000 Certification with respect to the level of adoption of advanced technology and HR Practices practised. Several field trips were made to gather authentic and comprehensive data directly from owners/managers of small manufacturing firms. The field interviews provided a good opportunity for the researchers to hear directly the owners'/managers' opinions and views on their firms' level of advanced manufacturing technology adoption and HRM practices embraced by them.

Questionnaire

Based on the detailed literature review, a questionnaire was developed keeping the objectives in mind and a final survey was done for a sample size of over 300 small mechanical manufacturing firms in the state of Karnataka, India, to get the feedback from firms' owners/managers.

The questionnaire designed for the study was close ended. The final questionnaire consisted of mainly four important sections namely, 1) Firms' General Demographic Information, 2) Firms' Level of Technology Adoption and Awareness, 3) Firms' Training Needs Analysis, and 4) Firms' HRM practices. Each section had multiple questions to cover several important parameters. There were 31 questions.

The HR practices considered for the study were

* Human Resource Planning 

* Systematic Recruitment and Selection

* Training and Development Programmes

* Written Job Description

* Regular Performance Appraisal 

* Growth Plans and Strategies

* Management Techniques (for example: Continuous Improvement including TQM), Benchmarking.

The advanced technologies considered for the study were

* Design and Engineering

* Processing Fabrication and Assembly

* Automated Material Handling

* Inspection

* Integration and Control

* Network Communication

Research Sample

In this study, the unit of analysis is the firm and the population is small manufacturing firms within Karnataka. The data were collected through face-to-face interaction with the owners/managers of 310 small manufacturing firms, which were randomly chosen from the Directory of Small Scale Industries, Government of Karnataka, India. Of the 310 firms surveyed, the responses of 100 firms were found to be fully complete giving a response rate of 32 per cent.

Table 1 shows the technologies considered for the study. If a firm has successfully adopted one or more of these technologies, then the firm is considered to be an adopter of advanced technologies. Otherwise, the firm is considered to be a technology non-adopter.

Advanced technologies are divided into six major functional groups.

Survey Results and Analysis

This section presents the findings of the present study. The data were analysed to examine the level of advanced technology adoption and HRM practices followed in small firms with and without ISO 9000 certification. In particular, an exhaustive analysis was carded out to bring out the differences between small manufacturing firms on various other related factors pertaining to advanced technology adoption and HRM practices.

Figures 1 to 7 show the comparison of small firms with and without ISO Certification.

All the 50 ISO certified firms have adopted advanced technology when compared to only 27 firms (54 per cent) without ISO certifications have adopted advanced technology.

The above observation clearly illustrates that ISO 9000 certified firms have embraced advanced technology decisively and effectively when compared to firms, which do not have ISO Certification.

Out of 50 ISO certified firms, 42 firms (84 per cent) have employed more than 10 employees when compared with 27 Non-ISO firms (54 per cent), which suggests that size of the firm is positively associated with ISO certification.

Majority of the firms (43 firms) accounting for 86 per cent among ISO certified firms, have either used E-mail or Web pages for doing their business thereby embracing the Information technology when compared to only 32 firms (64 per cent) have used either E-mail/Web pages among firms which do not have ISO certification.

Use of SPC (50 per cent), JIT Inventory Control (46 per cent), Electronic work order management (44 per cent) and Continuous Improvement (34 per cent) have emerged as the major management techniques used among ISO certified firms. Here again, it is very clear that the use of above management techniques is very significant in the case of ISO certified firms when compared to firms without ISO certification. This clearly illustrates that ISO certified firms place more emphasis on using different modern management techniques than farms without ISO certification.

Among ISO certified firms, a significant number (44 firms) accounting for 88 per cent have used training needs assessment methods when compared to only 30 firms (60 per cent) among firms, which have not been ISO certified. From this observation, it is clear that ISO certified firms use training needs assessment methods decisively when compared to firms, which are not ISO certified.

Recruitment and Training and Development (17 firms) accounting for 34 per cent have emerged as the two major HR practices for which the ISO firms would like to consult external HR consultants.

Training and Development Programmes (72 per cent), Growth Plans and Strategies (64 per cent) and Regular Performance Appraisal (52 per cent) have emerged as the major HR practices used among ISO certified firms when compared to firms without ISO certification.

From the above observation, it is very clear that ISO certified firms place more emphasis on the HR management practices when compared to firms without ISO certification.

Conclusion

This study though exploratory in nature, tries to uncover some of the qualitative differences in the adoption of advanced technology and human resource management practices followed in small manufacturing firms of India with and without ISO certification. Through this study, an attempt is made to explore how ISO certified small manufacturing firms differ qualitatively when compared with small manufacturing firms without ISO certification. The authors have also attempted to explore whether ISO certified small manufacturing firms place a greater emphasis on human resource management practices as well as advanced technology adoption to cope better in the present context of globalisation to remain competitive when compared to small manufacturing firms without ISO certification.

The major findings of this study can be summarised:

* All the ISO certified small manufacturing firms, which have responded to our research questionnaire accounting for 100 per cent, have adopted advanced technology when compared to only 27 small manufacturing firms accounting for just 54 per cent among firms without ISO certification. This finding clearly suggests that ISO certified small firms have adopted advanced technology decisively when compared to small manufacturing firms without ISO certification. It is also clear from the above observation that ISO certified small firms have been adept to technological change to remain globally competitive when compared to small manufacturing firms without ISO certification. That is, small manufacturing firms without ISO certification have been slow to adjust to competitive technological challenges posed by the new economic world order when compared to ISO certified small manufacturing firms.

* Firm size (in terms of average number of employees) is also positively associated with ISO certified small firms. From our study, ISO certified small firms have significantly employed more number of employees when compared to small firms without ISO certification. There seems to be a prominent link, which might exist between the size of the firm and its ISO certification.

* When comparing small manufacturing firms with and without ISO certification, the influence of Information Technology assumes significant proportions. The majority of the ISO certified small firms seem to be more inclined towards Information Technology when compared to small firms without ISO certification. This survey also suggests that the use of E-mail/Web pages is significantly higher in ISO certified small firms when compared to firms without ISO certification.

* Issues related to training and development, usage of management techniques and HRM practices followed have been the major differentiating factors between small manufacturing firms with and without ISO certification. From this study, it is very clear that ISO certified small firms place a greater emphasis on the use of HR consultants and human resource management practices are followed when compared to small firms without ISO certification. Training and development programmes, regular performance appraisal, growth plans and strategies have emerged as the major human resource management practices followed by both small manufacturing firms with and without ISO certification. Also, the usage of some of the management techniques such as continuous improvement, just-in-time inventory control, and electronic work or der management are more significant in ISO certified small firms when compared to small manufacturing firms without ISO certification.

Overall, the findings of this study indicate that there seems to be a huge difference in perception between ISO certified small manufacturing firms and non-ISO certified small manufacturing firms in issues related to advanced technology adoption, use of management techniques, training needs assessment methods and human resource management practices followed.

Although there are many studies relating the impact of ISO certification on SMEs, this study strives to be different among them by relating the adoption of technology and human resource management practices followed by both small manufacturing firms with and without ISO certification. An attempt has been made to explore this angle albeit by taking only a surface outlook.

Lastly, findings of this study also clearly illustrate that ISO certified small manufacturing firms when compared to their non-ISO certified counterparts, have placed more focus on adoption of advanced technology, training/development activities and human resource management practices. They are well aware of the benefits of having a well-established workforce, which directly corresponds to their firms' performance both qualitatively and quantitatively. While these results throw some light on the differences in perception of small manufacturing firms with and without ISO certification especially in a developing country with respect to technology adoption, and HRM practices followed, the findings can further be explored using quantitative tools.

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Swamy D Renuka

Department of Industrial Engineering and Management

JSS Academy of Technical Education, Bangalore

Balaji A Venkateshwara

Department of Mechanical Engineering

Sri Jayachamarajendra College of Engineering, Mysore

Table 1: Technologies Considered for the Study

1. Design and Engineering
   Computer Aided Design/Engineering (CAD/CAE)
   Computer Aided Design/Manufacturing (CAD/CAM)
   Modeling or Simulation Technologies

2. Processing Fabrication and Assembly
   Flexible Manufacturing Cells or Systems (FMC/FMS)
   Programmable Logic Control (PLC) machine/s or process/es
   Lasers used in Materials Processing (including Surface
   Modification)
   Robot/s with sensing capabilities
   Robot/s without sensing capabilities

3. High Speed Machining
   Automated Material Handling
   Part identification for Manufacturing automation, like Bar Coding
   Automated Storage and Retrieval System (AS/RS)

4. Inspection
   Automated vision-based systems used for inspection/testing of
   inputs and/or final products

   Other automated Sensor based systems used for inspection/testing of
   inputs and/or final products

5. Integration and Control
   Manufacturing Resource Planning (MRP II/Enterprise Resource
   Planning (ERP)
   Computer/s used for control on the factory floor
   Computer Integrated Manufacturing (CIM)
   Supervisory Control and Data Acquisition (SCADA)
   Use of Inspection data in Manufacturing Control
   Digital remote controlled Process Plant Control

6. Network Communications
   Local Area Network (LAN) for Engineering/Production
   Company-wide computer Networks (including Intranet and WAN)
   Inter-company computer Networks (including Extranet and EDI)

Comparison of Small Manufacturing Firms
with and without ISO 9000 Certification

Table 2.1: Status of Advanced Technology Adoption

Variable                 ISO Certified   Non-ISO Firms
                             Firms

Technology adopted         50 (100%)       27 (54%)
Technology not adopted        --           23 (46%)

Table 2.2: Cost of Project
(Current Value of Plant and Machinery in Rupees)

Variable                     ISO Certified   Non-ISO Firms
                                 Firms

0.1 to 1 million                   6              10
1.1 to 2.5 million                13              14
2.6 to 5.0 million                 8              14
5.1 to 10 million                 18               8
More than 10 million               5               4

Note: One rupee is about 3.8 Singapore cents

Table 2.3: Distribution of Firm Size (Average Number of Employees)

Variable                     ISO Certified   Non-ISO Firms
                                 Firms

Less than 10                       8              23
11-25                             16              16
26-50                             16              11
51-100                             6              --
More than 100                      4              --

Table 2.4: Use of Management Techniques

Variable                     ISO Certified   Non-ISO Firms
                                 Firms

Continuous Improvement            17               5
Benchmarking                       7               4
Certification of Suppliers        15               7
Just-in-Time Inventory
Control                           23               4
Usage of Statistical
Process Control                   25               2
Electronic Work
Order Management                  22               8

Table 2.5: HR Management Practices Followed

Variable                      ISO Certified   Non-ISO Firms
                                  Firms

Training and Development
Programmes                         36              17
Regular Performance
Appraisal                          26              15
Growth Plans and Strategies        32              15

Table 2.6: Influence of Information Technology

Variable                      ISO Certified   Non-ISO Firms
                                  Firms

Use E-mail/Web                     43              32

Table 2.7: Use of Training Needs Assessment Methods

Variable                      ISO Certified   Non-ISO Firms
                                  Firms

Yes                                44              30
No                                  6              20

Figure 1: Status of Advanced Technology Adoption across Surveyed Firms

                      Technology Adopted   Technology not adopted

ISO Certified Firms          50                    0

Non-ISO Firms                27                   23

Note: Table made from bar graph.

Figure 2: Average Number of Employees across Surveyed Firms

Average Numbers of Employees

                     ISO Certified Firms    Non-ISO Firms

Less than 10                8                    23

11 to 25                   16                    16

26 to 50                   16                    11

51 to 100                   6                     0

More than 100               4                     0

Note: Table made from bar graph.

Figure 3: Influence of Information Technology on Firms across
Surveyed Firms

Use E-mail/Web

ISO Certified Firms      43

Non-ISO firms            32

Note: Table made from bar graph.

Figure 4: Use of Management Techniques

                             ISO Certified Firms   Non-ISO Firms

Continuous Improvement                17                 5

Benchmarking                           7                 4

Certification of Suppliers            15                 7

Just-in-Time Inventory
Control                               23                 4

Usage of Statistical
Process Control                       25                 2

Electronic Work Order
Management                            22                 8

Note: Table made from bar graph.

Figure 5: Use of Training Needs Assessment Methods

                        Number of Firms

                          Yes     No

ISO Certified Firms        44      6
Non-ISO Firms              30     20

Note: Table made from bar graph.

Figure 6: Use of HR Consultant

                                         Number of Firms

HR Consultant Methods      ISO Certified Firms       Non-ISO Firms

Recruitment                       17                      14
Training and Development          17                       8
Appraisal                          6                       2

Note: Table made from bar graph.

Figure 7: Use of HR Management Practices

                                 Number of Firms

HR Practices      ISO Certified Firms       Non-ISO Firms

Training and
Development
Programmes               36                       17

Regular
Performance
Appraisal                26                       15

Growth Plans and
Strategies               32                       15

Note: Table made from bar graph.