Determinants and Impact of ISO 9000 Certification on Firm Performance

This report analyzes the determinants of ISO 9000 certification adoption and its impact on firm performance. The research found that the industry significantly affects ISO 9000 adoption, with software and specialized technology services companies being more likely to be certified. Moreover, ISO 9000 certified companies demonstrated higher profit margins compared to non-certified companies. The study employed a correlational and descriptive research design, utilizing data from the National Bureau of Statistics of China. Statistical analysis, including chi-square tests and independent samples t-tests, was conducted using SPSS and Excel. The findings suggest that ISO 9000 certification offers a competitive advantage, leading to higher profitability. The report recommends that managers pursue ISO 9000 certification to improve profit margins. Limitations include the use of one-time data, and future research should consider panel data to minimize bias.

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Executive Summary
This study sought to analyse and understand some of the determinants of the adoption of
ISO9000 and its impact on firm performance. Results showed the industry in which the company
operates in significantly affects the adoption of ISO 9000 certification. In particular, we found
out that software companies and companies operating in specialized technology services are
more likely to be ISO 9000 certified as compared to companies in other industries. In terms of
impact, we established that ISO 9000 certified companies have higher profit margins as
compared to the non-ISO 9000 certified companies. In our recommendation we would like to
advise managers together with the board of directors that are not ISO 9000 certified to work
towards ensuring that their companies are ISO 9000 certified. This will help them increase in
their profit margins.

Table of Contents
Executive Summary.........................................................................................................................2
Section 1: Introduction:...................................................................................................................4
General Objective:.......................................................................................................................4
Specific Objectives......................................................................................................................4
Section 2: Literature review.............................................................................................................5
Section 3: Methodology...................................................................................................................6
Research Design..........................................................................................................................6
Data collection.............................................................................................................................6
Data analysis................................................................................................................................6
Section 4: Analysis and findings.....................................................................................................7
Display of certified companies....................................................................................................7
Descriptive statistics....................................................................................................................7
Inferential statistics......................................................................................................................9
Test of association between industry and certification............................................................9
Is there significant difference in the company profit for ISO and non-ISO certified
companies?............................................................................................................................10
Section 5: Discussion and managerial advises..............................................................................12
Section 6: Limitations and directions of future research...............................................................12
References......................................................................................................................................13

Section 1: Introduction:
ISO certification has over the past years been viewed as a managerial tool that targets to achieve
a better performance at both the plant and firm level by continuously upgrading their techniques
as well as procedures (Pekovic, 2010). This report sought to analyse and find out what the
determinants of the adoption of ISO9000 are and the impact of ISO9000 on firm performance.
General Objective:
The objective of this study is to examine the impact of ISO certification on companies’
performance.
Specific Objectives
More specifically, the study is aimed to achieve the following objectives:
 To study the impact of ISO 9000 certification on profit of the companies.
The outline of the remaining parts of the report are as follows;
Section 2: Literature review
Section 3: Methodology
Section 4: Analysis and findings
Section 5: Discussion and managerial advises
Section 6: Limitations and directions of future research
Section 7: Reference list

Section 2: Literature review
Research by Fatima (2014) conducted in Pakistan found out that ISO 9000 certification has a
significant impact on improving the financial performance for both medium sized and large
enterprises. However, in her study she established that ISO 9000 certification was quite
ineffective for small firms.
Boiral (2012) did perform a systematic review where he concluded in his study that ISO 9000
certification had positive impact on the company performance.
According to Terlaak and King (2000) organizations that have implemented practices such as
ISO 9000 have higher organizational performance and therefore they possess real competitive
advantage over those which have not implemented.
Bell and Omachonu (2011) suggested that, organization’s standards and practises such as ISO
9000 must be well customized to the company’s needs. For instance, they observed that activities
that are led by employees trained and nurtured in the company are bound to succeed more as
opposed to those led by outside consultants.
Pinar, et al. (2003) conducted a survey on 107 different organizations both ISO certified and
non-certified organizations that were listed in the Istanbul Stock Exchange. The authors
established that there were no evidence of significant differences in the average stock market
returns between the ISO certified and the non-ISO certified firms. However, they noted that the
non-ISO certified firms’ returns exhibited greater volatility.
Lee, et al. (2009) opined that consistency must prevail between the existing and the new
practices. Organizations need to establish links between the new practices and the old ones.
Failure to do this might not result to little or no improvement in the performance of the
organizations.

Section 3: Methodology
Research Design
This both a correlational research and a descriptive research. It is descriptive since it is used to
obtain information concerning the current status of the phenomena to describe "what exists" with
respect to variables or conditions in a situation (Cooper & Schindler , 2008). It is also
correlational because it was conducted to establish the presence of a relationship among
variables and not causality among variables.
Data collection
Data was obtained from the National Bureau of Statistics of China which had conducted an
Economic Census of the service firms in 2008. The list of the companies included in the study is
given in table 1 below;
Table 1: Companies surveyed
Sector Surveyed companies
Storage and transportation; 392
Telecommunication 184
Computer service 365
Software 390
Business services 2722
Research and Development 222
Specialized technology
services
1200
Technology exchange and
promotion
242
Total 5717

Data analysis
Data was entered into Statistical Package for Social Sciences (SPSS) for analysis purposes.
However, both SPSS and Excel were used to analyze the dataset.
Section 4: Analysis and findings
Display of certified companies
Table 2: Certification of companies
Certification Count Percent
Not certified 5257 91.95%
Certified 460 8.05%
Grand Total 5717 100.00%
As can be seen in the figure below as well as the table 2 above, majority (91.95%, n = 5257) of
companies were not ISO 9000 certified. Only 8.05% (n = 460) companies were ISO 9000
certified.
Figure 1: Pie chart of certification of companies

Descriptive statistics
On average, the companies made a profit of 2067.97 with the maximum profit being 296176
while the minimum being 17. In terms of revenue,
Table 3: Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Revenue 5717 1000.00 869176.00 11698.5709 32873.60898
Profit operating 5717 17.00 296176.00 2067.9727 7158.41745
Valid N (listwise) 5717
Figure 2: Histogram of profit
As can be seen from the above figure (figure 2), the histogram clearly shows that the data is not
normally distributed but is rather skewed to the right i.e. longer tail to the right.
Industry distribution

Figure 3: Industry distribution
Figure 3 above shows that majority (48%) of the companies in the study were in business
services followed by those in specialized technology services. Telecommunication were the least
represented (3%).
Inferential statistics
Test of association between industry and certification
The first inferential statistics we conducted was to check whether there is significant association
between industry and the certification of the company. The hypothesis tested is;
H0: There is no significant association between the industry and the certification of the company
H1: There is significant association between the industry and the certification of the company.
Tested at α = 0.05.
Results are shown below;
Table 4: Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 381.455a 7 .000

Likelihood Ratio 361.226 7 .000
Linear-by-Linear Association .963 1 .327
N of Valid Cases 5717
a. 0 cells (0.0%) have expected count less than 5. The minimum
expected count is 14.80.
Table 5: Industry * Certification Cross tabulation
% within Industry
Certification Total
Not certified Certified
Industry
Storage and transportation 96.4% 3.6% 100.0%
Telecommunication 97.8% 2.2% 100.0%
Computer service 91.8% 8.2% 100.0%
Software 80.5% 19.5% 100.0%
Business services 97.4% 2.6% 100.0%
Research and Development 85.1% 14.9% 100.0%
Specialized technology
services
81.8% 18.3% 100.0%
Technology exchange and
promotion
95.0% 5.0% 100.0%
Total 92.0% 8.0% 100.0%
A chi-square test of independence was performed to examine the relation between industry and
certification of company. The relation between these variables was significant,
χ2 ( 7 , N =5717 ) =381.46 , p=0.000 . Software companies were more likely to be ISO 9000
certified compared to the companies in other industries. Companies operating specialized
technology services were also more likely to be ISO 9000 certified compared to other companies
such those in telecommunication.

Is there significant difference in the company profit for ISO and non-ISO certified
companies?
This question would help us understand if being ISO 9000 certified would have some impact on
the profit of the company. To test this, we ran an independent samples t-test. The following
hypothesis was tested;
H0 : μA =μB
H1 : μ A ≠ μB
Tested at α = 0.05
Where;
μA is the mean proft for ISO 9000 certified companies
μB is the mean proft for Non−ISO 9000 certified companies
Group Statistics
Certification N Mean Std. Deviation Std. Error Mean
profit_operating Not certified 5257 1865.2564 6911.27428 95.32112
Certified 460 4384.6674 9237.03583 430.67902
Independent Samples Test
Levene's Test for
Equality of
Variances
t-test for Equality of Means
F Sig. t df Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
Profit
operating
Equal variances
assumed
82.963 .000 -7.271 5715 .000 -2519.41 346.49 -3198.66 -1840.16
Equal variances
not assumed
-5.712 505 .000 -2519.41 441.10 -3386.03 -1652.79

An independent samples t-test was done to compare the mean profit of the ISO 9000 certified
and non-ISO 9000 certified companies. Results showed that the ISO 9000 certified companies
(M = 4384.67, SD = 9237.04, N = 460) had significant difference in terms of the profits when
compared to the non-ISO certified 9000 companies (M = 1865.26, SD = 6911.27, N = 5257), t
(5715) = -7.271, p < .05, two-tailed. The difference of 2519.41 showed a very significant
difference. Essentially results showed that ISO certified companies made huge profits as
compared to non-ISO certified companies.
Section 5: Discussion and managerial advises
From the above results, it is evident that ISO 9000 certified companies have an edge over the
others in terms of their profit margins. It is clearly that ISO 9000 certified make an average more
than double what the non-ISO 9000 certified companies make. It would be advisable for the
managers of various companies to work towards ensuring that their companies are ISO 9000
certified to ensure they are at par with the other companies in terms of profit margins.
Section 6: Limitations and directions of future research
One of the major limitations of this study is the fact that data involved was a one-time data. Time
factor could probably affect the profit margins as such creating a bias. Future study should
therefore focus on utilizing panel data in order to minimize possibilities of bias that might arise
as a result of time factors.

References
Bell, M., & Omachonu , V. (2011). Quality system implementation process for business success.
International Journal of Quality & Reliability Management, 28(7).
Boiral, O. (2012). ISO 9000 and organizational effectiveness: A systematic review. Quality
Management Journal, 19(3), 16-37.
Christmann, P., & Taylor, G. (n.d.). Firm self-regulation through international certifiable
standards: determinants of symbolic versus substantive implementation. Journal of
International Business Studies, 37(6), 863-878.
Cooper, D. R., & Schindler , P. S. (2008). Business Research Methods Mcgraw publishing
Company limited.
Du, Y. Z., Yin, J. L., & Zhang, Y. L. (2016). How innovativeness and institution affect ISO 9000
adoption and its effectiveness: evidence from small and medium enterprises in China. .
Total Quality Management & Business Excellence, 27(11-12).
Fatima, M. (2014). Impact of ISO 9000 on business performance in Pakistan: Implications for
quality in developing countries. Quality Management Journal, 21(1).
Lee , P. K., To, W. M., & Yu , B. T. (2009). The implementation and performance outcomes of
ISO 9000 in service organizations: An empirical taxonomy . International Journal of
Quality & Reliability Management, 26(7).

Pekovic, S. (2010). The Determinants of ISO 9000 Certification: A Comparison of the
Manufacturing and Service Sectors. Journal of Economic Issues (Taylor & Francis Ltd),
44(4), 895-914.
Pinar , M., Crouch, H. L., Yucel, T., & Guder , F. (2012). Examining the Impact of ISO9000
Certification on Business Performance Using Stock Market Returns.
Terlaak, A., & King , A. (2001). The effect of certification with the ISO 9000 quality
management standard.