Why Management System Standards Add Value, Part 2

Evidence that sets the record straight

Published: Monday, August 8, 2011 - 16:04

In part one of this two-part article, we looked at the history of management system standards. Part two details some of the evidence that supports the assertion that these standards add value to organizations.

A 2008 detailed study published by the Harvard Business School provides real data, gathered by external means, which emphasize the value of management system standards and the accredited certification process. The study documents compelling evidence regarding standards from the International Organization for Standardization (ISO) stating that “ISO adopters have higher rates of corporate survival, sales, employment growth, and wage increases than a matched group of non-adopters.” The study also finds that “annual earnings per employee grew substantially more rapidly, post-ISO certification, than organizations that did not adopt ISO.”

The Harvard study is compelling because it is based on an independent evaluation and does not depend upon surveys of organizations that use management system standards. It is perhaps even more striking because researchers compared and contrasted their findings against data collected from organizations that did not adopt the management system standard.

The study demonstrates broad and unexpected improvements from adoption of and certification to management system standards, derived from a matched sample of nearly 1,000 ISO 9001 adopters, as compared with non-adopters.

Organizations that adopt and certify to the quality management systems standard, ISO 9001, improved corporate survival and profit. The Harvard study indicates sales increases of nearly 9 percent after certification, as compared with non-adopters. Adopters also had a 10-percent higher increase in the number of employees than non-adopters while at the same time increasing profit. Total payroll in firms certified to ISO management systems standards grew 17.7 percent more than non-adopters. ISO 9001 adoption required a higher level of employee competence. The data shows an annual wage increase for the workers of 7.7 percent.

The conclusions are clear: Certification to management systems results in benefits to the organization and its employees; businesses become more profitable, and they pay their employees more. The Harvard study also indicates that “the benefits achieved with implementation of ISO 9001 were statistically higher in smaller organizations than in larger organizations.”

Conclusions from a 2007 Wharton Risk Management and Decision Processes Center study relate to the adoption of and certification to ISO 14001, the environmental management systems standard. This study shows that the benefits of management system standards extend far beyond the achievement of bottom-line performance and customer satisfaction. Organizations were much more likely to achieve performance gains from ISO 14001 certification when they targeted a specific environmental aspect:
• 96.7 percent of respondents indicated a reduction in waste
• 93.3 percent indicated an increase in the use of recycled materials
• 90.0 percent indicated a reduction in environmental incidents
• 98.3 percent indicated an improvement in emergency preparedness
• 84.6 percent indicated a reduction in permit violations
• 91.9 percent indicated a reduction of utility consumption
• 96.5 percent indicated a contribution to improved environmental performance of their product

The Wharton publication also highlighted the range of costs and savings associated with the implementation of ISO 14001. For example, 65 percent of facilities that estimated their first-year cost savings indicated savings of up to $25,000, with 27 percent reporting savings of up to $100,000. Another 57 percent estimated maximum continued savings of up to $25,000 annually, while 28 percent reported savings of up to $100,000 annually, and 15 percent reported savings of more than $100,000 annually. Some 40 percent found a very high correlation between ISO 14001 certification and easier relationships with the government and a more positive perception by the public.

Achieving external benefits, such as fulfilling customer requirements, was by far the most important initial goal of certification; however, organizations found that the internal benefits achieved exceeded the external benefits. More than 60 percent of respondents indicated a very high correlation between the ISO 14001 management system practices and their day-to-day operations.

Points to consider:
• Management systems standards provide benefits across a broad front and affect all stakeholders, business owners, and employees.
• Management system certification is not just for large organizations. In fact, benefits to small organizations outpace those achieved by larger organizations.

Benefits of management systems certification

Management systems encourage and provide discipline across the entire organization. The Harvard data show that organizations adopting the management system found not only dramatic improvements in the areas of quality and customer satisfaction, but also “significant reductions in employee injuries on the job,” suggesting that organizations and people that pay additional attention to preventing problems with products or services also pay more attention to employee safety.

Organizations that only adopted ISO 9001 also reduced their environmental waste generation and toxic chemical emissions, again suggesting that an organization’s attention to detail, along with clearly defined roles for employees, can have far-reaching positive consequences. These organizations also showed a greater increase than non-adopters in a variety of financial measures, including profit and stock price.

Points to consider:
• Management systems standards have been designed to provide value that outweigh the costs associated with their implementation and ongoing maintenance.
• Management system certification is not just a piece of paper. It really does deliver value.

Certification signals confidence to all parties

The preventive practices embedded within management systems and the high level of credibility associated with the management system certification process provide clear benefits to organizations that attain management system certification. When stakeholders demand confidence in results, we can think of no better management practices to achieve those results than with the formally developed and adopted management systems standards described in this article—ISO 9001 and ISO 14001. These requirenments and guidelines, when successfully implemented and there is a commitment to compliance, will help any organization anticipate problems and take appropriate steps to systematically avoid them.

Any external party accredited to issue a certificate is required to confirm that an organization has demonstrated compliance to the requirements of the management systems standard. Issuance of this certificate signals confidence to the marketplace and all stakeholders. The certification bodies that issue the certificates are themselves accredited by an accreditation body such as the ANSI-ASQ National Accreditation Board (ANAB).

Points to consider:
• Implementing a management system provides benefits and signals confidence and integrity to all parties.
• Certification to a management systems standard provides the certified organization a level of prestige because an independent and fully-qualified organization carefully examines and confirms the management system requirements are in place and effective.

ANAB’s role

In the United States, ANAB ensures the integrity of the certification process. ANAB follows international requirements and the International Accreditation Forum’s (IAF) direction and oversight. In turn, ANAB provides thorough, rigorous, and ongoing oversight to ensure the integrity of its accredited certification-body customers’ certification process.

Points to consider:
• An organization that chooses to pursue achievement of a certified management system will need to select a certification body that is accredited to do so by an internationally recognized authority such as ANAB. This provides confidence to the organization as well as its customers.

Adopting specific management systems standards

Given the documented success of management systems standards, their increased use is not surprising. Following the obvious success of ISO 9001 and ISO 14001, additional management systems standards have been created for a variety of applications. A quick look at these standards shows that they contain many of the basics that have evolved during the last 200 years. However, these management systems standards all include practices associated with their specific purpose. In addition to quality management systems (ISO 9001) and environmental management systems (ISO 14001), the following list offers a brief summary of other management systems standards that have been developed and deployed during the last 15 years:
• Food safety management systems, as defined by ISO 22000:2005—“Food safety management systems,” contain management system principles associated with assuring safe food.
• Occupational health and safety management systems, as defined by OHSAS 1800:2007, contain management system principles associated with the reduction of human health and safety risks.
• Emergency preparedness management systems, as defined by the U.S. Department of Homeland Security (PS Prep), contain management system principles associated with emergency preparedness and organizational resilience.
• Energy management systems, as defined in ISO 50001:2011—“Energy management systems,” is an important new management system related to the management of energy use.

These management systems standards were driven by the overall success of existing management systems standards and the unique needs of their respective industries. As the benefits of management systems standards become more widely understood by potential users, you can expect see more use of these standards in the future.

Points to consider:
• Development and use of management systems standards is expanding.
• Proven benefits to organizations, customers, and other stakeholders drive expansion and use of management systems.
• Management systems deliver results.

Conclusion

• Management systems standards contain basic concepts that can be applied to achieve cost-effective achievement of any desired goal. Look for additional management systems standards in the future.
• Management systems will not fix a mismanaged organization. Successful implementation and operation of the preventive programs described by management systems require good management.
• Organizations should fit management systems requirements into what they already do, rather than trying to fit themselves into the management system.
• Management systems should be designed to add value. If the management system does not add value, the organization should reassess its approach.
• Management systems focus on the prevention of problems and value, not on documents, procedures, records, and paperwork.
• Management systems promote discipline where discipline adds value, and allows for flexibility where flexibility adds value.

About The Author

Mark Ames, Reg Blake, Michael J. Caruso, Phil Heinle

Mark Ames is president of AQS Management Systems Inc.
Reg Blake is vice president of corporate development and regulatory affairs for BSI Group America Inc.
Michael J. Caruso is vice president of certification for UL DQS Inc.
Phil Heinle is the owner of Quality Consulting.