The Impact of ISO 9001 on SMEs in Northern Ireland Alex Douglas (*), John Davies (**) (*)
Liverpool John Moores University, (**) University of Salford
[email protected],
[email protected]
ABSTRACT This paper reports on the impact of ISO 9001 on SMEs in Northern Ireland. This is the smallest country in the United Kingdom (UK) with a population of 1.6 million. It is important for the economic well-being of Northern Ireland that SMEs develop and survive. In order to gauge the impact (advantages and disdavantages) of ISO 9001 in Northern Irish SMEs a questionnaire was designed and tested then mailed to a sample of 100 companies selected at random from the British Standards Institution’s (BSI) online ISO 9001 Register. A total of 50 usable responses were received and analysed using SPSS v 12. Results show that the majority of SMEs have gained some form of competitive advantage and enhanced products or services through implementing ISO 9001. They also show that the 2000 revision of the standard has negated many of the previous criticisms of ISO 9001 and that there is an awareness among SMEs that there are benefits to be gained from the integration of environmental and quality management systems. No longer is pressure from customers the main reason for implementing the standard. Encouragingly, the achievement of ISO 9001 is now considered to be the start of the quality journey rather than the end. 1
INTRODUCTION
At the International Organisation for Standardisation’s (ISO) recent General Assembly in Geneva, Switzerland, a message delivered on behalf of the United Nation’s Secretary-General, Kofi Annan, stated that “ISO standards are crucial to sustainable development, as they are a key source of technological know-how.” He went on to say that: “they are invaluable in helping countries develop their economies and build capacities to compete on global markets. Producers and consumers everywhere benefit from your efforts.” This global impact of ISO can be demonstrated by the spread of ISO 9001 (BSI, 2000), with over a half a million certificates issued in world-wide. In many of these countries small and medium-sized enterprises (SMEs) are socially and economically important. For example, in the UK there were an estimated 4 million businesses at the start of 2003. The vast majority of these (99%) had less than 50 employees. They provided 46% of the UK non-government employment and 38% of turnover ( www.sbs.gov.uk ). A SME is defined by the European Union (EU) as an organisation of between 10 and 250 employees. In the EU they represent 99% of all enterprises and provide nearly 65 million jobs. They are also important because they affect the competitiveness of much larger organisations because they are an essential part of their supply chain (Thomas and Webb, 2003). Indeed, good quality suppliers or potential suppliers are necessary because what they provide in the way of inputs are usually built in to the final products of larger organisations. Generally, where such organisations are themselves ISO 9001 certified the tendency is for them to source from suppliers that are likewise certified. However, every year in the UK, including Northern Ireland, although there is a high start-up rate for small businesses, the tendency is for there also to be a high closure rate, reflecting the short lifespan of many new enterprises (DTI, 2004).
This paper reports on the impact of ISO 9001 on SMEs in Northern Ireland. This is the smallest country in the United Kingdom (UK) with a population of 1.6 million and a land area of 14120 square kilometres. Due to its historic problems investment levels have been poor. This has led to the highest levels of unemployment in the UK. It is important for the economic well-being of Northern Ireland that SMEs develop and survive. The aim is to determine whether ISO 9001 can help them to survive, develop and even prosper. 2
ISO 9001
The current version of ISO 9001 was approved by the European Committee for Standardisation on the 15th December 2000. Between that date and December 2003 over 500,000 ISO 9001:2000 certificates have been issued in 149 countries (www.iso.org) and the world-wide trend is upwards. With regards to Europe, it is Italy that leads the way in ISO 9001 certifications with 64,120 by the end of 2003, with the UK next, then Spain, Germany and France (Quality World, 2004). The statistics are impressive – ISO 9001 is a growth industry but why do organisations continue to seek certification? What are the benefits and what are the disadvantages of certification and can SMEs realise these advantages? Such questions will be addressed in the following sections. 2.1
Reasons for Implementing ISO 9001
Almost all the empirical studies on ISO 9001 in the last 15 years have cited pressure from customers as the main reason for implementing the standard (Douglas et al, 2003; Taylor, 1995; Van der Weile et al, 2000; Witcher, 1993). At its most extreme this pressure took the form that without the standard the company would not be allowed to compete or submit tenders to work. Thus having the standard in place could impact on the amount of work an organisation got and hence its market share. Indeed, the desire to increase market share is the next most often cited reason for implementing the standard. In a survey of SMEs conducted by the University of Leicester in collaboration with the Centre for Enterprise and Lloyds Register Quality Assurance and SGS Yarsley (Boulter et al, 2001 ) 70 per cent of respondents stated that improvement of quality was “a key factor” in motivating them to achieve certification. This is interesting given that ISO 9001, until the 2000 revision, never claimed to improve product quality, but was about getting consistency through having a documented quality management system in place. Respondents further claimed not to have been forced into maintaining their ISO 9001 certification by their customers. Boulter et al, (2001) were also concerned about the burdens that transition from the old to the new standard would put on SMEs traditionally constrained by lack of resources. 2.2
Criticisms of ISO 9001
Perhaps the most vociferous critic of ISO 9001 is John Seddon, who believes that this British invention is bad for business. His (Seddon, 1997) documented ten arguments against ISO 9000 included: quality by inspection is not quality – implying that ISO 9001 was inspection based; the standard relies too much on assessors’ interpretation of quality; when people are subjected to external controls, they will be inclined to pay attention only to those things which are affected by those controls; ISO 9001 has failed to foster good customer-supplier relations. Other criticisms of the standard are the reasons behind many organisations not seeking certification. In a report by Manchester Business School (1995), of 140 participants, forty-nine percent had considered certification but decided against it, among the reasons cited was too much paperwork (82%). This is a common criticism by many organisations.
Another main criticism is that achieving certification can be a complex and expensive process, with some researchers believing that certification is too costly and often leads to the pursuit of quality certificates rather than quality. It is the financial impact of ISO 9001 implementation and maintenance that is examined in the next section. 2.3
Financial Impact of ISO 9001
The financial costs of both implementing and maintaining an ISO 9001 quality management system are notoriously difficult to discover mainly due to the fact that many organisations do not measure the costs. However, most organisations believe that the benefits of certification outweigh the costs but little empirical evidence in the form of, for example, a cost benefit analysis, is offered to support such contention. This may be due to a reluctance of organisations to put such sensitive information into the public domain. For SMEs the financial impact could be more significant than for large organisations. Cash flow is a vital issue for SMEs and if this is poorly managed the company’s existence could be threatened. For many organisations, an added cost when implementing ISO 9001 may be the cost of using a consultant. This use of consultants for the change from the old to the new standard also concerned Boulter et al, (2001) who recognised that due to resource constraints SMEs would require assistance to make the transition and could be left to “the mercy of local consultants”. However, dependency on consultants has been falling more recently in the UK due to a number of government-funded agencies now offering advice and expertise free-of-charge. Nearly all researchers agree that it is extremely difficult to determine a causal relationship between ISO 9001 and improved business results because there are just too many other uncontrolled variables in the business environment that could impact on business performance. 2.4
Beyond ISO 9001
One of the main criticisms of ISO 9001 over the years was that it fell far short of the summit of quality attainment, Total Quality Management. The problem was that once organisations achieved ISO 9000 they considered themselves as “having quality” and did not seek to go beyond certification in order to improve their people, processes and products or services. Indeed, Coleman and Douglas (2003), in a survey conducted in the UK, found that a large number of organisations still viewed ISO 9001 as the end of the quality journey. However, a large number of the surveyed companies had implemented or planned to implement ISO 14001 the Environmental Management System standard, which was launched in 1996. This standard is concerned with the effect an organisation has on the environment. ISO 14001 challenges organisations to look at their impact on the environment and decide on how it plans to deal with and document those impacts in conformance to regulations. It prescribes what the organisation should do, but not how (Beckford, 2002). Achievement of the standard can have a great impact on the company as benefits are claimed to include cost reductions, enhanced public image, reduced pollution and legislative compliance with less chance of legal problems. In order to reduce the burden of managing and maintaining two systems (quality and environment) many organisations have tried to integrate the two (Karapetrovic and Wilborn, 1998). Such integration is a way of avoiding the use of excessive means and human resources in order to comply with both standards, resulting in greater profits (Renzi and Cappelli, 2000). This is extremely important for SMEs given their traditional scarcity of resources. 2.5
ISO 9001 in Northern Ireland
A number of surveys of Northern Ireland organisations, conducted to gauge their experiences with ISO 9001, have previously been reported (Taylor, 1995; McAdam and McKeown, 1999). Taylor (1995) found that the reason for implementation was pressure from customers. With regards to the
costs of the Standard, only 18% of respondent organisations measured the financial impact of implementation on their business. Taylor suggested that the reason for this non-measurement was the fact that ISO 9001 was treated as just another business cost to be absorbed in various budgets. McAdam and McKeown (1999), in a sample of small businesses in Northern Ireland, found that the implementation costs varied from less than 1% of turnover to greater than 5% or from £5000 to £50000. The use of “external expertise” to help with implementation was extremely high, with 82% of organisations using some form of consultancy (Taylor, 1995). With regards to going beyond the attainment of ISO 9001, Taylor (1995) found that only 32% of certified organisations had also implemented TQM. Interestingly, but perhaps not surprisingly, he found that small companies were less likely to go beyond ISO 9001 than larger ones. This paper aims to examine the situation regarding ISO 9001 and beyond to determine if attitudes have changed, particularly in light of the year 2000 revision of the ISO 9001 standard. 3.0
Methodology
Based on a number of key business issues, discussed above, concerning the impact of ISO 9001, a questionnaire was designed and pretested. A sample of 100 of Northern Ireland’s ISO 9001 certified organisations was randomly selected from the British Standards Institute’s (BSI) register of such companies available on its website (www.BSI-Global.com) and the questionnaire mailed to their respective quality representatives in March and April 2004. A total of 52 firms responded, giving a response rate of 52%. Given the low response rate usually associated with mailed surveys this response rate was considered to be good. Two of the responses received were unusable due to incomplete data. The analyses carried out using SPSS v 12 was based on the remaining 50 organisations. 4.0
Results
4.1
Demographics
Of the 50 respondents to the questionnaire, 40% (n=20) were from the service sector and 60% (n=30) were from the manufacturing sector. Of the 49 organisations that were previously certified to the 1994 version of the standard only 2 had yet to upgrade. Although not required, there were positive comments about the new version with many adding that ISO 9000: 2000 was a muchimproved system. The length of time that the organisations had been certified for ranged from less than 1 year to over 20 years (see table 1 below). This demonstrates their level of knowledge and experience of the standard as well as the relative longevity of many of these organisations in a sector with a high business failure rate. Table 1
Length of time Respondents have been ISO 9001 Certified Number of Companies 10 20 10 6 4
4.2
Years Certified 1-5 6 - 10 11 - 15 16 - 20 No response
Reasons for ISO 9001 Implementation
The reasons cited for implementing ISO 9001 were: to improve company efficiency (68%, n=34);
to improve customer service (60%, n=30); to be considered for tenders (50%, n=25); to receive marketing benefits (42%, n=21); pressure from customers (40%, n=20); to bring together other quality systems (26%, n=13). One organisation stated that it had implemented ISO 9001 in order to differentiate it from the competition, whilst another implemented it as a statutory requirement. 4.3
Costs and Benefits of ISO 9001
The majority of organisations (54%, n=27)) had not used consultants to help implement the standard. Of the 46% (n=23) that did use them 34% (n=8) also used them to write their quality documentation. Half of respondents believed that their organisation had achieved financial benefits due to ISO 9001 implementation. However, Chi Square analysis identified a difference between the two sectors with manufacturing organisations significantly more likely to achieve financial benefits than service organisations. This may however reflect the fact that there were a number of public sector respondents from within the service sector. Furthermore, 68% (n=34) of all respondents believed the financial benefits to have outweighed the costs of certification, with 62% (n=31) stating that certification had allowed the company to tender for more contracts. However, organisations are evenly divided when asked about whether ISO 9000 had directly provided more business (46% yes; 46% no with 8% not knowing). Interestingly, 80% (n=40) of respondents believed that certification had improved the quality of their product or service perhaps reflecting the emphasis of the 2000 revision on “product realisation” and “customer satisfaction”. Indeed, at the time of the survey, 84% (n=42) of organisations had conducted a customer satisfaction survey to meet this requirement of the 2000 revision of the standard. 4.4
Beyond ISO 9001
With regards to quality enhancement, only 32% (n=16) of respondent organisations surveyed were only dependent upon ISO 9001 for quality management. The remainder of respondents were utilising the following tools and techniques in conjunction with their ISO 90001 quality management systems: Statistical Process Control (SPC) (30%, n=15) Total Quality Management (TQM) (28%, n=14) Material Requirements Planning (MRP) (28%, n=14) Just-in-Time (JIT) (16%, n=8) In addition to the above, organisations were making use of Investors in People (IIP) (n=3), the European Foundation for Quality Management Excellence Model (n=3), 6 sigma (n=3), Lean Manufacturing (n=2), Charter Mark and Benchmarking (n=1). With regards to ISO 14001, the Environmental Management Systems standard, 30% (n=15) of organisations had implemented it. Not surprisingly, given the resource constraints on SMEs, 73% of these (n=11) had combined their quality and environmental documentation and 53% (n=8) had combined the auditing of both systems, thus achieving the benefits of integrated management systems. 4.5
Criticisms of ISO 9001
With regards to respondents’ opinions on Seddon’s (1997), and others, criticisms of ISO 9001, they were asked to indicate on a five-point Likert scale the extent to which they agreed with five statements of criticism of the standard. The Likert scale ranged from “strongly agree” to “strongly disagree for each of the five statements. Table 2 below indicates the responses received
.Table 2
Criticism ISO 9001 creates unnecessary paperwork Quality by inspection is not quality The standard relies too much on assessors’ interpretation of quality ISO 90001 has failed to foster good customer-supplier relations When people are subjected to external controls, they will pay attention only to those things which are affected by those controls
Criticisms of ISO 9001
Strongly disagree
Disagree
Neither agree Nor disagree
Agree
Strongly agree
4
38
8
42
4
2
26
26
30
14
4
52
18
24
2
16
48
24
12
0
6
32
22
40
0
With regard to the creation of unnecessary paperwork table 2 shows that 46% of respondents (n=23) supported this contention. However, 42% (n=21) thought otherwise. Closer examination of the results using SPSS found the reason for such polarised opinions was the fact that there was a significant difference between those organisations that had implemented only ISO 9001 and those had also implemented ISO14001. Those organisations that had implemented both standards and had integrated their management systems did not feel that ISO 9001 created unnecessary paperwork. With regard to the view that quality by inspection is not quality, a disappointing 28% (n=14) of respondents disagreed with that statement. Interestingly a number of respondents to this question commented on their survey questionnaire that ISO 9001 was NOT inspection based. A minority of respondents, 26% (n=13) still believe that the standard relies too much on assessors’ interpretation of quality. However, the majority, 56% (n=28) believe this not to be the case. Seddon’s (1997) contention that ISO 9001 had failed to foster good customer-supplier relations was not supported by the majority of respondents (64%, n=32). Respondents expressed almost equally divided opinions with regards to the view that people subjected to external controls pay attention to only those things which are affected by those controls. Many of Seddon’s criticisms were voiced prior to the 2000 revision of the ISO 9001 standard. This new version has addressed many earlier criticisms by reducing the amount of paperwork and bureaucracy associated with implementation and basing the new standard on eight quality management principles including, inter alia, mutually beneficial supplier relationships, and a process approach to managing activities. Finally, when asked whether or not they would encourage other organisations to seek ISO 9001 certification 78% (n=39) of respondents indicated that they would, while only 8% (n=4) said they would not, with a further 14% (n=7) stating that they did know. This statistic, perhaps more than any other, indicates how previous criticisms of the standard have been addressed in the 2000 revision.
5
Conclusions
Northern Ireland depends upon the success of SMEs for its economic well being. ISO 9001 can help such organisations to survive and develop. Nearly three quarters of respondent had achieved certification for at least 5 years. This is a long time in the life of a SME. Despite concerns about the resources needed for moving from the old to the new standard, all but 2 of the respondent companies had successfully made the transition. Interestingly, the use of consultants to help with implementation had dropped from Taylor’s (1995) reported level of 82% to 54%, probably due to the number of government funded agencies offering such assistance free of charge. Indeed, the new standard seems to have addressed many of the previous criticisms aimed at it. Certified companies also seem to have recognised that achieving the standard is the beginning of the quality journey rather than the end, with nearly three quarters of respondent companies having moved beyond ISO 9001 and implemented other quality management improvement systems, including TQM. This is one of the main changes identified from previous surveys in Northern Ireland. Overall, the future of SMEs in Northern Ireland that have achieved ISO 9001 looks good with the standard offering a range of benefits that have allowed them to compete both nationally and internationally. This can only be good for the standard, the organisations themselves and the local communities from which they operate and that receive many of the economic benefits that financial security and prosperity brings. 6
References
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