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Effect of ISO 9001 Standard on Organisational Performance.

Introduction

The term quality carries a significant implication to both manufacturing organizations and customers. Manufacturing organizations imply that their survival depends exceedingly on producing high quality products and services. Whereas, customers imply that quality is the one which satisfy or exceed their expectations at the minimum possible cost. Therefore, manufacturing organisations are persistently struggling hard to enhance their product quality at every stage and accomplish the expectations of the customers. The contribution of manufacturing sector to the GDP of India was 16.57 percent for the financial year 2016-17 (Economic Survey Report 2016-17) and hence plays a significant role in the economic development of India. But the biggest challenge before this sector is maintaining high quality standards to meet changing needs and expectations of the customers. Therefore manufacturing organizations these days started showing interest in implementing ISO 9001standards.

Numerous manufacturing organisations are attracted towards ISO 9001 standard based on the belief that ISO 9001 standard is a solution for various quality issues. ISO survey report (2016) states that as on 2016 there were 1105937 certified organisations across the globe with 7 percent annual growth rate. There are approximately 37000 ISO 9001 certified manufacturing firms in India. Organizations get ISO 9001certification for various reasons, namely, customer requests, as a quality management tool, promoting tool, above all the main motive behind ISO 9001 standard is to enhance overall organisational performance.

Different Editions of ISO 9001 Standard

ISO 9001 standard has published five editions until today. The first edition was published in 1987, which include three standards. ISO 9001 standard was for quality assurance in design, development, production, installation and servicing. ISO 9002 standard was for quality assurance in production, installation and servicing. It was almost identical to ISO 9001 standard. The only distinction between the two was, design and development were excluded from ISO 9002. ISO 9003 standard was for quality assurance in final inspection and testing. The ISO 9000 published its second edition in the year 1994, which emphasized on the significance of preventive actions. ISO 9001:2000 was the third edition of ISO 9000, which combines ISO 9001, ISO 9002 and ISO 9003 into The biggest challenge before this one standard. This edition focused upon three aspects sector is maintaining high quality namely top management's commitment towards quality standards to meet changing needs management, process approach and customer satisfaction.

ISO 9001:2008 Standard

While, ISO 9000 standard review its standards at regular intervals to keep the standard current and relevant for the marketplace, the updated fourth edition namely ISO 9001:2008 came into force in the year 2008. The current study focused upon ISO 9001:2008 and considered only those manufacturing organizations, which are certified by ISO 9001:2008 certification.

Introduction of ISO 9001:2015

ISO 9001 standard updated its fifth edition namely, ISO 9001:2015 in the year 2015. Although this edition was published in September 2015, organisations have three-year transition period from the date of publication (September 2015) to move to 2015 edition, means till September 2018. Most of the manufacturing organisations are still in the process of upgrading their standards. Therefore, ISO 9001:2008 edition is considered for the current study.

Review of Literature

The literature survey on ISO 9001 standard in particular and quality management in general has identified several research work across the globe. Numerous researchers were of the opinion that quality management has the ability to not only enhance competitiveness but also improve product quality and organizational performance (Ahire et al., 1996; Bayazit et al, 2007). ISO 9001 standard could be a good initial step towards Total Quality Management (TQM) (Gotzamani and Tsiotras, 2001). McAdam and McKeown (1999) showed that ISO 9000 certification resulted in benefits such as better control over business, improved sales, reduced costs, enhanced productivity and lesser customer complaints.

ISO 9000 standards solicits minimum requirements that a business organisation ought to meet so that the ISO 9001ccertification is conferred (Singels et al, 2001). Zhu and Scheuermann (1999), was of the opinion that ISO 9001 standard does not specifically address one type of industry, each organisation's requirement is taken into consideration and therefore ISO 9001 standard is universal, applicable to all the industry.

Inaki et al. (2002) conducted a research on 'ISO 9000 registration's impact on sales and profitability: A longitudinal analysis of performance before and after accreditation to compare the profitability of Basque region organizations. The data was collected from 400 certified and 400 non certified organisations concurrently. The results revealed that there exist a positive relation between ISO 9000 certification and financial performance.

Terziovski et al. (2003), tried to investigate 'The Longitudinal Effects of the ISO 9000 Certification Process on Business Performance. The research revealed a significant and positive relationship between the ISO 9000 certification and business performance. Customer focus was the only component found to contribute the foremost to business performance.

A study carried out by Mahadevappa and Kotreshwar (2004) indicated that implementing ISO 9001 standard added to enhanced quality performance of the organisations.

Tari and Sabater (2006), tried to examine the relationship between quality management and human behaviour in Spanish firms. The sample size was taken as 106 for the study. Statistical tools such as Karl Pearson's Correlation, t test, and regression were used for the analysis. The study found that there was a positive and significant association between quality management and human behaviour such as, empowerment, recognition and personnel policies.

Durairatnam et al. (2011) tried to analyze the relationship between ISO 9001 and work outcomes in their research work titled, "Impact of ISO 9001 core principles on work outcomes and customer satisfaction in Sri Lankan manufacturing organizations". Using stratified random sampling, 546 employees were selected from 18 manufacturing organizations. The study found that execution of ISO 9001 has a positive association with work outcome and negative relationship with job turnover intentions. According to Shahid Mehmood et al. (2014), there was a positive and significant relationship between TQM dimensions and firm's performance.

Although there is a rise in the number of ISO 9001 certified organizations across many countries, it is imperative to evaluate the impact of ISO 9001 certification on organizational performance, so that organizations can decide whether or not to go for such certifications (Karim and Bingi, 2015).

Another study conducted by Singels et al. (2002) revealed that manufacturing process and employee motivation had positive impact on performance. The survey used questionnaire and primary data was collected from respondents working in manufacturing and service organizations.

A study conducted by Jason et al, (2005) on the topic 'The implementation and Impact of ISO 9000 among Small Manufacturing Enterprises' revealed that, quality is essential for customer satisfaction and competitive success.

Feng et al. (2007) conducted a study on impact of ISO on indicators, such as sales growth, profitability and market share and analyzed the impact of ISO certification on company's performance. The findings indicated that ISO certification had a positive and significant effect on working performance.

A study carried on by Agus et al. (2009) on the topic "An empirical investigation on the impact of quality management on productivity and profitability" revealed that there was a significant impact of quality management practices on productivity.

Volmohammadi and Khodapanahi (2011) tried to investigate "The impact of ISO 9001:2000 implementation on employee's job satisfaction" to examine employee's perception of ISO 9001 practices and its impact on job satisfaction. The study considered four variables such as customer focus, training and education, empowerment and teamwork and continuous improvement. The results showed that customer focus, training and education, empowerment and teamwork and continuous improvement are all positively associated with employee's job satisfaction. It means practice of ISO 9000 standard is positively related to job satisfaction.

Shahid Mehmood et al. (2014), focused on four dimensions of TQM namely, customer focus, continuous improvement, employee involvement and top management support. The objective was to identify the most critical quality dimension as predictor of firm's performance. The results were based on the data collected from 90 firms. Multiple linear regression results revealed that continuous improvement and employee involvement were the most critical dimensions for predicting firm's performance.

Dr. Rula Ali and Al-Damen (2017), conducted a research on the impact of Total Quality Management on organizational performance; Case of Jordan Oil Petroleum Company. The results showed that TQM has a positive impact on organizational performance.

Conceptual Framework

Different quality promoters have identified diverse critical factors for the successful implementation of ISO 9001 standard (Saraph et al, 1989; P Padma et al, 2006; Muhammad Tahir, 2017). The four most common critical factors employed by the previous researchers are included in the present study, namely; Top Management Commitment (TMC), Customer Focus (CF), Quality Management Process (QMP), Continuous Improvement (CI). ISO 9001 standard was considered as an independent variable and organizational performance as dependent variable. Indicators of Organizational performance named as Design Performance (DP), Operating Performance (OP) and customer relationships (CR are considered for the study. The demographic variables, particularly company size, number of years with ISO 9001 certification and export orientation were included in the study.

Objectives of the Study

* To examine the relationship between critical factors of ISO 9001 standard and indicators of organizational performance

* To examine the impact of ISO 9001 standard on indicators of organizational performance

* To examine the differences in critical factors of ISO 9001 standard across company size, number of years with ISO 9001 certification and export orientation.

Research Questions

Research Question 1: Does ISO 9001 standard relates to organizational performance?

Research Questions 2: What might be the strength of association between critical factors of ISO 9001 standard and indicators of organizational performance?

Research Question 3: Whether the critical factors of ISO 9001 standard would differ across organization's turnover, number of years with ISO 9001 certification and export orientation?

Methodology

Sample

The study was carried out in Belagavi city (Karnataka state). Belagavi is a foundry hub of Karnataka state with more than 300 foundries producing automotive and industrial castings. These foundries support ancillaries like Engineering, CNC and conventional machine shops which finish the castings that are produced in Belagavi. It is believed that Indian manufacturing and service organizations are too diverging in their focus on ISO standards. Therefore manufacturing organizations such as Foundry, Engineering and Machine Shops were considered for the study. The list of ISO 9001 certified manufacturing organizations located in Belagavi city was collected from one of the leading ISO certifying agency named as TUV Sud South Asia Bengaluru. TUV Sud South Asia is a leading testing, certification and training company in India dedicated to providing customers with solutions based on reliability, safety and environmental protection having its branch located in Belagavi. The sample consisted of 245 respondents from 38 manufacturing organizations from Belagavi city (Karnataka State). Convenience sampling method was adopted for respondent selection. Only those organizations that meet the following two criteria have been included in the study; firstly the organization should be manufacturing company and the secondly, company should be ISO 9001:2008 certified one.

Instruments

In the present study, an instrument developed by P Padma et al (2006) was used to measure ISO 9001 standard. The scale comprised of 38 items and the items belonging to different critical factors were jumbled in order to minimize the respondent's bias. The participants were requested to rate the extent of presence of critical factors in ISO 9001 certification on five-point Likert scale (1= No presence to 5=complete presence). The organizational performance was measured using Bhatia (2015) scale, and considered three important indicators. This is 21-items questionnaire and was measured on a five point Likert scale (1=strongly disagree to 5=strongly agree). This scale was chosen because the subscales measure the overall performance of an organization. The subscales namely, design performance and operating performance measures design and production performance, whereas customer relations measure the performance of customers who happens to be the important stakeholder of any manufacturing organization.

Statistical Analysis

Data was analyzed using SPSS version 22.0. Descriptive analysis was performed for demographic variables, The Karl Pearson's correlation coefficients were calculated to examine the relation between ISO 9001 standard and organizational performance. Linear regression was run to analyse the extent of the effect of ISO 9001 certification on organizational performance. Analysis of Variance (ANOVA) was conducted to examine the significant differences in ISO 9001 standard across organization's turnover, number of years with ISO 9001 certification and export orientation.

Results

Scale Reliability

Reliability analysis was performed by calculating Cronbach's alpha. It is calculated to check the internal consistency of the scales used for the study. It was performed on both the critical factors of ISO 9001 standard and indicators of organizational performance. According to Cooper & Schindler (2007), for the instrument to be reliable, the coefficient has to be above 0.7. Four critical factors of ISO 9001 standard scale demonstrated 0.94 and three indicators of organizational performance scale showed 0.89 reliability coefficient. This indicates internal reliability and was adequate for further analysis.

Research Question 1: Does ISO 9001 standard relate to organizational performance?

Karl Pearson's correlation coefficients between ISO 9001 standard, critical factors of ISO 9001 standard, organizational performance and its indicators are presented in Table-I. The results showed that there was a significant positive correlation between ISO 9001 standard and organizational performance (r=0.73, p<0.01). ISO 9001 standard scores showed significant and positive with all the indicators of organizational performance namely, design performance (r=0.44, p<0.01), operating performance (r=0.50, p<0.01), and customer relationships (r=0.57, p<0.01). There was a positive and significant correlation between ISO 9001 standard and critical factors of ISO 9001 standard named as top management commitment (r=0.80, p<0.01), customer focus (r=0.91, p<0.01), quality management process (r=0.82, p<0.01) and continuous improvement (r=0.61, p<0.01).

Top management commitment showed a positive and significant correlation with indicators of organizational performance. There was a significant and positive correlation between top management commitment and indicators of organizational performance namely design performance (r=0.51, p<0.01), customer relationships (r=0.57, p<0.01) and operating performance (r=0.44, p<0.01). Overall top management commitment reported a significant positive correlation with organizational performance (r=0.61, p<0.01).

Another critical factor of ISO 9001 standard namely customer focus reported a positive and significant correlation with organizational performance (r=0.65, p<0.01). In addition, customer focus showed a positive and significant association with indicators of organizational performance namely, operating performance (r=0.53, p<0.01), customer relationships (r=0.55, p<0.01) and design performance (r=0.20, p<0.01).

The correlation computation showed a positive and significant correlation between quality management processes and organizational performance (r=0.82, p<0.01). The results further showed that there was a significant positive correlation between quality management process and two indicators of organizational performance namely, operating performance (r=0.65, p<0.01) and customer relationships (r=0.55, p<0.01), whereas there was a positive correlation exists between quality management process and design performance (r=0.37, p<0.01). Continuous improvement demonstrated a positive correlation exists between continuous improvement and design performance (r=0.36, p<0.01). There was a significant positive correlation between continuous improvement and organizational performance (r=0.67, p<0.01), operating performance (r=0.55, p<0.01) and customer relationships (r=0.56, p<0.01).

Note: ISO STD--ISO Standard, ORP--Organizational Performance, TMC--Top Management Commitment, CF--Customer Focus, QMP--Quality Management Process, CI--continuous Improvement, DP--Design Performance, OP--Operating Performance, CR--Customer Relationships,

Research Questions 2: What might be the strength of association between critical factors of ISO 9001 standard and indicators of organizational performance?

Linear regression analysis calculations of critical factors of ISO 9001 standard with organizational performance and its indicators are presented in Table-II. The results showed that ISO 9001 standard ([beta] = 0.73, p <0.01) significantly predicted organizational performance ([R.sup.2] = 0.54, f = 545.2, p <0.01). Further, ISO 9001 standard explains very low predictive ability towards indicators of organizational performance namely, design performance ([beta]=0.44, p<0.01) ([R.sup.2]=0.19, F=110.6, p<0.01), operating performance ([beta]=0.50, p<0.01) ([R.sup.2]=0.25, F=156.3, p<0.01) and customer relationships ([beta]=0.57, p<0.01) ([R.sup.2]=0.32, F=218.6, p<0.01). The strength of critical factors of ISO 9001 standard resulted as quality process management ([R.sup.2]=0.68), continuous improvement ([R.sup.2]=0.45), customer focus ([R.sup.2]=0.43) and top management commitment ([R.sup.2]=0.37) for organizational performance.

Research Question 3: Whether the critical factors of ISO 9001 standard would differ across organization's turnover, number of years with ISO 9001 certification and export orientation?

ANOVA was conducted to test the significant differences in critical factors of ISO 9001 standard scores across organization's turnover, number of years of experience with ISO 9001 certification and export orientation. The results indicated that all the critical factors of ISO 9001 standard showed a significant difference across number of years with ISO 9001 certification, named as top management commitment (F=7.43, p<0.01), customer focus (F=7.44, p<0.01), quality management process (F=3.66, p<0.01) and continuous improvement (F= 3.79, p<0.01). There was no significant difference found in the critical factors of ISO 9001 standard across company size and export orientation. It signifies that, company size and export orientation are equally reasonable in all the critical factors of ISO 9001 standard.

Finding

The correlation coefficients reported a positive and significant association among critical factors of ISO 9001 standard. Similarly there was a positive and significant correlation among indicators of organizational performance. There was moderate positive and significant correlation between critical factors of ISO 9001 standards with indicators of organizational performance.

The results of ANOVA indicated that there were significant differences in critical factors of ISO 9001 standard across number of years with ISO 9001 certification. However, there were no significant differences in critical factors of ISO 9001 standard across company size and export orientation. In addition, the critical factors of ISO 9001 standard predicted the indicators of organizational performance. Top management commitment predicted the performance of organizations and indicators of organizational performance namely, design performance, operating performance and customer relationship. Customer focus and quality management process predicted organizational performance, design performance, operating performance and customer relationships. Continuous improvement predicted organizational performance and other indicators of organizational performance namely, design performance, operating performance and customer relationships.

Discussion

This study tried to explore the role of ISO 9001 standard in improving organizational performance. It was found in the study that the scales used to measure ISO 9001 standard and organizational performance have adequate reliability and inter-correlations amongst their subscales. It indicates that the scales were well matched with manufacturing organizations in Indian context. The current study showed that ISO 9001 standard is related to organizational performance. It interprets that effective implementation of ISO 9001 standard result into improved organizational performance. It also examined that ISO 9001 standard was associated with all the indicators of organizational performance namely, design performance, operating performance and customer relationships. It indicates that manufacturing organizations having ISO 9001 certification are superior in design performance, operating performance and customer relationships.

ISO 9001 standards help the manufacturing organizations in understanding design, operations and customer related problems. It indicates that ISO 9001 standard enhances the process of design and operations and eventually enhances customer relationships. The previous studies found that, only one critical factor of ISO 9001 standard, top management commitment was related to organizational performance (Gurnani, 1997). In addition it was also found that the individual element of ISO 9001 standard found to contribute most to business performance was Customer Focus (Mile Terziovski et al, 2003). The present study investigated a high positive association between critical factors of ISO 9001 standard and indicators of organizational performance. All the critical factors of ISO 9001 standard namely, top management commitment, customer focus, quality management process and continuous improvement reported a high positive correlation with the organizational performance. It was implicated that leadership, customer focus, quality management and continuous being the foremost in the process of contributing to organizational performance.

Regression analysis revealed that ISO 9001 standard significantly predicted organizational performance and three indicators of organizational performance namely, design performance, operating performance, customer relationships. Top management commitment and customer focus both the critical factors predicted organizational performance and its indicators. Quality management process and continuous improvement also predicted organizational performance and its subscales namely, design performance, operating performance, customer relationships. The results suggested that the manufacturing organization's perception about top management commitment, customer focus, quality management process and continuous improvement contributes to improved design performance, operating performance, customer relationships and overall improvement in organizational performance. The ISO 9001 standard is the better predictor of customer satisfaction. A manufacturing organization with high understanding of ISO 9001 standard can focus better on designing the product, produce the quality product with least cost and ensure customer satisfaction. It was supported by a similar study conducted by Piskar (2007), stated that quality standards positively influence customer's needs and demand.

However, analysis of variance did not show any significant differences in critical factors of ISO 9001 standard across company size and export orientation. While significant difference was seen in all the critical factors of ISO 9001 standard across number of years with certification. It specifies that manufacturing organization's perception about ISO 9001 standards vary by means of their experience with certification. It is supported by Simmons and White (1999), stated that ISO 9000-registered firms in the electronics industry were more profitable than the average non-ISO 9000 firms, although firm size did not affect profitability.

Managerial Implications

The findings of the study confirmed the number of managerial implications. Firstly top management commitment as a critical factor of ISO 9001 standard was found to be positive and significant contributor towards organizational performance. It indicates that, the concept of quality begins with the commitment from the top management. Secondly, customer found to be positively and significantly influence organizational performance. Therefore, manufacturing organizations need to be more customer centric rather than product centric. Further, quality process management found to be positively and significantly associated with organizational performance. Therefore, to improve the quality of products, organizations should accept change, which is the only constant in the competitive market. Likewise, organizations should adopt latest and innovative technologies to produce competitive products, which can satisfy even, exceed customer expectations. Lastly, continuous improvement found to be positive and significant in contributing towards organizational performance. Therefore, manufacturing organizations need to emphasize and invest on continuous improvement to gain the long-term benefits in terms of organizational performance.

Conclusion

This study provides an evidence for a positive relationship between ISO 9001 standard and organizational performance. The excellence in organizational performance can be achieved through enhancing design competency and operating efficiency, which directly contribute to the better results. The top management commitment is the first critical factor of ISO 9001 standard without which achieving quality excellence is a dream true. The end objective of any manufacturing organization these days is customer delightedness, which can be attained only when business organizations are customer centric. An organization can produce quality product consistently only when quality management process in place. Continuous improvement facilitates the organizations to incorporate changes in the existing product as per the expectations of customers. Therefore manufacturing organizations will have to consider expenditure on quality related aspects as an investment for the future and focus on implementing quality management standards.

References

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Ahire, S., Golhar, D., & Waller, M. (1996). Development and validation of TQM Implementation Constructs. Decision Sciences, 27 (1), 23-56.

Arumugam, V., Ooi, K. B., & Fong, T. C. (2008). TQM practices and quality management performance: An investigation of their relationship using data from ISO 9001:2000 firms in Malaysia. The TQM Journal, 20 (6), 636-650.

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Durairatnam, S., Narangado, S., & Jayawardana, A. K. (2011). Impact of ISO 9001 core principle on work outcomes and customer satisfaction in Sri Lanka manufacturing organizations. Sri Lankan Journal of Management, 16(1/2), 89-103.

Economic Survey Report, 2016-17 & ISO Survey Report, 2016

Feng, M., Terziovski, M., & Samson, D. (2008). Relationship of ISO 9001-2000 quality systems certifications with operational and business performance. Journal of Manufacturing Technology Management, 19 (1), 22-37.

Gotzamani, K. D., & George, D. Tsiotras. (2001). An empirical study of the ISO 9000 standard's contribution towards Total Quality Management. International Journal of Quality & Reliability Management, 21 (10), 1326-1342.

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Suryakumar N Khanai

Research Scholar, Visvesvaraya Technological University, Research Resource Centre (RRC), Belagavi, Karnataka.

Shankargouda R Bharamanaikar

Professor, Department of PG Studies, Visvesvaraya Technological University, Belagavi, Karnataka.
Table-I
Correlation between ISO 9001 Standard and its Critical Factors,
Organizational Performance and its Indicators

            TMC       CF        QMP       CI      ISO STD     DP

TMC          1
CF        .738 **      1
QMP       .514 **   .748 **      1
CI        .497 **   .606 **   .668 **      1
ISO STD   .808 **   .916 **   .828 **   .616 **      1
DP        .515 **   .208 **   .379 **   .362 **   .443 **      1
OP        .444 **   .534 **   .652 **   .557 **   .507 **   .284 **
CR        .573 **   .554 **   .556 **   .560 **   .571 **   .383 **
ORP       .615 **   .657 **   .827 **   .672 **   .739 **   .637 **

            OP        CR      ORP

TMC
CF
QMP
CI
ISO STD
DP
OP           1
CR        .645 **      1
ORP       .798 **   .767 **    1

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

Source: Survey Data, 2018

Table-II
Regression Analysis

                  DP

      [beta]   [R.sup.2]     F

TMC    0.51      0.26      163.8
CF     0.20      0.04      20.5
QPM    0.37      0.14      76.1
CI     0.36      0.13      68.1
ISO    0.44      0.19      110.6

                  OP

      [beta]   [R.sup.2]     F

TMC    0.44      0.19      111.1
CF     0.53      0.28      180.5
QPM    0.65      0.42      334.8
CI     0.55      0.31      203.7
ISO    0.50      0.25      156.3

                  CR

      [beta]   [R.sup.2]     F

TMC    0.57      0.32      221.5
CF     0.55       0.3      200.8
QPM    0.55      0.31       203
CI     0.56      0.31      206.4
ISO    0.57      0.32      218.6

                  ORP

      [beta]   [R.sup.2]     F

TMC    0.61      0.37       275
CF     0.65      0.43      343.7
QPM    0.82      0.68      976.7
CI     0.67      0.45      373.1
ISO    0.73      0.54      545.2

Source: Survey Data, 2018
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Title Annotation:International Organization for Standardization
Author:Khanai, Suryakumar N.; Bharamanaikar, Shankargouda R.
Publication:Abhigyan
Article Type:Report
Date:Jan 1, 2019
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