Does ISO 900

S PE C I A L R EP O R T

Does ISO 9000

certification pay ?

“ Does it pay for firms to seek ISO 9000 certification ? ” While this question is as old as ISO 9000 itself, it remains essential, and largely unanswered ! What is new – to the best of our knowledge – is the combination of data and methods followed by the authors of this article, a foursome of business school academics from the United States and Spain, in providing an answer.

US study analyses financial

performance data

They analyse the financial performance data of ISO 9000 -certified companies in three US business sectors over a 10 -year period (1988-

1997) against that of control groups of non-certified firms in the same sectors which had a comparable business performance prior to the launching of ISO 9000 programmes by the first groups. Did ISO 9000 make a positive difference to financial performance ?...

BY CHARLES J. CORBETT, MARÍA J. MONTES,

DAVID A. KIRSCH AND

MARÍA JOSÉ

ALVAREZ-GIL

We find that

certification does appear to lead to

improved financial performance,

measured by return on assets (ROA)

S PE C I A L R EP O R T

mplementing a quality manage- ment system and getting it certi-

fied to one of the ISO 9000 stan-

dards is not a piece of cake. While the actual costs involved differ from company to company, the certifi- cation process inevitably requires significant effort with respect to designing, implementing and docu- menting appropriate processes, entailing both direct and indirect costs associated with consulting and audit fees, employee training, etc.. Is it worth it ?

Specifically, how might investing in ISO 9000 certification pay off ? Some argue that it

leads to improved

lead to improved financial perform- ance, measured by return on assets (ROA).

More precisely, we find that firms

that failed to seek certification expe- rienced substantial deteriorations in ROA, productivity, and sales, while firms that did seek certification gen- erally managed to avoid such declines. In other words, firms that received certification did not, on average, see their absolute perform- ance improve, but they did see their relative performance improve sub- stantially, compared to their uncerti- fied peers.

How do we arrive

at this statement ?

internal processes, which in turn enable higher productivity and lower costs. Others argue that customers increas- ingly require ISO

9000, so certification should help maintain or increase a firm’s market share. Yet others dispute these benefits, claiming that the standard is too generic to lead to

Firms that failed to seek

certification

experienced substantial deteriorations in ROA ,

productivity, and sales, while firms that did seek certification generally

managed to avoid such declines

Below, we first describe our data and methods, then we present and discuss our findings in more depth. (See Corbett et al. [2002] for a more detailed description of the data and the meth- ods followed.)

We used two prime sources of information. Firstly,

W orldPreferred

genuine improvements. In their view,

if any positive correlation is found between ISO 9000 certification and financial performance, that merely reflects the fact that firms that are better managed are also more likely to seek ISO 9000 certification. Which camp is right ?

Surprisingly, no hard answer to this question has been given yet, despite the fact that the standards have been around since 1987 and that over 500 000 certifications have been awarded worldwide. Anecdotal evidence abounds, both in favour of and contradicting the hypothesis that ISO 9000 somehow leads to improved financial performance.

In this article, we examine the

effect of ISO 9000 certification on publicly traded firms in the US, and find that certification does appear to

(www.worldpreferred.com ) kindly shared with us their data on all

21 482 ISO 9000 certifications award- ed in the US until 1998. These data tell us the name and location of the site receiving certification, the date of certification, and other informa- tion not critical for our study.

Secondly, we used the Compustat database of financial information on all publicly traded firms in the US, as reported to the Securities and Exchange Commission (SEC), from

1988 to 1997.

To measure the financial effect of ISO 9000 certification, we had to merge these two datasets. For any firm in our financial database, we had to be able to ascertain whether it had ever received ISO 9000 certifica- tion, and when. This matching proved to be anything but straightforward :

S PE C I A L R EP O R T

the two databases do not share any unique way of identifying firms or sites, so in the end, we had to resort to a variety of manual processes. Altogether, this effort took from

1999 to 2001, and yielded a database with 7 598 firms listed in Compustat which had received one or more ISO

9000 certificates prior to 1998.

We focused on the three industri- al sectors with the largest number of ISO 9000 certificates: SIC codes 28 (chemicals and allied products), 35 (industrial and commercial machin- ery and computer equipment) and 36 (electronic and other electrical equipment and components, except computer equipment).

Table 1 contains a more detailed

breakdown of our final sample. The final result for SIC 28 is a set of 74 firms receiving their first ISO 9000 certification by 1997; for SIC 35 and

36, our final sample includes 132 and

167 certified firms

...