24 May 2018
Numerous surveys and academic articles have sought to quantify the benefits that companies typically gain after implementing an ISO 9001 Quality Management System. In this editorial we will examine some of the better-known research to see what conclusions can be drawn. The appended bibliography lists some of the sources we have used; we encourage readers to refer to it and, if necessary, undertake further research by themselves.
ISO 9001 is truly a globally recognized standard, which will help your organization to continually improve your processes and manage business risks to meet the needs and expectations of your customers and other stakeholders.
Lloyd's Register of Quality Assurance, London
Most readers will doubtless be familiar with the ISO 9000 family of standards and may already have experience with ISO 9001:2008 and/or ISO 9001:2015. To start, we will examine a range of sources pertinent to this subject.
Lloyd's Register of Quality Assurance
Many articles published in peer-reviewed academic journals continue to reference the well-documented surveys undertaken by Lloyd's Register of Quality Assurance in 1993 and 1996, both of which observed a strong correlation between ISO 9000 accreditation and increased sales and profit margins. The same articles refer frequently to Tord Häversjö's analysis of the financial impacts ISO 9000 registration had on Danish companies. More recent surveys proved very interesting: we were especially pleased to see studies discussing the benefits of ISO 9001 implementation in Macedonia and the Basque region in Spain, for example.
The World Bank
The World Bank's 2007-publication, Quality Systems and Standards for a Competitive Edge, remains an outstanding reference work not only for its detailed analysis, but for its presentation of statistical data and examination of China's remarkable economic growth. The book also takes a close look at ISO 9001 accreditation in Latin America, observing that with notable exceptions such as Columbia (which has adopted the ISO 9001 standard wholeheartedly), low levels of education are one of the more recurring barriers to the implementation of Quality Management Systems.
The International Organization for Standardization
We also looked at case studies published by the International Organization for Standardization (ISO), some of which are documented in their online periodical, ISOfocus. While little empirical data is offered in these studies, they are included in this editorial since they echo our findings (along with those of other researchers) across many nations and business sectors.
The Association of Southeast Asian Nations (ASEAN)
In 2017 ASEAN published its 50 Success Stories of Internationalization of ASEAN MSMEs. This research is of great interest insofar as it offers instructional case studies in nations as diverse as Thailand, the Lao People's Democratic Republic, Malaysia and Vietnam. We recommended this survey to anyone interested in learning more about the benefits of ISO 9001 in developing nations.
China leads the way
China is the world leader in ISO 9001 certifications with almost 400,000 ISO 9001 certified companies in 2017. That's about four times as many as in second-place Italy and almost sixteen times as many as in the USA.
Drawing conclusions from a study such as this is seldom straightforward. Grey areas persist, and care should be taken when assessing unduly positive trends in emerging markets. In our opinion, however, ISO 9001 remains the number one standard for private and public sector enterprises seeking not only to increase sales and profitability, but to develop a more robust culture within the workplace and better relationships with customers and suppliers. The key points that emerged from our study are detailed below.
Profitability: ROCE / ROA
The two surveys undertaken by Lloyd's Register of Quality Assurance in the 1990s found that profit margins and ROCE of certified companies were more than twice the industry average. A more recent analysis examined certified and non-certified enterprises in Macedonia between the years 2002 and 2010, concluding that certified companies enjoyed significantly better growth and profitability. Similar conclusions were drawn from a survey of companies in Spain's Basque region between 1994 and 1998. We generally err on the side of caution when assessing profitability, but tend to agree that the average difference in ROCE between certified and non-certified companies lies between 15 and 25 percent. In terms of return on assets (ROA), our findings showed that certified companies typically outperformed their non-certified counterparts by an average of slightly over 20 percent. Worth mentioning is that ROCE for certified companies is in most cases higher than ROA.
It is essential to note that adopting ISO 9001 does not guarantee enterprises will gain a de facto competitive edge over their rivals. The key to ensuring improved financial performance and customer satisfaction is consistent implementation. In other words, once the standard has been implemented internally and coordinated with suppliers and customers, it must then become a major component of the company's culture and daily practices, at which point it will be a catalyst for the changes that bring about competitive advantage. Retaining this competitive advantage requires commitment from senior management, along with other factors such as HR development, quality control, supply chain management and customer service / support. Most of the sources we reviewed were in broad agreement with these points.
Little doubt exists that a rigorous and consistently applied ISO 9001 Quality Management System provides opportunities for internationalization and the penetration of foreign markets. In short, ISO certification not only improves processes and procedures, but enhances prestige both nationally and overseas. Welspun Corp in India exemplifies this point: the company gained rapid, global acceptance as a viable supplier of line pipes soon adopting ISO 9001, and is now a respected leader in its class. The case study below (researched by ISO) illustrates Welspun Corp's path to success.
China is another fine example of how ISO 9001 implementation has led to internationalization. Many analysts link the country's rapid emergence as a dominant global force with low labor costs. However, as the World Bank reminds us, labor costs in Bangladesh are half those of China. According to the World Bank, a key difference between these two nations is China's "determined drive to adopt quality standards". In 2017 (the most recent year for which statistics are available), more ISO 9001 certificates were issued in China than in any other country.
ISO 9001: "the badge of quality"
Some academics remain skeptical about ISO 9001, claiming that in many cases an ISO 9001 certificate is essentially a "badge of quality" and a requirement needed to satisfy the expectations of customers and suppliers. While our own findings indicate this may indeed be true, the same authors, researchers and academics concluded that the ISO "badge of quality" frequently opens doors to new customers and overseas markets that would otherwise be difficult or impossible to open, and improved sales growth and profitability are the typical outcomes.
Mumbai-based steel pipe manufacturer Welspun Corp. Ltd. is one of the world's largest line pipe producers. The company has produced pipes for the world's deepest pipeline project (Independence Trail, Gulf of Mexico), the highest pipeline project (Peru LNG), the longest pipeline (Canada to the USA) and the heaviest pipeline (Persian Gulf). Welspun Corp's clients include most of the Fortune 100 companies operating in oil and gas.
ISO 9001 helped us establish our corporate quality management system globally throughout our facilities in India, Saudi Arabia and the USA. Within months, our state-of-the-art pipe manufacturing plant in Dahej, Gujarat, garnered the approval of many Fortune 100 oil and gas companies. We were on the road to success!
T.S. Kathayat, President, Corporate Quality & Technical Services, Welspun Corp. Ltd
Prior to the 1990s, pipelines manufactured in India were considered sub-standard in the West. Following globalization, however, the situation changed and entrepreneurs in India began to focus more on quality in order to compete in the new global market. In accordance with Welspun Corp's motto, Dare to Commit, the company is now firmly committed to state-of-the-art processes and ensuring its products offer the finest quality.
After ISO 9001:2015 was introduced, T.S. Kathayat, President, Corporate Quality & Technical Services at Welspun Corp discussed the company's strategic objectives. He observed: "From the moment we established our first line pipe manufacturing facility in the state of Gujarat, India, in 1996, ISO 9001 has offered strategic support. We formulated a combined integrated quality management system for both ISO 9001 and the American Petroleum Institute's API Specification Q1."
"Since engaging with standards, we have received a number of awards, both nationally and internationally, for the excellence of our quality system and manufacturing plants. Today, we are proud to say that all our facilities are accredited to ISO 9001, ISO 14001, ISO/TS 29001, and ISO/IEC 17025 for the testing facilities, among other standards. The ISO certifications have created the framework in which to expand our business globally, making us the biggest manufacturer of large-diameter line pipes in the world – a badge we wear with pride. ISO 9001 has helped us harness the vision that lies at the heart of our business."
"Our quest for continual improvement means that upgrading to the new ISO 9001:2015 will be easy. The revised version takes a risk-based approach, which was sorely lacking in the existing one. The new standard should help minimize our business risk although risk is already covered in our present system in two broad areas: delivery and product quality. We are already taking action to implement the new ISO 9001 requirements and, with the API audit of our Anjar facility in full swing, our existing QMS documentation is under revision."
"I feel sure that all global organizations will profit from upgrading to ISO 9001:2015. And if I may venture a suggestion, employee training should be the focus of attention for all companies transitioning to the new standard, in order to embed the benefits at the zero ground level."
Founded in Dakar in 1995, Sénégalaise Des Eaux is Senegal's largest water company and distributes potable water to more than 5 million people in 554 locations nationwide.
We have been using ISO 9001 since 2002 and it helps us anticipate and meet the needs of our customers.
Mamadou Dia, CEO, Sénégalaise Des Eaux
After implementing ISO 9001:2008, the company saw major benefits in terms of:
As CEO Mamadou Dia explained, "The customer wanted enough water. When that was satisfied, then came the quality of the service. And today, we imagine on a regular basis which ways we need to explore for quality to be maintained, for the service to be maintained and for the customer to be satisfied. That's why we are meeting with consumer associations every six months."
Water potability increased from 91% to 99.1% after Sénégalaise Des Eaux implemented ISO 9001.
More efficient management
ISO 9001 compliance facilitated better control of processes and a consequent 19% reduction in managerial staff. Cost savings over the following five years averaged roughly 4% per annum.
Staff costs at Sénégalaise Des Eaux traditionally represented 70% of expenditure. Through consistent application of ISO 9001, improvements in productivity led to an almost 10% reduction in staff.
Rigorous implementation of ISO 9001 contributed significantly to improved monitoring and control of all the company's departments.
Sénégalaise Des Eaux is now a keen advocate of standardization and works closely with the Standards Association of Senegal to encourage broader acceptance of ISO 9001 across the nation.
Books: ASEAN and the World Bank
Guasch, J. Luis; Racine, Jean-Louis; Sánchez, Isabel; Diop, Makhtar (2007), "Quality Systems and Standards for a Competitive Edge", Washington, DC: World Bank Publications, ISBN 0-8213-6894-X
"Future of ASEAN: 50 Success Stories of Internationalization of ASEAN MSMEs", 2017, Jakarta: The Association of Southeast Asian Nations (ASEAN), ISBN 978-602-6392-81-7
International Organization for Standardization
Bondois, Flavie (2010), "ISO 9001 Test: Top Marks for French Exam Centre", ISOfocus, 1 (5): 40-41, ISSN 1729-8709
Gasiorowski-Denis, Elizabeth (2015), "India Puts Quality in the Pipeline with ISO 9001", ISOfocus, 113: 14-19, ISSN 2226-1095
Tranchard, Sandrine (2015), "African Water Benefits from Standards", International Standards Organization
Castello Dalmau, Jordi; Gimenez, Gerusa; De Castro, Rodolfo (2016), "ISO 9001 Aspects Related to Performance and Their Level of Implementation", Journal of Industrial Engineering and Management, 9 (5): 73-89, doi:10.3926/jiem.2072, ISSN 2013-0953
Ferati, Rametulla; Bytyqi, Njazi; Aqifi, Elsana (2012), "Effects of Application of Standard ISO 9001 in Profitability of SME in the Republic of Macedonia", International Journal of Scientific & Engineering Research, 3 (10): 1-5, ISSN 2229-5518
Häversjö, Tord (2000), "The Financial Effects of ISO 9000 Registration for Danish Companies", Managerial Auditing Journal, 15 (1/2): 47-52, doi:10.1108/02686900010304632, ISSN: 0268-6902
Heras, Iñaki; Dick, Gavin P.M.; Casadesús, Martí (2002), "ISO 9000 Certification and the Bottom Line: a Comparative Study of the Profitability of Basque Region Companies", Managerial Auditing Journal, 1/2: 72-78, doi:10.1108/02686900210412270, ISSN 0268-6902
Texeira-Quirós, Joaquín; Almaça, José A.; Fernandes-Justino, Maria do Rosário (2010), "How Quality Affects the Bottom Line?", Intangible Capital, 6 (2): 258-271, doi:10.3926/ic.2010.v6n2.p258-271, ISSN 1697-9818