THE LONGITUDINAL EFFECTS OF THE ISO 9000 CERTIFICATION
PROCESS ON BUSINESS PERFORMANCE
Milé Terziovski, PhD *
Department of Management, The University of Melbourne, Parkville, Victoria,
Australia, Tel: 61 3 93447868, Fax: 61 3 83443714,
Email: milet@unimelb.edu.au
Damien Power
Department of Management, Monash University, P.O. Box 197, Caulfield East VIC 3145
Australia, Tel: 61 3 9031030, Fax: 61 3 99032718
Email: Damien.Power@BusEco.monash.edu.au
Amrik S. Sohal, PhD
Department of Management, Monash University
P.O. Box 197, Caulfield East VIC 3145, Australia, Tel: 61 3 99032033, Fax: 61 3 99032979
Email: Amrik.Sohal@BusEco.monash.edu.au
ABSTRACT
This paper develops and tests several hypotheses relating to ISO 9000 quality system
certification process using data collected in a cross-sectional study undertaken in Australia.
Multivariate analysis is used to analyse the quantitative data and test the hypotheses. Our
findings show that there is a significant and positive relationship between the manager's
motives for adopting ISO 9000 certification and business performance. Those organisations
that pursue certification willingly and positively across a broad spread of objectives are more
likely to report improved organisational performance. The individual element found to
contribute most to business performance was Customer Focus. The principal motivation to
pursue ISO 9000 certification was found to come from customer pressure. Auditing style
was found to have an insignificant (positive or negative) effect on business performance. The
ability of the new ISO 9001-2000 standard to capture and meet the conformance and
performance requirements of the organisation as part of a continuous improvement strategy
will be a prime determinant of the extent to which managers embrace or reject ISO 9000
certification in the twenty first century.
Key Words: ISO 9000, certification, business performance, Australia.
* Corresponding author
2
INTRODUCTION
During the last several years, there has been a major push by manufacturing firms in over 100
countries to seek certification to the International Quality Standards ISO 9000. These
standards require a high level of documentation plus audited evidence that the intended
quality is being delivered to the customer. The ISO 9000 standard points out that the quality
system of an organisation is influenced by the objectives of the particular organisation, the
product, service and the practices specific to the organisation. The quality system, therefore,
varies from one organisation to another and must suit that organisation's operation. Despite
the clear definitions and objectives of the ISO 9000 discussed above, there is considerable
confusion and frustration surrounding the applied role and business value of ISO 9000
certification. The business value of certification has varied from unprecedented successes to
an increasing workload and ‘cost of doing business’ An extensive literature review revealed
major gaps in research in this area of operations/quality management. Juran summed it up
very well in Quality Progress (1999, p.30) by stating that:
“..there is a lack of research that can shed light on whether companies that are
certified to the ISO 9000 standards actually produce better products than
companies that have not been certified……we don’t really know what benefit
we are getting from all that costly certification to the ISO 9000 series of
standards. We should establish the researches needed to find out”
This paper, therefore, presents the findings from a cross-sectional study of manufacturing
organizations that had been certified to the ISO 9000 standard, and gauge their motives for
certification. Furthermore, third party quality auditors were asked to respond to a separate
questionnaire which sought the auditor’s perceptions of ISO 9000 practice and its
effectiveness on business performance. Several hypotheses are developed from an extensive
literature review.
LITERATURE REVIEW
The literature is reviewed in order to establish the leading edge research on the role of the
quality auditor and the ISO 9000 certification process. The review was used to articulate
questions, hypotheses, and design the questionnaires.
The Effectiveness of the ISO 9000 standard on Business Performance
From the literature, there appears to be a relationship between the manager's motives for
adopting certification and the ensuing experience as identified by the Science and Engineering
Policy Studies Unit in the UK (SEPSU Study, 1994). Those organizations that pursue ISO
9000 certification willingly and positively across a broad spread of objectives are more likely
to report improved organizational performance. Customer pressure, however, was the most
commonly cited motivating factor for pursuing ISO 9000 certification. These companies were
less likely to report improved organizational performance (Brecka, 1994; Allan, 1993; Najmi
and Kehoe, 2000).
A large study funded by the Australian Government and conducted by the Australian
Manufacturing Council (AMC), AMC Study (1994) cautioned firms that ISO 9000
certification is not a substitute for delivering high quality products and services as defined by
customer needs. The AMC study gathered quantitative data from a large random sample in a
mail survey of manufacturing site managers in Australia and New Zealand. The purpose of
study was to investigate the extent of ‘best practice’ adoption by Australian and New Zealand
3
manufacturing firms and its impact on organisational performance. Furthermore, the study
claimed that ISO 9000 certification could cause managers to become complacent about
quality. There is the risk of ‘locking in’ or systematizing some poor practices through the
certification process. Ideally, organizations should set themselves quality standards well
above the minimum prescribed by ISO 9000 standards, and constantly seek ways to improve
all facets of the operation. The AMC study concludes that certification is likely to lead to both
actual and perceived quality improvements, as well as overall improvements in organizational
performance.
The other extreme of the mainstream literature is mainly anecdotal. Several large ISO 9000
consulting firms have produced large in-house studies for their clients, but most have released
only their results, and not their methodologies. These studies found that the primary business
value of ISO 9000 certification was to open doors to markets which were previously closed
(Brecka, 1994; Seddon, 1993; Miller, 1993; IQA, 1993).
For example, a study commissioned by Lloyd's Register Quality Assurance (LRQA, 1993)
found that most of the benefits associated with ISO 9000 certification were external to an
organization’s processes. Sixty-nine per cent of the managers agreed that ISO 9000
certification enabled them to improve their business performance by allowing them to bid for
tenders. Batchelor (1992) generally contradicts the literature findings. He studied 647 certified
manufacturing and service organizations and found that only 15 per cent of the respondents
had derived business value on nine dimensions of organizational performance. These
dimensions were: market share, new customers, customer satisfaction, procedural efficiency,
staff motivation, staff attitudes, error rates, wastage and costs. Juran in Quality Progress
(1999, p.30), summed up the perceived effectiveness and shortcomings of the existing ISO
9000 standards. He said:
“ ..companies that are the beginning stages of their quality journeys find
that the ISO 9000 series of standards provides them with a guide for
implementing a basic quality system. But for companies with good quality
systems, the standard often just add costs, delays and burdensome
documentation, rather than providing any competitive advantage.. the focus
today should be on quality leadership-to be competitive with the rest. To
achieve such leadership demands much more than conformance to the ISO
9000 standards.”
The design of the new ISO 9001-2000 standard has addressed concerns from commentators
such as Juran. The new standard attempts to provide changes on a number of fronts:
•
ISO9001-2000 will offer enhanced relevance to the service sector.
•
Greater implementation flexibility. ISO 9001 is good at identifying ‘what’ needs to be
done, and very week in terms of ‘how’ to do it. The ISO 9001-2000 standard addresses
this issue by providing an integrated model, which includes the customer, performance
management.
•
ISO 9001-2000 aims to provide a bridge between ISO 9001 and enhanced quality
management practices (eg continuous improvement).
•
An improved synergy between ISO 9001-2000 and ISO 14000 (the environmental
management system requirements) will set the stage for an organisation’s Integration of
Quality, environmental and other management system goals and objectives.
4
The Role of the Quality Auditor in the ISO 9000 Certification Process
.
Hutchins (1993) claims that quality auditors frequently are unfamiliar with the client’s
industry, quality system, and process or products/ services. This inevitably results in a poor
quality audit, which places conformity at risk. He suggests three ways to improve quality
auditing standards:
•
Government regulations for qualifying auditors.
•
Self-regulation by qualifying organizations.
•
Public groups self-certify and train auditors to conduct industry, process, and or
product/service specific audits.
Furthermore, Williamson et al (1996) claim that there is a poor overall understanding of the
current philosophy regarding the proper conduct of quality audits. They believe that auditors
give more attention to whether the client’s quality system is effectively documented and less
to the outcomes of the system. This view is shared by Chan, et al (1993) who argue that the
new role of the quality auditor should contribute to the improvement of the organization’s
overall quality management system.
Fiorentino and Perigord (1994) go further and define the function of the quality auditor as on
the job continuous training. They believe that as companies are forced to change with altered
business climates, so quality auditors must take on a new role that emphasizes continuous
improvements throughout the organisation.
The role of the auditor according to Sakofsky (1993) is critical. This author believes that that
as more organizations have become certified the standard of quality auditing has improved
with better-trained and qualified auditors being able to provide a more facilitative auditing
style. As a result many organizations are beginning to see that the quality audit can be used as
an improvement tool rather than a feared report card.
In a survey of 274 quality auditors in the UK, Williamson et al (1996) found evidence of
implementation of corrective actions as providing the strongest indicator of an effective
quality system. Russell and Regel (1996) also place great emphasis on this area of the audit
process, stating that they believe that the key to effective auditing lies in the phase between
audit performance and following through on the results of the audit. This would appear to be
in conflict with the standard that clearly states that the quality audit (and the auditor’s
involvement) is complete when the report is submitted (although it does not specifically
preclude further involvement of the auditor after this stage). Bettes (1993), on the other hand,
takes the view that this is the job of the internal quality auditor to develop a culture of
ongoing improvement in part through effective follow up of corrective actions.
Najmi and Kehoe (2000) report on their quantitative analysis of 221 firms and 18 qualitative
case studies of companies within the UK manufacturing sector. The researchers base their
analysis on a framework developed from an extensive review of the literature named PostISO 9000 Quality Development. This framework represents and integrated approach in which
a TQM strategy is formulated and then implemented within an organisation after ISO 9000
certification has taken place in order to improve performance measures. Najmi and Kehoe
found as expected that benefits along the bottom line were substantially improved for
companies, which had attempted to at least a moderate degree, a Post-ISO 9000 quality
development strategy. Those companies, which had stopped short at simply pursuing ISO
5
9000 certification, were significantly lagging in the performance dimensions of quality, time
and financial aspects. Such research concludes that ISO 9000 is an important starting point for
the development of a more meaningful result based strategy such as TQM. This conclusion is
also supported by Pheng and Alfelor (2000) who insist on the importance of not only meeting
the technical requirements of ISO 9000, but also the behavioral approaches within a TQM
system.
Quality Culture
While there are many definitions of culture, Schein (1985), Saraph (1987) and Kotter and
Heskett (1992) have indicated that quality culture should focus on having a collective or
shared learning of quality-related values as the organisation develops its capacity to survive in
its external environment. Values are formed in a group over time and can be seen in the
ideology, philosophy, charter, or basic credo of an organisation. These values, in turn, result
in artefacts and creations of the group, which can be easily detected by observing the
organisation's managerial processes, systems, and human relationships. Quality culture
formation occurs through integrated changes in the organisational system; an organisational
quality-based vision, mission and goals, consistent formal and informal organisational
structures, compatible reward systems, appropriate technology and job design, and attention
to important personnel issues.
Going beyond previous empirical work on this topic, Kotter & Heskett (1992) provide a
comprehensive critical analysis of how the ‘culture’ of an organisation influences
organisational performance. Kotter & Heskett define organisational culture as having two
levels, which differ in terms of their visibility and their resistance to change. At the deeper
and less visible level, culture refers to values that are shared by the people in a group and that
tend to persist over time even when group membership changes. At this level culture can be
extremely difficult to change, in part because members are often unaware of many of the
values that bind them together. At the more visible level, culture represents the behaviour
patterns or style of an organisation that new employees are automatically encouraged to
follow by their fellow employees. Kotter & Heskett (1992, p2) stated that:
“ Culture, in this sense, is still tough to change, but not nearly as difficult as
at the level of basic values.”
Based on qualitative research at such firms as Hewlett-Packard, Xerox, ICI, Nissan, as well as
a quantitative study of the relationship between culture and performance in more than 200
companies, the authors conclude that shared values and unwritten rules can profoundly
enhance economic success, or conversely, lead to failure to adapt to changing markets and
environments. The study shows that organisations that have participative corporate cultures
and well-organised workplaces have better performance records than those that do not. Kotter
& Heskett (1992) develop the argument that corporate culture is strongly influenced by the
characteristics of the industry in which the company operates. Thus, companies within an
industry share certain cultural elements that are required for survival.
Collins and Porras (1994), in their popular book “Built to Last: Successful Habits of
Visionary Companies” examine eighteen exceptional and long-lasting companies in the USA,
and studied each one in direct comparison with one of its competitors. The average age of
these companies is about 100 years. These companies have outperformed the stock market by
a factor of fifteen since 1926. Collins & Porras (1994) argue that just about anyone can be a
key protagonist in building an extraordinary business institution by learning the lessons of
best practice companies. The myth that the future of a company depends on whether it is led
6
by people ordained with rare and mysterious qualities that cannot be learned by others, is
completely dismissed by the findings of this study.
The authors looked for historical consistency through multiple generations of chief
executives, instead of relying on the company’s most recent values, mission, vision, or
purpose statement. According to the authors, the visionary companies do not just declare an
ideology; they also take steps to make the ideology pervasive throughout the organisation and
transcend any individual leader. Several common themes emerged from the study that
visionary organisations share. The core ideologies for six of the best companies studied by
Collins and Porras (1994) were:
•
•
•
•
•
•
Create strong cultures around the ideology.
Select senior management based on fit with a core ideology.
Attain more consistent alignment with a core ideology in such aspects as goals,
strategy, tactics, and organisation design.
Focus on continuous improvement.
Serve the customer above all else.
Promote ‘trust’ and respect for the individual.
Employee Attitudes and Quality Culture
Perhaps the greatest challenge in creating a quality culture comes with the awareness that
managing the change process includes managing employeee attitudes towards that change.
Unfortunately change is frequently introduced without considering its psychological effect on
the employees in the organisation-particularly those employees who have not been part of the
decision making and planning process to make the change. According to Jick (1993):
“..if the reactions to change are not anticipated-and managed-the change process
will be needlessly painful and perhaps be unsuccessful.”
Hind (1996) argues that a positive attitude towards change is key to ISO 9000 success. For
many, conformance to ISO 9000 standards is so strong that this itself creates inflexible
attitudes which can often become a barrier to the empowerment associated with a quality
culture. Hind argues that the effort and time taken to conform to ISO standards may create
negative attitudes towards those whose effort implemented such a system-unfortunately
typically top management. Such an argument raises the need for research considering the
order of ISO 9000 and quality culture implementation as well as the type of quality culture
which characterizes successful ISO 9000 organisations (Najmi and Kehoe (2000)
Literature Synthesis
The literature review has revealed that the benefits attributable to ISO 9000 certification were
mainly for procedural efficiency and error rates, and less likely for market share, staff
motivation and costs. Our study aims to resolve some of the contradictions in the literature by
providing empirical evidence on the relationship between the ISO 9000 certification process
and business performance and whether or not the role and style of the quality auditor has any
impact on the strength of the relationship.
It appears from the literature review that quality auditors are unfamiliar with the client’s
industry, quality system, and process or products/ services. This inevitably results in a poor
quality audit, which places conformity at risk. The role and style of the quality auditor has
become critical. Quality auditors are expected to provide a more facilitative auditing style. As
7
a result many researchers in this field and case studies of certified organizations are beginning
to see that the quality auditor can play a crucial role in improving the performance of the
organization by adopting a more facilitative style, rather than a policeman style which focuses
on non-conformance to a the ISO 9000 standard.
There is consistency in the literature on the characteristics of quality culture formation.
Several authors conclude that quality cultures are not created by a single factor but rather by
an integrated change in several factors such as the organisational system; an organisational
quality-based vision, mission and goals, consistent formal and informal organisational
structures, compatible reward systems, appropriate technology and job design, and attention
to important personnel issues.
Considering the above syntheses of the literature, it appears that the effectiveness of ISO
9000 certification depends on many factors such as the existing quality culture of the
organization (H1), the motivation for ISO 9000 certification (H2); the style of the quality
auditor (H3). Several previous studies have found H2 to be true. However, these studies are
typically descriptive and do not adopt a level of standard methodological rigour such as this
study. We test the hypotheses using a large sample size, and then we use qualitative data to
further explain the hypothesised relationships.
Terziovski et al., (1997) used ANCOVA and MANCOVA to test relationship between ISO
9000 certification and organisational performance covaried for company size. The results
showed that company size does have an effect on the hypothesised relationships. However,
the study did not gauge perceptions from auditors, and the sample size consisted of only
manufacturing companies. This study focuses on all industry sectors of companies certified to
ISO 9000 and the auditing fraternity of the largest third party certifier in Australia, Quality
Assurance Services. The covariates, company size and number of years an organisation has
been certified may also have an effect on the hypothesised relationships. For example, larger
certified organisations may have greater success with ISO 9000 certification due to the larger
level of resources available to them to pursue the implementation process.
HYPOTHESES
Based on the synthesis of the literature, the following hypotheses have been articulated for
testing in this study:
H1: There is a significant and positive relationship between the quality culture of an ISO
certified organization and the benefits derived from the certification process.
H2: The motivation for ISO 9000 certification is a significant and positive predictor of the
benefits derived from certification.
H3: A facilitation style of the quality auditor, has a significant and positive relationship with
the benefits derived from ISO 9000 certification.
H4: The covariates company size, and the number of years an organization has been certified
have an impact on the strength of the relationship in H1, H2, and H3.
METHODOLOGY
Survey Instruments
Two survey instruments were developed to gather quantitative data The first instrument was
completed by a sample of certified companies and the second instrument was completed by a
sample of practicing quality auditors. The review of the literature provided the theoretical
basis for the development of the major constructs contained in the questionnaires. The survey
instrument administered to the certified companies was divided into four main areas. These
8
are “Quality Culture”, “Motivation for Certification”, “Auditing Style” and “Value of
Certification”. With respect to “Quality Culture”, a total of 30 separate items were included in
the survey instrument. These items are shown in Tables 1 to 5.
With respect to “Motivation for Certification” respondents were asked to rate a range of
reasons according to the level of relevance to their organizations’ decision to seek ISO 9000
certification. These included two sets of items (total of 10 items) relating to the intrinsic or
extrinsic nature of the motivation (i.e. continuous improvement strategy versus reaction to
external factors) (see Tables 6 and 7).
“Auditing Style” was covered by 22 items including the following categories (see Tables 8 to
10):
•
The purpose of the non-financial audit.
•
The role of the non-financial auditor.
•
The style of the non-financial auditor.
•
The skills of the non-financial auditor.
“Value of Certification” was tested with 13 items covering issues such as productivity, waste
reduction, internal systems, sales and customer satisfaction (see Tables 11 and 12).
Samples
A random sample of 1500 companies was selected for the client survey from a database of
7000 companies that had been certified to ISO 9000. This survey resulted in 400 companies
responding (a response rate of 27%). A total of 300 quality auditors were surveyed including
263 auditors employed by Quality Assurance Services, a subsidiary of Standards Australia
and 37 quality auditors operating in New Zealand. The quality auditors survey resulted in 126
responses (response rate of 42%).
Demographics
Some notable aspects of the demographic breakdown for the quality auditors include:
•
High proportion of male auditors; the majority come from manufacturing
backgrounds.
•
Large percentage with tertiary qualifications.
For the companies, it was also interesting to note that:
•
One quarter of managers responsible for quality auditing were at CEO/Managing
Director/General Manger level, and
•
The apparent maturity of the market as indicated by the small percentage certified for
less than two years.
Data Analysis
Factor Analysis was used to test the validity of constructs, and to establish a group of higher
order factor variables reflecting latent factors to be used in subsequent Multiple Regression
Analysis. Hierarchical Regression Analysis (HRA) was used with three separate models to
test for the contribution to variance at points of entry. The statistical software analysis
package SPSS was used for all major statistical analysis. As part of the data screening and
preparation process the following actions were taken: Within the data set for each variable
9
missing values were defined using the “Define Variable” function within SPSS so as not to
include them in the analysis.
In order to meet the requirement of successful multivariate analysis for a complete data set,
mean substitution was used for missing values in both the factor analysis and multiple
regression. This was deemed appropriate as the percentage of missing data across the full
data set was 1.23%. Each individual variable was screened for the presence of values in
excess of +/- 3 standard deviations. Mahalanobis distances were calculated for each case and
derived from all of the identified variables of interest to check for the existence of
multivariate outliers.
A Case Wise Plot of Standardized Residuals was produced with each regression model in
order to further identify and eliminate multivariate outliers. Where appropriate these outlying
values were deleted. All the variables selected for analysis used interval scales and as such
were also analyzed for excessive skew and kurtosis to ensure normality. Transformations
were carried out where appropriate.
During regression analysis, a Histogram of Standardized Residuals along with a Cumulative
Probability Plot of Standardized Residuals was generated to check that all linear combinations
of variables were normally distributed. Prior to factor analysis scatter plots were produced for
variables showing large differences in skewness to indicate a degree of confidence regarding
linearity. For the regression models Scatter plots of Predicted Scores versus Residuals were
also produced to assess linearity of the relationships being measured and to check for
homogeneity of variance. During factor analysis correlation matrices were created, and a
Determinant of Correlation Matrix statistic generated to test for multicollinearity and
singularity.
During multiple regression a tolerance statistic was also produced testing the amount of
variance in each independent variable attributable to the other independent variables. High
tolerance values indicated low multicollinearity. The process followed for factor analysis
employed an exploratory model, with a minimum eigenvalue of 1 specified, a principal
components extraction employed and a varimax rotation applied. The final factors extracted
were also subjected to reliability testing with alpha coefficients produced for each. In order to
regulate the development of the regression process, a hierarchical (or sequential) regression
model was developed. This was structured in order to test the amount of variance caused by
sets of independent variables after variance due to other independent variables had already
been accounted for.
Factor Analysis
Within the groups of variables identified above factor analysis was run and the following
combinations extracted that could be used in subsequent analysis as independent and
dependent variables. This provided a simplified group of factor variables capturing latent
constructs facilitating less complicated analysis and model creation.
Quality Culture:
KMO Measure of Sampling Adequacy
0.893
Bartlett’s test of Sphericity
0.000
The KMO test being greater than 0.6 indicated that factor analysis was appropriate for this
matrix, while the high degree of significance in the Bartlett’s test indicates that the matrix is
not an identity matrix (i.e. the diagonal values are 1 and the off diagonals are 0). Five factors
were identified from this analysis:
10
Factor 1: Resources Provided for Quality Construct
The combination of high factor scores and a high alpha coefficient provided a good degree of
confidence that this scale had good construct validity and is a reliable measure. Due to the
high factor scores on all four items (Table 1) the correlations were checked for
multicollinearity. This check revealed some high correlations, but nothing higher than the
nominal cut off point of 0.90 (Tabachnick and Fidell, 1996). It was also taken into account
that factor analysis is particularly robust to most underlying statistical assumptions (such as
normality, linearity etc), and that a certain amount of multicollinearity is desirable for good
factor analysis (Hair, Anderson et al., 1998). It was further noted that deletion of any of these
individual items reduced the value of the alpha coefficient, thus weakening the reliability of
the measure whilst at the same time reducing the strength of the overall construct.
Factor 2: Quality Awareness Construct
The high alpha score for this factor again provided good confidence as to the reliability of the
scale. The spread of the factor scores (Table 2) gave a wide range of factor scores, with the
lowest being .452. Given that the sample size was greater than 350, a factor score greater than
0.30 could be interpreted as significant in both practical and statistical terms (Hair, Anderson
et al., 1998).
INSERT TABLES 1 AND 2 ABOUT HERE
Factor 3: Benchmarking for Quality Improvement Construct
Due to the high factor scores (Table 3) correlations between these items were also checked for
multicollinearity with no values found to be higher than 0.90. For the same reasons as stated
above for factor one the four items were left intact. The high alpha score also gave confidence
as to the reliability of the scale.
Factor 4: Customer Focus Construct
The factor scores (Table 4) for this grouping were deemed adequate as per the criteria noted
above, and the good alpha score indicated adequate reliability.
Factor 5: Quality as a Measure of Performance Construct
The combination of a good alpha score and significant factor loadings (Table 5) was also
evident for these items.
INSERT TABLES 3, 4 AND 5 ABOUT HERE
Motivation for Certification:
KMO Measure of Sampling Adequacy
0.710
Bartlett’s test of Sphericity
0.000
The KMO test being greater than 0.6 indicated that factor analysis was appropriate for this
matrix, while the high degree of significance in the Bartlett’s test indicates that the matrix is
not an identity matrix. Two factors were identified:
Factor 1: Continuous Improvement Strategy Construct
As per the criteria detailed above this group of items provided a good balance of reliability
and construct validity (Table 6). These items also represented a group of “intrinsic”
11
motivators for certification that provided a neat contrast with the other variables in this
section as they represented a set of “extrinsic” or “reactive” reasons for seeking certification.
Factor 2: Reaction to Environmental Factors
The low alpha coefficient for this factor presented the possibility of deleting an item in order
to improve reliability (Table 7). It was decided to leave the factor intact as the best possible
result from deletion of an individual item was an alpha value of .6024. This marginal
improvement in reliability was not deemed sufficient to offset the reduction in the strength of
the construct that would result.
INSERT TABLES 6 AND 7 ABOUT HERE
Auditing Style:
KMO Measure of Sampling Adequacy
0.853
Bartlett’s test of Sphericity
0.000
The KMO test being greater than 0.6 indicated that factor analysis was appropriate for this
matrix, while the high degree of significance in the Bartlett’s test indicates that the matrix is
not an identity matrix. It should be noted that the questions answered in the survey of clients
of non-financial auditors used in this analysis related to perceptions of current audit practice.
Three factors were identified:
Factor 1: Auditing to Facilitate Continuous Improvement Construct
This group of variables captured a combination of issues relating to the perception of the
purpose of the audit, the appropriate style of the auditor and the skills required to conduct a
non-financial audit. The combination of the high alpha coefficient and the factor scores (Table
8) provided a good level of confidence in the reliability and validity of this scale.
Factor 2: Auditing for Compliance
These variables related to the purpose of the audit and the appropriate role of the auditor. The
reliability and validity of the scale are reinforced by the alpha value and factor scores (Table
9).
Factor 3: Auditing Style Construct
These three style related variables represent a detached and non-facilitative style of auditing.
The alpha score of .6581 was deemed to be adequate as deletion of any of the items
substantially weakened the score (Table 10).
INSERT TABLES 8, 9 AND 10 ABOUT HERE
Value of ISO 9000 Certification:
KMO Measure of Sampling Adequacy
0.911
Bartlett’s test of Sphericity
0.000
The KMO test being greater than 0.6 indicated that factor analysis was appropriate for this
matrix, while the high degree of significance in the Bartlett’s test indicates that the matrix is
not an identity matrix. The variables contained in this grouping related to the perceived
12
contribution of ISO certification to a range of business performance outcomes. Two factors
were identified:
Factor 1: Improved Business Performance
The alpha value and the majority of the factor scores (Table 11) are good for this group of
items. The lower factor score for the item relating to the improvement in organizational
systems and documentation was deemed adequate based on the sample size being greater than
350 (Hair, Anderson et al., 1998).
Factor 2: Reduced Waste Construct
Due to the high factor scores these two variables were checked for multicollinearity and found
to have a correlation less than 0.90. The high alpha value was noteworthy for a scale with
only two components, and again provided a good level of confidence in scale reliability
(Table 12).
INSERT TABLES 11 AND 12 ABOUT HERE
Summated Scales
For each factor a single new variable was created for the purpose of creating a summated
scale. Apart from simplifying further analysis the use of a single composite measure of this
type was preferred for the following reasons (Hair, Anderson et al., 1998). A means of
overcoming the inherent measurement error found in all measured variables is provided. The
underlying assumption is that the factors capture the particular constructs with an acceptable
level of validity and reliability as demonstrated in the five cases above.
Hierarchical Regression Models
The rationale for using hierarchical regression models derived from a desire to test the nine
hypotheses developed with a method that would allow for comparison between the
contribution of different independent variables, whilst controlling for specified demographics.
The advantage of this approach lies in the fact that:
“Sequential regression allows the researcher to control the advancement of the
regression process. Importance of IV’s in the prediction equation is determined
by the researcher according to logic or theory. Explicit hypotheses are tested
about proportion of variance attributable to some IV’s after variance due to IV’s
already in the equation is accounted for” (Tabachnick and Fidell 1996, p.156).
In our case the independent variables were finalised from the literature review and from
qualitative data derived from the case study analysis. The models developed were based on a
theorized logical relationship between the independent variables, with independent variables
being entered into the models as groups.
A set of control variables were entered first in both models in order to extract the variance due
to organization size, industry, number of years certified and the position held by the
respondent. These were then followed by the quality culture group, motivation for
certification and auditing style. The logic in this model being that after organizational
demographics have been accounted for, quality culture will precede the motivation for
certification, which will precede auditing style. The dependent variables in this model were
the two factors relating to value derived from certification and the five individual variables
relating to attitudes to the audit process, and the model seeks to test the effect of quality
culture, motivation for certification and auditing style on business outcomes and
organizational attitudes.
13
TESTING OF HYPOTHESES
The two measures used for comparison of results are Change in R2 and the final Beta
coefficient of each combination for the full model. The Change in R2 gives a comparison
between subsequent groups of factors of the effect of that group on the dependent variables
after the variance attributable to preceding groups has been extracted. Both the strength and
significance of the change is noted. The final Beta value gives the strength and significance
of the relationships between the individual elements of the model when all are included. An
Adjusted R2 value for the full model is also recorded to evaluate the total % contribution of all
the independent variables to the change in the dependent variables
Analysis of the results using the Change in R2 shows that there are significant changes in
contribution at each of Steps 1, 2 and 3. For Step 1 a changes of 3% significant at p <.05 for
DV1 (Improved Business Performance) and 3.2% significant at p <.05 are recorded. This
indicates that the control variables do have some impact on the two business performance
variables, and can thus not be ignored as factors affecting performance in the context of this
model.
For DV1 the final Beta values show no individual items in this group having significant or
strong relationships, while for DV2 (Reduced Waste) Number of Years Certified makes the
most significant contribution with 0.180 at p <.001. This indicates that over time certified
companies go through a process of organizational learning that has the effect of reducing
waste, and perhaps points to certification as a catalyst for this process. For DV1 (Improved
Business Performance) Quality Culture shows a 9.5% increase in variance at p <.001. The
Final Beta scores show that of the five elements of Quality Culture the strongest and most
significant contributor to this variance was Customer Focus with 0.104 at p <.05.
The dominance of Customer Focus in contribution to improved business performance is not
entirely surprising, although it should be noted that the five elements of Quality Culture are
not necessarily mutually exclusive. It is hard to imagine that a high degree of Customer Focus
can exist without resources being provided for quality and there being a poor awareness of
quality related issues in an organization.
The interdependence and interrelatedness of the elements of Quality Culture is therefore an
underlying assumption of the model. Motivation for Certification shows a further 8.3%
change at p <.001 for DV1, with the final Beta scores indicating that both elements make a
significant contribution (being 0.234 at p <.001 for Continuous Improvement Strategy and
0.174 at p <.01 for Reaction to Environmental Factors). The relatively stronger and more
significant contribution of the pro-active and intrinsic motivator (Continuous Improvement
Strategy) over the reactive and extrinsic element (Reaction to Environmental Factors)
supports some anecdotal evidence of links between this type of motivation and ISO related
benefits.
What is of interest is the fact that both types of motivation are seen to contribute to business
performance, suggesting perhaps that both elements are required. It could be argued that
awareness of customer requirements and changes in the external environment of an
organization can prompt the recognition of the need for continuous improvement strategies.
The importance of the combination of these two forms of motivation, and perhaps their
interdependence, is being highlighted by the model. For DV2 (Reduced Waste) Quality
Culture does not show a significant contribution while Motivation for Certification does with
3.1% at p <.01. The final Beta values also show no significant correlations between any of the
individual elements of Quality Culture and DV2, a result that on the face of it is surprising
14
given the expected link between reduction in waste and improved business performance. Beta
values for Motivation for Certification with DV2 show that Continuous Improvement
Strategy is the dominant factor in contributing to waste reduction with 0.180 at p <.01.
Auditing Style shows no significant effect on either dependent variable, and the individual
Beta scores also show no significant relationships between the elements of Auditing Style and
both dependent variables. All significant correlations were positive in direction. The results
from this model for these hypotheses are contained in the Table 13. Adjusted R2 values for
DV1 (Improved business performance) was 0.186 and for DV2 (Reduced waste) was 0.056.
INSERT TABKE 13 ABOUT HERE
INTERPRETATION OF RESULTS
Based on the analysis several important findings have emerged. There is a relationship
between the control variables and business performance, particularly in the case of waste
reduction and the number of years an organization has been certified. This relationship does
not appear to be overly strong, but is nonetheless significant and therefore a factor that needs
to be taken into account when assessing the importance of other relationships. The Quality
Culture variables identified through the factor analysis have a highly significant, if
moderately strong, effect on business performance in this model. The individual element
found to contribute most to this was Customer Focus.
There is no link recorded between Quality Culture and reduction in waste in the model.
Motivation for Certification has a highly significant and moderately strong effect on business
performance, and highly significant and weak effect on reduction of waste. Both elements
contribute significantly to business performance with Continuous Improvement Strategy being
marginally stronger, while this same element is also the key determinant of reduction in
waste. Results from this model show there is no significant relationship between Auditing
Style and business performance. The final value for Adjusted R2 indicates a higher
contribution overall of the independent variables to improved business performance compared
to reduction of waste. In terms of the hypotheses proposed these results indicate that:
H1: There is a positive relationship between the quality culture of an ISO certified
organization and the benefits derived from certification - Hypothesis Accepted
H2: The motivation for certification can be used as a predictor of the value derived from
certification -Hypothesis Accepted
H3: The style of the non-financial auditor is positively related to the benefits derived from
certification - Hypothesis Rejected
H4: The relationships inH1, H2, and H3, are independent of the influence of company size and
the number of years an organization has been certified - Hypothesis Rejected.
CONCLUSION
Our findings show that the motive for adopting ISO 9000 certification and the maturity of the
quality culture are significant predictors of the benefits derived from ISO 9000 certification.
The style of the auditor, on the other hand, does not appear to have a significant and positive
effect on the benefits derived from ISO 9000 certification. We conclude that organizations
that have been audited to the ISO 9000 standards believe that the quality audit process
contributes to business performance when the quality culture in the organization is well
developed and the manager’s motivation to gain certification has been to improve business
15
performance and not to conform to an international standard. The individual element found to
contribute most to business performance was Customer Focus.
The principal motivation to pursue ISO 9000 certification was found to come from the
customers. Auditing style shows no significant and positive effect on business performance.
The findings of this study are in agreement with several other studies (Brown, 1994; Hoyle,
1994, Najmi and Kehoe, 2000).
IMPLICATIONS FOR MANAGERS
The main implication for managers is the emerging question whether the new ISO 9001-2000
standard will over-time capture and meet the conformance and performance requirements of
the organisation as part of a continuous improvement strategy. This is likely be the prime
determinant of the extent to which managers will embrace or reject ISO 9000 certification in
the twenty first century. For example, combining the discipline of the ISO 9001-2000
compliant system with the significant process improvements that are derived from programs
such as Six Sigma and cycle-time reduction could facilitate rapid process improvement that
becomes the ‘best practice’ on which to build future organizational success.
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ACKNOWLEDGEMENT
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Pty Ltd, Standards Australia for providing the necessary funding for this research project.
19
Factor One – Resources provided for quality
Alpha =.9363
ITEM
FACTOR SCORE
Adequate resources are provided for quality improvement to .841
senior management
Adequate resources are provided for quality improvement to .848
middle management
Adequate resources are provided for quality improvement to .842
front line management
Adequate resources are provided for quality improvement to .812
general staff
Table 1: Quality Culture Factor 1
Factor Two – Quality awareness
Alpha =.8468
ITEM
FACTOR SCORE
Attitude of senior management toward the comprehensive use
of quality management practices
.714
Attitude of middle management toward the comprehensive use
of quality management practices
.717
Attitude of front line management toward the comprehensive
use of quality management practices
.685
Attitude of general staff toward the comprehensive use of
quality management practices
.640
Senior management strongly support the certification audit
.589
Responsibility for quality is allocated to all organisational
members
.452
Quality systems and procedures are clearly understood
throughout the company
.524
Table 2 Quality Culture Factor 2
20
Factor Three – Benchmarking for Quality Improvement
ITEM
Alpha = .9156
FACTOR SCORE
Benchmarking is used extensively to improve quality of
products/processes by senior management
.806
Benchmarking is used extensively to improve quality of
products/processes by middle management
.863
Benchmarking is used extensively to improve quality of
products/processes by front line management
.855
Benchmarking is used extensively to improve quality of
products/processes by general staff
.765
Table 3 Quality Culture Factor 3
Factor Four – Customer Focus
Alpha = .7581
ITEM
FACTOR SCORE
There is a recognition throughout the organisation of the needs and
expectations of external customers
.475
There is a recognition throughout the organisation of the needs and
expectations of internal customers
.592
There is a recognition throughout the organisation of the needs and
expectations of suppliers
.677
Table 4 Quality Culture Factor 4
Factor Five – Quality as a measure of performance
ITEM
Alpha = .7362
FACTOR SCORE
Quality plan is an integral part of the strategic plan
.561
Quality indicators are used as key performance indicators
.710
The organisation has formal program for employees at all levels to
contribute to quality improvement
.448
Data relating to quality improvement is shared openly with customers
.507
Table 5 Quality Culture Factor 5
21
Factor One – Continuous Improvement Strategy
ITEM
Alpha = .8004
FACTOR SCORE
Part of a TQM based strategy
.761
Pursuit of continuous process improvement
.881
Desire to provide better products and processes
.764
Recognition of the need to formalise systems
.725
Table 6 Motivation for Certification Factor 1
Factor Two – Reaction to Environmental Factors
ITEM
Alpha = .5983
FACTOR SCORE
Changes in legislation
.637
Changes in industry policy / trends
.754
Demand by customers for supplier certification
.469
Pressure to follow competitors
.647
Changes in social trends
.574
Table 7 Motivation for Certification Factor 2
22
Factor One – Auditing to facilitate continuous improvement
Alpha = .8640
ITEM
FACTOR SCORE
The role of the auditor is to help companies improve their people,
processes, products and services
.740
The role of the auditor is to help people acquire a common
understanding of the system
.726
The auditor should be flexible and able to adjust his/her style to
meet the requirements of the client
.658
The auditor should work with the client by being a good
communicator and an excellent listener
.690
The auditor should highlight the positive as well as the negative
aspects of factors being audited
.635
The ability to facilitate change is critical for the non-financial
auditor
.673
The ability to facilitate continuous improvement is critical for the
non-financial auditor
.723
The ability to adapt to the needs of the client is critical for the nonfinancial auditor
.725
The audit should remove barriers to continuous improvement
.527
Table 8 Auditing Style Factor 1
Factor Two – Auditing for compliance
ITEM
Alpha = .8086
FACTOR SCORE
The audit should solely verify performance against the standard
.688
The auditor should solely assess compliance with applicable standards
.837
It is the role of the auditor to solely inspect the client’s systems
.779
The auditor should only be interested in checking the operation of the
system
.771
Table 9 Auditing Style Factor 2
23
Factor Three – Auditing style that is detached and inflexible
Alpha = .6581
ITEM
FACTOR SCORE
The auditor should remain detached and not get involved with the client
during the audit
.814
The auditor should focus on non-conformances when reporting to the
client at the conclusion of the audit
.665
The auditor’s style should not be adjusted for different clients
.713
Table 10 Auditing Style Factor 3
Factor One – Improved business performance
ITEM
Alpha Score = .9092
FACTOR SCORE
Improved customer satisfaction
.693
Increased productivity
.755
Improved service quality
.759
Improved product quality
.660
Improved company image
.671
Increased flexibility
.771
Increased sales
.798
Improved organisational systems and documentation
.348
Improved supplier quality
.675
Improved cycle times
.599
Table 11 Value of Certification Factor 1
Factor Two – Reduced waste
Alpha = .8705
ITEM
FACTOR SCORE
Reduced scrap
.903
Reduced obsolete stock
.893
Table 12 Value of Certification Factor 2
24
Independent Variables
Dependent Variable: Value of
Certification - Factor 1 Improved Business Performance
Dependent Variable:
Value of
Certification - Factor 2 - Reduced Waste
All Companies
N = 395
All Companies
N = 395
Change R2
Step 1
Control Variables
Final Beta
.030*
Step 3
Quality Culture
Reasons for Certification - Factor 2 Reaction to Environmental Factors
Step 4
-0.041
-0.025
0.016
-0.062
-0.002
-0.083
0.180***
-0.055
0.023
.095***
Quality Culture - Factor 1 - Resources
Provided for Quality
Quality Culture - Factor 2 - Quality
Awareness
Quality Culture - Factor 3 - Benchmarking
for Quality Improvement
Quality Culture - Factor 4 - Customer
Focus
Quality Culture - Factor 5 - Quality as a
Measure of Performance
Motivation for
.083***
Certification
Reasons for Certification - Factor 1 Continuous Improvement Strategy
Final Beta
0.032*
No. of people employed by the
organisation in Australia
Organisational Category
No. of years certified
Position in Organisation
Step 2
Change R2
-0.005
0.031
0.071
0.020
0.094
0.032
0.104*
0.028
0.017
-0.017
0.031**
.234***
0.180**
.174**
0.013
0.006
Auditing Style
Current Audit Practice - Factor 1 - Auditing
to Facilitate Continuous Improvement 1
Current Audit Practice - Factor 2 - Auditing
for Compliance
Current Audit Practice - Factor 3 - Auditing
Style that is Detached and Inflexible
Table 13 Hierarchical Regression Model Results
0.005
0.086
0.075
0.004
-0.005
0.025
0.028