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Impact of ISO 9001 Implementation on Organizational Performance in
Kenya
Dr. David Muturi
CEO and Executive Director, Kenya Institute of Management, KENYA
dmuturi@kim.ac.ke
Jacqueline Ochieng
Manager, BI & Research Division, Kenya Institute of Management, Kenya
jochieng@kim.ac.ke
Samuel Njihia
Research Officer, BI & Research Division, Kenya Institute of Management, Kenya
snjihia@kim.ac.ke
ABSTRACT
The main aim of this Paper was to establish effect of ISO 9001 implementation on performance of
organizations in Kenya. It specifically targeted organizations listed on the Nairobi Securities Exchange
which is the leading securities exchange in East Africa. Secondary data available from the NSE
repositories on financial performance was collected from 19 of these organizations. The study covered
five sectors namely: Finance; Automobiles; Manufacturing; Energy / petroleum and Commercial
services. The survey made use of web content analysis to collect data from these organizations’ websites.
Data was collected on net profit, turnover and net assets over a four year period (2010- 2013). Results of
the survey reveal that ISO 9001 certification influenced return on net assets of the organizations thereby
influencing their performance. For other variables measured (net profit and turnover) there were no
significant differences between the ISO 9001 certified organizations and the ones not certified on the
same. Also no significant differences were noted across sectors of organizations covered in the survey.
Keywords: ISO; Quality Management; Organization Performance
1.
Introduction
In the current business environment there is increasing pressure on firms by both consumers and
competitors alike to continually innovate in new products and to upgrade the quality of existing goods
and services. According to Sharma et al (2005), the main focus of a company should be the customer and
it should consider their needs and demands so as to maintain a competitive edge and survive in the
market. Consequently most of the firms in both developed and developing world have embraced ISO
certification. ISO itself is not a certifying body but rather provider of standards against which
organizations can assess their processes and systems. This gives an objective assessment mode for
organizations and also a means through which they can benchmark themselves to others globally and see
where they stand in comparison to similar organizations. Standards are meant to improve efficiencies in
an organization hence improve performance. There is therefore need for certain variables in place to
determine how an organization is performing in order to establish if the standards are bringing about
improvements in the organization.
Establishing variables for measuring organizational performance needs to take cognizance of various
attributes that contribute to organizational success. Bhattacharyya & Sanghamitra (2010) define
organizational performance as a measure of how well organizations are managed and the value they
deliver to customers and other stakeholders. Laihonen (2013), describes performance in an organization
as the organizations’ ability to achieve its objectives. Organizations’ objectives are varied according to
the sectors / businesses they represent but they have certain commonalities. Profit making organizations
aim to increase turnover and net worth whilst the not for profit aim at sustainability. Many years ago,
Mahoney and Weiner (1981) developed a theory of organization performance relating it to profit level,
profitability, and stock prices. In this case profitability is measured as profit relative to assets and is a
preferred measure of relative performance. Richard et al (2008) avers that organizational performance
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ST-2: ISO 9000/14001, OH18001, etc.
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encompasses three specific areas of firm outcomes i.e. financial performance (profits, return on assets,
return on investment, etc.); market performance (sales, market share, etc.); and shareholder return (total
shareholder return, economic value added, etc.).
2.
Empirical Study
2.1
Background: ISO certification in Kenya
ISO is the world’s largest developer and publisher of international standards. The ISO 9001 standards is a
quality management standards that embraces principles of TQM and which merges organizational
concerns with customer satisfaction, shareholder satisfaction, process efficiency, and employee wellbeing (Lakhal, 2014). ISO 9001 encompasses organizational practices across sectors with its application
being relevant to organizations regardless of the business they are in. This has made this particular
certification relevant to most organizations thus gaining most popularity compared to other ISO
standards. A 2012 survey of certifications (ISO, 2013b) shows that Kenya has the highest number of
organizations in East Africa achieving ISO certification. In 2012 there were 460 organizations with ISO
9001 certification (quality); 32 organizations with ISO 14001 certification (environment) and 118
organizations with ISO 22000 certification (food safety). ISO 9001 leads the pack and also has highest
rate of conversion from non-certified to certified organizations over the last 10 years. Standards in the
9001 package includes:
•
•
•
•
ISO 9001:2008 - sets out the requirements of a quality management system
ISO 9000:2005 - covers the basic concepts and language
ISO 9004:2009 - focuses on how to make a quality management system more efficient and
effective
ISO 19011:2011 - sets out guidance on internal and external audits of quality management
systems.
ISO 9001
TQM
Practices
Organizational
Performance
This research focuses on how ISO 9001 has influenced organizational performance through defined
variables of profit, turnover and asset base. The case is to compare organizations possessing ISO 9001
certification against those that do not. The research targeted organizations listed in the Nairobi Securities
Exchange (NSE) which is the largest stock market in East Africa.
The study targeted companies listed in the NSE because they represent corporate organizations that have
achieved certain levels of success in order to qualify for listing in the stock market. The research therefore
gauges if amongst such organizations, there would be noted differences in performance that can be
attributed to ISO 9001 certification.
2.2
Research methodology, data and analysis
The research data was collected through web content analysis of the targeted organizations’ websites.
Data was collected on profits, turnover and net assets over a five year period (2010- 2013). The research
used statistical data analysis to investigate the association between ISO 9001 implementation and
performance. An Independent T-test was performed to determine whether ISO 9001 certified companies
have higher performance than their Non-ISO certified counterparts. Then the econometric model was
regressed to investigate associations between performance, net assets and profit margins. The regression
also shows whether there is a significant relationship between ISO implementation and performance. The
©19-ICIT: 7-9/4/2015 hosted by KIM, Nairobi
ST-2: ISO 9000/14001, OH18001, etc.
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study hypothesized that there is a significant relationship between ISO 9001 certification and
organizational performance.
2.3
Key Findings
2.3.1 Representation of ISO 9001 certified companies
Fig 1: ISO 9001 representation
Out of the organizations participating in the survey, 58% were ISO 9001 certified while 42% were
certified. Majority of them specifically have ISO 9001:2008. Sectors represented by these companies
include: Finance; Automobiles; Manufacturing; Energy / petroleum and Commercial services. Financial
data of net profits, turnover and net assets were collected from these companies for analysis.
2.3.2
Influence of ISO 9000 on Organization Performance
Percentage change in Net Profit, Turnover and Net Assets were calculated over period of 2010 to 2013.
The table below presents group statistics analysis of significance of variation of change.
Table 1: Financial Results by Certification by Group statistics
Group Statistics
KPI
Year
ISO QMS Certification
ISO 9001 Certified
Profit
Year 1
Not Certified
ISO 9001 Certified
Year 2
Not Certified
ISO 9001 Certified
Year 3
Not Certified
ISO 9001 Certified
Revenue
Year 1
Not Certified
ISO 9001 Certified
Year 2
Not Certified
ISO 9001 Certified
Year 3
Not Certified
ISO 9001 Certified
Asset
Year 1
Not Certified
N
Mean
Std. Deviation
11
.0763636
.47649287
8
-1.0112500
5.94568616
11
.3409091
.56958677
8
-.1237500
.64783017
11
-.5636364
2.33765811
8
-.5425000
2.11744961
11
.2300000
.15588457
8
.2487500
.19533396
11
.2536364
.31629963
8
.3837500
.22398581
11
.0554545
.12785645
8
.0562500
.11338147
11
.2854545
.37566910
8
.1387500
.15532799
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ST-2: ISO 9000/14001, OH18001, etc.
ISO 9001 Certified
Year 2
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11
.0890909
.10857758
8
.1425000
.09254343
11
.1900000
.15767054
8
.1700000
.21560546
Not Certified
ISO 9001 Certified
Year 3
Paper #: 2.2K
Not Certified
The group means (financial performance) are not significantly different between companies that are ISO
9001 certified and those that are not because all the values in the "Sig. (2-tailed)" column are greater less
than 0.05 (ρ >0.05).
In addition to above analysis, the results were also analysed using an independent T-Test with the
variables: annual change in Net Profits, Revenue and Net Assets. The following table illustrates results of
the test of significance for variability of the dependent variables (KPI’s) as a result of varying the
independent variable (ISO 9001 certification).
Table 2: Results table of test of significance using annual change in net profits, revenue and asset
Independent Samples Test
Net
Profit
Revenue
Asset
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
t-test for Equality of Means
95% Confidence Interval of the
Lower
Upper
Sig. (2-tailed)
.549
-2.66980654
4.84503381
t
.611
df
.516
7.065
.621
-3.88536072
6.06058799
1.658
17
.116
-.12652502
1.05584320
1.623
13.988
.127
-.14938990
1.07870808
-.020
17
.984
-2.22652184
2.18424911
-.021
16.071
.984
-2.20008425
2.15781152
-.233
17
.819
-.18856570
.15106570
-.224
13.030
.826
-.19918017
.16168017
-.993
17
.335
-.40654438
.14631711
-1.050
16.999
.309
-.39164888
.13142160
-.014
17
.989
-.12049994
.11890903
-.014
16.222
.989
-.11856300
.11697209
1.036
17
.315
-.15218179
.44559088
1.165
14.138
.263
-.12303290
.41644199
-1.124
17
.277
-.15367916
.04686098
-1.154
16.474
.265
-.15129935
.04448117
.234
17
.818
-.16014053
.20014053
.223
12.211
.828
-.17536389
.21536389
17
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2.3.3
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Influence of ISO 9001 on Return on Assets
Further analysis was carried out on Return on Assets variable to discern certain variations that were noted
in the change in assets noted amongst the organizations over the four years. An independent T-test was
thus used for this analysis. The table below illustrates results of the test of significance for variability of
the dependent variables (ROA) resulting from varying the independent variable (ISO 9001 certification).
Table 3: Results table of test of significance using ROA
Independent Samples Test
t-test for Equality of Means
t
ROA 2010
ROA 2011
ROA 2012
ROA 2013
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
Equal variances
assumed
Equal variances
not assumed
df
95% Confidence Interval of
the Difference
Lower
Upper
0.011429
0.149574
2.459
17
Sig. (2-tailed)
0.025
2.873
10.973
0.015
0.018803
0.142199
1.939
17
0.049
-0.006674
0.157829
2.086
16.72
0.043
-0.000943
0.152098
-0.894
17
0.384
-0.183135
0.074125
-0.873
13.837
0.398
-0.188582
0.079572
1.952
17
0.048
-0.004950
0.127198
2.165
15.197
0.047
0.001026
0.121221
Results from the above analysis show that three of the four group means (ROA) are significantly different
between companies that are ISO 9001 certified and those that are not, because the values of the three time
series (ROA 2010, ROA 2011, ROA2013) in the "Sig. (2-tailed)" column are less than 0.05 (ρ >0.05).
This means that there is significant difference on performance amongst companies that are ISO 9001
certified against those that are not.
3.
Conclusion
The study has revealed the extent to which ISO 9001 certification has influenced certain attributes of
organizational performance amongst the organizations surveyed. Differences are noted when it comes to
net profit change and turnover change but the analysis reveals that the variations are not significant.
However when it comes to return on assets, there is significant differences discerned. It can therefore be
concluded that ISO 9001 certification has had a positive influence on the organizations’ return on assets
thus improving its performance. There were no significant differences across sectors that the
organizations represented. This can however be attributed to probably minimal representation of certain
sectors among surveyed organizations.
References
Bhattacharyya S. & Sanghamitra J.P.A., (2010),"Measuring organizational performance and
organizational excellence of SMEs – Part 2: an empirical study on SMEs in India", Measuring
Business Excellence, Vol. 14 Iss 3 pp. 42 - 52
Lakhal L. (2014). “The Relationship Between ISO 9000 Certification, TQM Practices, and Organizational
Performance.
Laihonen A.J.H. (2013),"Overcoming the specific performance measurement challenges
of knowledge-intensive organizations", International Journal of Productivity and Performance
Management, Vol. 62 Iss 4 pp. 350 - 363
©19-ICIT: 7-9/4/2015 hosted by KIM, Nairobi
ST-2: ISO 9000/14001, OH18001, etc.
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Mahoney. T.A & Weiner N. (1981). “A Model of Corporate Performance as a Function of Environmental,
Organizational, and Leadership Influences”. The Academy of Management Journal Vol. 24, No. 3
(Sep., 1981), pp. 453-470
Richard J.P., Devinney T.M., Yip G.S. & Johnson G. (2008). “Measuring Organizational Performance as
a Dependent Variable: Towards Methodological Best Practice”
Sharma P., James J., Chrisman 1., Jess H., & Chua (2005). Trends and Directions in the Development of a
Strategic Management Theory of the Family Firm. Entrepreneurship Theory and Practice Volume
29, Issue 5, pages 555–576,
International Standards Organisation (2013b) available at:
www.iso.org/iso/home/standards/certification/isosurvey.htm?certificate=ISO%209001&countrycode=AF
ISO website : available at : http://www.iso.org/iso/iso_9000, last accessed on 13th March 2015
NSE Website: available at : https://www.nse.co.ke/listed-companies/list.html last accessed on 2015-3-13.
Authors’ Backgrounds
Dr. David Muturi is the Chief Executive Officer of The Kenya Institute of
Management (KIM), a position he has held since April 2009. Dr. Muturi holds a
Doctorate Degree in Business Administration, a Master of Business
Administration (Entrepreneurship Option) and a holder of a BA Degree in
Business Studies and Economics. He is also a Certified Public Accountant of
Kenya (CPA-K). Before joining KIM, Dr. Muturi had an illustrious career at
KCA University, where he rose from the rank of a Lecturer to Dean, Faculty of
Commerce and Distance Learning. He has also been engaged in business
training and mentorship for the last decade as course developer, facilitator and
leader. Dr. Muturi writes a weekly management column for the Daily Nation,
East Africa’s foremost and most respected newspaper. He also writes in the
MANAGEMENT, East Africa’s premier management magazine. He has served in
various advisory committees, including being a panelist of the Financial
Reporting Awards (FIRE awards), an election observer during ICPAK council
elections, and Kenya Accountants and Secretaries Exam. Board (KASNEB)
examiner as well as syllabus reviewer.
Ms. Jacqueline Ochieng is the Research Manager of KIM Business Intelligence
and Research Division. She is a researcher by profession with seven years’ of
experience in market and social research. She has worked for a wide range of
clients in the private sector, public sector, development agencies and Nongovernmental organizations. She has managed various social researches and
business oriented surveys i.e. baseline surveys; Impact Assessment Surveys;
Evaluation surveys and other related surveys. She has previously worked for
market research firms IPSOS Synovate, Strategic Research and also with a
governance based NGO Transparency International – Kenya and has
considerable experience in carrying out extensive surveys in the East Africa
region. She has a Masters degree in Business Administration, Project
Management option and a Degree in Business Administration, Marketing Major.
Mr. Samuel Njihia is a Research Officer in the Business Intelligence and
Research Division at the Kenya Institute of management with a particular
interest in the area of management research. He is a data analyst by profession
and a statistician/marketing researcher by training. He has over 8 years’
experience in the fields of marketing and management research, advance
statistical data analysis and modelling, marketing/business development and
process improvement. He is a graduate of the University of Nairobi (BSc.
Mathematics-Statistics Option, MSc. Marketing Research-currently a student)
and a certified Yellow Belt Lean-6-Sigma by the Institute of Six Sigma
Professionals (UK).