European Journal of Operational Research 146 (2003) 580–595

www.elsevier.com/locate/dsw

Production, Manufacturing and Logistics

The longitudinal effects of the ISO 9000 certification process

on business performance
a,* b,1 b,2
Mil
e Terziovski , Damien Power , Amrik S. Sohal
a
Department of Management, The University of Melbourne, Parkville, Victoria 3010, Australia
b
Department of Management, Monash University, P.O. Box 197, Caulfield East VIC 3145, Australia
Received 24 April 2001; accepted 21 February 2002

Abstract

This paper develops and tests several hypotheses relating to ISO 9000 quality system certification process using data
collected in a cross-sectional study undertaken in Australia. Multivariate analysis is used to analyze the quantitative
data and test the hypotheses. Our findings show that there is a significant and positive relationship between the
managerÕs motives for adopting ISO 9000 certification and business performance. Those organizations that pursue
certification willingly and positively across a broad spread of objectives are more likely to report improved organi-
zational performance. The individual element found to contribute most to business performance was customer focus.
The principal motivation to pursue ISO 9000 certification was found to come from customer pressure. Auditing style
was found to have an insignificant (positive or negative) effect on business performance. The ability of the new ISO
9001-2000 standard to capture and meet the conformance and performance requirements of the organization as part of
a continuous improvement strategy will be a prime determinant of the extent to which managers embrace or reject ISO
9000 certification in the 21st century.

2002 Elsevier Science B.V. All rights reserved.

Keywords: ISO 9000; Certification; Business performance; Australia

1. Introduction Quality Standards ISO 9000. These standards re-

During the last several years, there has been a
major push by manufacturing firms in over 100
countries to seek certification to the International
*
Corresponding author. Tel.: +61-3-93447868; fax: +61-3-
83443714.
E-mail addresses: milet@unimelb.edu.au (M. Terziovski),
damien.power@buseco.monash.edu.au (D. Power), amrik.so-
hal@buseco.monash.edu.au (A.S. Sohal).
1
Tel.: +61-3-99031030; fax: +61-3-99032718.
2
Tel.: +61-3-99032033; fax: +61-3-99032979.
quire a high level of documentation plus audited
evidence that the intended quality is being deliv-
ered to the customer. The ISO 9000 standard
points out that the quality system of an organi-
zation is influenced by the objectives of the par-
ticular organization, the product, service and the
practices specific to the organization. The quality
system, therefore, varies from one organization to
another and must suit that organizationÕs opera-
tion. Despite the clear definitions and objectives of
the ISO 9000 discussed above, there is consider-
able confusion and frustration surrounding the

0377-2217/03/$ - see front matter
2002 Elsevier Science B.V. All rights reserved.
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 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
applied role and business value of ISO 9000 cer-
tification. The business value of certification has
varied from unprecedented successes to an in-
creasing workload and Ôcost of doing businessÕ. An
extensive literature review revealed major gaps in
research in this area of operations/quality man-
agement. Juran (1999, p. 30) summed it up very
well in Quality Progress by stating that:
. . .there is a lack of research that can shed
light on whether companies that are certified
to the ISO 9000 standards actually produce
better products than companies that have
not been certified. . .we donÕt really know
what benefit we are getting from all that
costly certification to the ISO 9000 series of
standards. We should establish the researches
needed to find out
This paper, therefore, presents the findings from
a cross-sectional study of manufacturing organi-
zations that had been certified to the ISO 9000
standard, and gauge their motives for certification.
Furthermore, third party quality auditors were
asked to respond to a separate questionnaire which
sought the auditorÕs perceptions of ISO 9000
practice and its effectiveness on business perfor-
mance. Several hypotheses are developed from an
extensive literature review.
2. Literature review
The literature is reviewed in order to establish
the leading edge research on the role of the quality
auditor and the ISO 9000 certification process. The
review was used to articulate questions, hypothe-
ses, and design the questionnaires.
2.1. The effectiveness of the ISO 9000 standard on
business performance
From the literature, there appears to be a rela-
tionship between the managerÕs motives for adopt-
ing certification and the ensuing experience as
identified by the Science and Engineering Policy
Studies Unit in the UK (SEPSU, 1994). Those
581
organizations that pursue ISO 9000 certification
willingly and positively across a broad spread
of objectives are more likely to report improved
organizational performance. Customer pressure,
however, was the most commonly cited motivating
factor for pursuing ISO 9000 certification. These
companies were less likely to report improved or-
ganizational performance (Brecka, 1994; Allan,
1993; Najmi and Kehoe, 2000).
A large study funded by the Australian Gov-
ernment and conducted by the Australian Manu-
facturing Council (AMC), AMC (1992) study
cautioned firms that ISO 9000 certification is not a
substitute for delivering high quality products and
services as defined by customer needs. The AMC
study gathered quantitative data from a large
random sample in a mail survey of manufacturing
site managers in Australia and New Zealand. The
purpose of study was to investigate the extent of
Ôbest practiceÕ adoption by Australian and New
Zealand manufacturing firms and its impact on
organizational performance. Furthermore, the
study claimed that ISO 9000 certification could
cause managers to become complacent about
quality. There is the risk of Ôlocking inÕ or sys-
tematizing some poor practices through the certi-
fication process. Ideally, organizations should set
themselves quality standards well above the mini-
mum prescribed by ISO 9000 standards, and
constantly seek ways to improve all facets of the
operation. The AMC study concludes that certifi-
cation is likely to lead to both actual and perceived
quality improvements, as well as overall improve-
ments in organizational performance.
The other extreme of the mainstream literature
is mainly anecdotal. Several large ISO 9000 con-
sulting firms have produced large in-house studies
for their clients, but most have released only their
results, and not their methodologies. These studies
found that the primary business value of ISO 9000
certification was to open doors to markets which
were previously closed (Brecka, 1994; Seddon,
1993; Miller, 1993; IQA, 1993).
For example, a study commissioned by LloydÕs
Register Quality Assurance (LRQA, 1993) found
that most of the benefits associated with ISO 9000
certification were external to an organizationÕs
processes. Sixty-nine per cent of the managers
582 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
agreed that ISO 9000 certification enabled them to
improve their business performance by allowing
them to bid for tenders. Batchelor (1992) generally
contradicts the literature findings. He studied 647
certified manufacturing and service organizations
and found that only 15% of the respondents had
derived business value on nine dimensions of or-
ganizational performance. These dimensions were:
market share, new customers, customer satisfac-
tion, procedural efficiency, staff motivation, staff
attitudes, error rates, wastage and costs. Juran in
Quality Progress (1999, p. 30), summed up the
perceived effectiveness and shortcomings of the
existing ISO 9000 standards. He said:
. . .companies that are the beginning stages of
their quality journeys find that the ISO 9000
series of standards provides them with a guide
for implementing a basic quality system. But
for companies with good quality systems,
the standard often just add costs, delays and
burdensome documentation, rather than pro-
viding any competitive advantage. . .the focus
today should be on quality leadership-to be
competitive with the rest. To achieve such
leadership demands much more than confor-
mance to the ISO 9000 standards.
The design of the new ISO 9001-2000 standard
has addressed concerns from commentators such
as Juran. The new standard attempts to provide
changes on a number of fronts:
• ISO 9001-2000 will offer enhanced relevance to
the service sector.
• Greater implementation flexibility. ISO 9001 is
good at identifying ÔwhatÕ needs to be done,
and very weak in terms of ÔhowÕ to do it. The
ISO 9001-2000 standard addresses this issue
by providing an integrated model, which in-
cludes the customer, performance management.
• ISO 9001-2000 aims to provide a bridge be-
tween ISO 9001 and enhanced quality manage-
ment practices (e.g., continuous improvement).
• An improved synergy between ISO 9001-2000
and ISO 14000 (the environmental management
system requirements) will set the stage for an
organizationÕs Integration of Quality, environ-
mental and other management system goals
and objectives.
2.2. The role of the quality auditor in the ISO 9000
certification process
Hutchins (1993) claims that quality auditors
frequently are unfamiliar with the clientÕs industry,
quality system, and process or products/services.
This inevitably results in a poor quality audit,
which places conformity at risk. He suggests three
ways to improve quality auditing standards:
• Government regulations for qualifying auditors.
• Self-regulation by qualifying organizations.
• Public groups self-certify and train auditors to
conduct industry, process, and or product/ser-
vice specific audits.
Furthermore, Williamson et al. (1996) claim
that there is a poor overall understanding of the
current philosophy regarding the proper conduct
of quality audits. They believe that auditors give
more attention to whether the clientÕs quality sys-
tem is effectively documented and less to the out-
comes of the system. This view is shared by Chan
et al. (1993) who argue that the new role of the
quality auditor should contribute to the improve-
ment of the organizationÕs overall quality man-
agement system.
Fiorentino and Perigord (1994, p. 61) go further
and define the function of the quality auditor as
on the job continuous training. They believe that
as companies are forced to change with altered
business climates, so quality auditors must take on
a new role that emphasizes continuous improve-
ments throughout the organization.
The role of the auditor according to Sakofsky
(1993) is critical. This author believes that as more
organizations have become certified the standard
of quality auditing has improved with better-
trained and qualified auditors being able to pro-
vide a more facilitative auditing style. As a result
many organizations are beginning to see that the
quality audit can be used as an improvement tool
rather than a feared report card.
In a survey of 274 quality auditors in the
UK, Williamson et al. (1996) found evidence of
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
implementation of corrective actions as providing
the strongest indicator of an effective quality system.
Russell and Regel (1996, p. 66) also place great
emphasis on this area of the audit process, stating
that they believe that the key to effective auditing lies
in the phase between audit performance and fol-
lowing through on the results of the audit. This
would appear to be in conflict with the standard that
clearly states that the quality audit (and the audi-
torÕs involvement) is complete when the report is
submitted (although it does not specifically preclude
further involvement of the auditor after this stage).
Bettes (1993), on the other hand, takes the view that
this is the job of the internal quality auditor to de-
velop a culture of ongoing improvement in part
through effective follow up of corrective actions.
Najmi and Kehoe (2000) report on their quanti-
tative analysis of 221 firms and 18 qualitative case
studies of companies within the UK manufacturing
sector. The researchers base their analysis on a
framework developed from an extensive review of
the literature named Post-ISO 9000 Quality Devel-
opment. This framework represents and integrated
approach in which a TQM strategy is formulated
and then implemented within an organization after
ISO 9000 certification has taken place in order to
improve performance measures. Najmi and Kehoe
found as expected that benefits along the bottom
line were substantially improved for companies,
which had attempted to at least a moderate degree, a
Post-ISO 9000 quality development strategy. Those
companies, which had stopped short at simply
pursuing ISO 9000 certification, were significantly
lagging in the performance dimensions of quality,
time and financial aspects. Such research concludes
that ISO 9000 is an important starting point for the
development of a more meaningful result based
strategy such as TQM. This conclusion is also sup-
ported by Pheng and Alfelor (2000) who insist on
the importance of not only meeting the technical
requirements of ISO 9000, but also the behavioral
approaches within a TQM system.
2.3. Quality culture
While there are many definitions of culture,
Schein (1985), Saraph (1987), Kotter and Heskett
(1992) have indicated that quality culture should
583
focus on having a collective or shared learning of
quality-related values as the organization develops
its capacity to survive in its external environment.
Values are formed in a group over time and can be
seen in the ideology, philosophy, charter, or basic
credo of an organization. These values, in turn,
result in artefacts and creations of the group, which
can be easily detected by observing the organiza-
tionÕs managerial processes, systems, and human
relationships. Quality culture formation occurs
through integrated changes in the organizational
system; an organizational quality-based vision,
mission and goals, consistent formal and informal
organizational structures, compatible reward sys-
tems, appropriate technology and job design, and
attention to important personnel issues.
Going beyond previous empirical work on this
topic, Kotter and Heskett (1992) provide a com-
prehensive critical analysis of how the ÔcultureÕ of
an organization influences organizational perfor-
mance. Kotter and Heskett define organizational
culture as having two levels, which differ in terms
of their visibility and their resistance to change. At
the deeper and less visible level, culture refers to
values that are shared by the people in a group and
that tend to persist over time even when group
membership changes. At this level culture can
be extremely difficult to change, in part because
members are often unaware of many of the values
that bind them together. At the more visible level,
culture represents the behavior patterns or style of
an organization that new employees are automat-
ically encouraged to follow by their fellow em-
ployees. Kotter and Heskett (1992, p. 2) stated
that:
Culture, in this sense, is still tough to change,
but not nearly as difficult as at the level of
basic values.
Based on qualitative research at such firms as
Hewlett-Packard, Xerox, ICI, Nissan, as well as a
quantitative study of the relationship between
culture and performance in more than 200 com-
panies, the authors conclude that shared values
and unwritten rules can profoundly enhance eco-
nomic success, or conversely, lead to failure to
adapt to changing markets and environments. The
584 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
study shows that organizations that have partici-
pative corporate cultures and well-organized
workplaces have better performance records than
those that do not. Kotter and Heskett (1992) de-
velop the argument that corporate culture is
strongly influenced by the characteristics of the
industry in which the company operates. Thus,
companies within an industry share certain cul-
tural elements that are required for survival.
Collins and Porras (1994), in their popular
book ‘‘Built to Last: Successful Habits of Vision-
ary Companies’’ examine 18 exceptional and long-
lasting companies in the USA, and studied each
one in direct comparison with one of its com-
petitors. The average age of these companies is
about 100 years. These companies have outper-
formed the stock market by a factor of 15 since
1926. Collins and Porras (1994) argue that just
about anyone can be a key protagonist in building
an extraordinary business institution by learning
the lessons of best practice companies. The myth
that the future of a company depends on whether
it is led by people ordained with rare and mys-
terious qualities that cannot be learned by others,
is completely dismissed by the findings of this
study.
The authors looked for historical consistency
through multiple generations of chief executives,
instead of relying on the companyÕs most recent
values, mission, vision, or purpose statement. Ac-
cording to the authors, the visionary companies do
not just declare an ideology; they also take steps to
make the ideology pervasive throughout the or-
ganization and transcend any individual leader.
Several common themes emerged from the study
that visionary organizations share. The core ide-
ologies for six of the best companies studied by
Collins and Porras (1994) were:
• Create strong cultures around the ideology.
• Select senior management based on fit with a
core ideology.
• Attain more consistent alignment with a core
ideology in such aspects as goals, strategy, tac-
tics, and organization design.
• Focus on continuous improvement.
• Serve the customer above all else.
• Promote ÔtrustÕ and respect for the individual.
2.4. Employee attitudes and quality culture
Perhaps the greatest challenge in creating a
quality culture comes with the awareness that
managing the change process includes managing
employee attitudes towards that change. Unfor-
tunately change is frequently introduced without
considering its psychological effect on the em-
ployees in the organization – particularly those
employees who have not been part of the decision
making and planning process to make the change.
According to Jick (1993):
. . .if the reactions to change are not antici-
pated- and managed-the change process will
be needlessly painful and perhaps be unsuc-
cessful.
Hind (1996) argues that a positive attitude to-
wards change is key to ISO 9000 success. For
many, conformance to ISO 9000 standards is so
strong that this itself creates inflexible attitudes
which can often become a barrier to the empow-
erment associated with a quality culture. Hind
argues that the effort and time taken to conform to
ISO standards may create negative attitudes to-
wards those whose effort implemented such a sys-
tem – unfortunately typically top management.
Such an argument raises the need for research
considering the order of ISO 9000 and quality
culture implementation as well as the type of
quality culture which characterizes successful ISO
9000 organizations (Najmi and Kehoe, 2000).
2.5. Literature synthesis
The literature review has revealed that the
benefits attributable to ISO 9000 certification were
mainly for procedural efficiency and error rates,
and less likely for market share, staff motivation
and costs. Our study aims to resolve some of the
contradictions in the literature by providing em-
pirical evidence on the relationship between the
ISO 9000 certification process and business per-
formance and whether or not the role and style of
the quality auditor has any impact on the strength
of the relationship.
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
It appears from the literature review that qual-
ity auditors are unfamiliar with the clientÕs indus-
try, quality system, and process or products/
services. This inevitably results in a poor quality
audit, which places conformity at risk. The role
and style of the quality auditor has become criti-
cal. Quality auditors are expected to provide a
more facilitative auditing style. As a result many
researchers in this field and case studies of certified
organizations are beginning to see that the quality
auditor can play a crucial role in improving the
performance of the organization by adopting a
more facilitative style, rather than a policeman
style which focuses on non-conformance to the
ISO 9000 standard.
There is consistency in the literature on the
characteristics of quality culture formation. Sev-
eral authors conclude that quality cultures are not
created by a single factor but rather by an inte-
grated change in several factors such as the orga-
nizational system; an organizational quality-based
vision, mission and goals, consistent formal and
informal organizational structures, compatible re-
ward systems, appropriate technology and job
design, and attention to important personnel is-
sues.
Considering the above syntheses of the litera-
ture, it appears that the effectiveness of ISO 9000
certification depends on many factors such as the
existing quality culture of the organization (H1),
the motivation for ISO 9000 certification (H2); the
style of the quality auditor (H3). Several previous
studies have found H2 to be true. However, these
studies are typically descriptive and do not adopt a
level of standard methodological rigour such as
this study. We test the hypotheses using a large
sample size, and then we use qualitative data to
further explain the hypothesized relationships.
Terziovski et al. (1997) used ANCOVA and
MANCOVA to test relationship between ISO
9000 certification and organizational performance
covaried for company size. The results showed
that company size does have an effect on the hy-
pothesized relationships. However, the study did
not gauge perceptions from auditors, and the
sample size consisted of only manufacturing
companies. This study focuses on all industry
sectors of companies certified to ISO 9000 and the
585
auditing fraternity of the largest third party certi-
fier in Australia, Quality Assurance Services. The
covariates, company size and number of years an
organization has been certified may also have an
effect on the hypothesized relationships. For ex-
ample, larger certified organizations may have
greater success with ISO 9000 certification due to
the larger level of resources available to them to
pursue the implementation process.
Hypotheses
Based on the synthesis of the literature, the
following hypotheses have been articulated for
testing in this study:
H1. There is a significant and positive relationship
between the quality culture of an ISO certified
organization and the benefits derived from the
certification process.
H2. The motivation for ISO 9000 certification is a
significant and positive predictor of the benefits
derived from certification.
H3. A facilitation style of the quality auditor, has a
significant and positive relationship with the ben-
efits derived from ISO 9000 certification.
H4. The covariates company size, and the number
of years an organization has been certified have
an impact on the strength of the relationship in
H1, H2, and H3.
3. Methodology
3.1. Survey instruments
Two survey instruments were developed to
gather quantitative data. The first instrument was
completed by a sample of certified companies and
the second instrument was completed by a sample
of practicing quality auditors. The review of the
literature provided the theoretical basis for the
development of the major constructs contained in
the questionnaires. The survey instrument admin-
istered to the certified companies was divided into
four main areas. These are ‘‘quality culture’’,
‘‘motivation for certification’’, ‘‘auditing style’’
586 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595

and ‘‘value of certification’’. With respect to
‘‘quality culture’’, a total of 30 separate items were
included in the survey instrument. These items are
shown in Tables 1–5.
With respect to ‘‘motivation for certification’’
respondents were asked to rate a range of reasons
according to the level of relevance to their orga-
nizationsÕ decision to seek ISO 9000 certification.
These included two sets of items (total of 10 items)
relating to the intrinsic or extrinsic nature of the
motivation (i.e., continuous improvement strategy
versus reaction to external factors) (see Tables 6
and 7).
‘‘Auditing style’’ was covered by 22 items in-
cluding the following categories (see Tables
8–10):

Table 1
Quality culture factor 1
Factor one – resources provided for quality Alpha ¼ .9363
Item Factor score
Adequate resources are provided for quality improvement to senior management .841
Adequate resources are provided for quality improvement to middle management .848
Adequate resources are provided for quality improvement to front line management .842
Adequate resources are provided for quality improvement to general staff .812

Table 2
Quality culture factor 2
Factor two – quality awareness Alpha ¼ .8468
Item Factor score
Attitude of senior management toward the comprehensive use of quality management practices .714
Attitude of middle management toward the comprehensive use of quality management practices .717
Attitude of front line management toward the comprehensive use of quality management practices .685
Attitude of general staff toward the comprehensive use of quality management practices .640
Senior management strongly support the certification audit .589
Responsibility for quality is allocated to all organizational members .452
Quality systems and procedures are clearly understood throughout the company .524

Table 3
Quality culture factor 3
Factor three – bencmarking for quality improvement Alpha ¼ .9156
Item Factor score
Benchmarking is used extensively to improve quality of products/processes by senior management .806
Benchmarking is used extensively to improve quality of products/processes by middle management .863
Benchmarking is used extensively to improve quality of products/processes by front line management .855
Benchmarking is used extensively to improve quality of products/processes by general staff .765

Table 4
Quality culture factor 4
Factor four – customer focus Alpha ¼ .7581
Item Factor score
There is a recognition throughout the organization of the needs and expectations of external customers .475
There is a recognition throughout the organization of the needs and expectations of internal customers .592
There is a recognition throughout the organization of the needs and expectations of suppliers .677
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595 587

Table 5
Quality culture factor 5
Factor five – quality as a measure of performance Alpha ¼ .7362
Item Factor score
Quality plan is an integral part of the strategic plan .561
Quality indicators are used as key performance indicators .710
The organization has formal program for employees at all levels to contribute to quality improvement .448
Data relating to quality improvement is shared openly with customers .507

Table 6
Motivation for certification factor 1
Factor one – continuous improvement strategy Alpha ¼ .8004
Item Factor score
Part of a TQM based strategy .761
Pursuit of continuous process improvement .881
Desire to provide better products and processes .764
Recognition of the need to formalise systems .725

Table 7
Motivation for certified factor 2
Factor two – reaction to environmental factors Alpha ¼ .5983
Item Factor score
Changes in legislation .637
Changes in industry policy/trends .754
Demand by customers for supplier certification .469
Pressure to follow competitors .647
Changes in social trends .574

Table 8
Auditing style factor 1
Factor one – auditing to facilitate continuous improvement Alpha ¼ .8640
Item Factor score
The role of the auditor is to help companies improve their people, processes, products and services .740
The role of the auditor is to help people acquire a common understanding of the system .726
The auditor should be flexible and able to adjust his/her style to meet the requirements of the client .658
The auditor should work with the client by being a good communicator and an excellent listener .690
The auditor should highlight the positive as well as the negative aspects of factors being audited .635
The ability to facilitate change is critical for the non-financial auditor .673
The ability to facilitate continuous improvement is critical for the non-financial auditor .723
The ability to adapt to the needs of the client is critical for the non-financial auditor .725
The audit should remove barriers to continuous improvement .527

• The purpose of the non-financial audit. ‘‘Value of certification’’ was tested with 13 items
• The role of the non-financial auditor. covering issues such as productivity, waste reduc-
• The style of the non-financial auditor. tion, internal systems, sales and customer satis-
• The skills of the non-financial auditor. faction (see Tables 11 and 12).
588 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595

Table 9
Auditing style factor 2
Factor two – auditing for compliance Alpha ¼ .8086
Item Factor score
The audit should solely verify performance against the standard .688
The auditor should solely assess compliance with applicable standards .837
It is the role of the auditor to solely inspect the clientÕs systems .779
The auditor should only be interested in checking the operation of the system .771

Table 10
Auditing style factor 3
Factor three – auditing style that is detached and inflexible Alpha ¼ .6581
Item Factor score
The auditor should remain detached and not get involved with the client during the audit .814
The auditor should focus on non-conformances when reporting to the client at the conclusion of the audit .665
The auditorÕs style should not be adjusted for different clients .713

Table 11
Value of certification factor 1
Factor one – improved business performance Alpha score ¼ .9092
Item Factor score
Improved customer satisfaction .693
Increased productivity .755
Improved service quality .759
Improved product quality .660
Improved company image .671
Increased flexibility .771
Increased sales .798
Improved organizational systems and documentation .348
Improved supplier quality .675
Improved cycle times .599

Table 12 This survey resulted in 400 companies responding

Value of certification factor 2 (a response rate of 27%). A total of 300 quality
Factor two – reduced waste Alpha ¼ .8705 auditors were surveyed including 263 auditors
Item Factor score employed by Quality Assurance Services, a sub-
Reduced scrap .903 sidiary of Standards Australia and 37 quality au-
Reduced obsolete stock .893 ditors operating in New Zealand. The quality
auditors survey resulted in 126 responses (response
rate of 42%).
3.2. Samples
3.3. Demographics
A random sample of 1500 companies was se-
lected for the client survey from a database of 7000 Some notable aspects of the demographic
companies that had been certified to ISO 9000. breakdown for the quality auditors include:
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
• High proportion of male auditors; the majority
come from manufacturing backgrounds.
• Large percentage with tertiary qualifications.
For the companies, it was also interesting to
note that:
• One quarter of managers responsible for quality
auditing were at CEO/Managing Director/Gen-
eral Manger level, and
• The apparent maturity of the market as indi-
cated by the small percentage certified for less
than two years.
3.4. Data analysis
Factor Analysis was used to test the validity of
constructs, and to establish a group of higher
order factor variables reflecting latent factors to be
used in subsequent Multiple Regression Analysis.
Hierarchical Regression Analysis (HRA) was used
with three separate models to test for the contri-
bution to variance at points of entry. The statis-
tical software analysis package SPSS was used for
all major statistical analysis. As part of the data
screening and preparation process the following
actions were taken: Within the data set for each
variable missing values were defined using the
‘‘Define Variable’’ function within SPSS so as not
to include them in the analysis.
In order to meet the requirement of successful
multivariate analysis for a complete data set, mean
substitution was used for missing values in both the
factor analysis and multiple regression. This was
deemed appropriate as the percentage of missing
data across the full data set was 1.23%. Each in-
dividual variable was screened for the presence of
values in excess of 3 S.D. Mahalanobis distances
were calculated for each case and derived from
all of the identified variables of interest to check
for the existence of multivariate outliers.
A case wise plot of standardized residuals was
produced with each regression model in order to
further identify and eliminate multivariate outliers;
Where appropriate these outlying values were de-
leted. All the variables selected for analysis used
interval scales and as such were also analyzed for
excessive skew and kurtosis to ensure normality.
589
Transformations were carried out where appro-
priate.
During regression analysis, a histogram of
standardized residuals along with a cumulative
probability plot of standardized residuals was
generated to check that all linear combinations of
variables were normally distributed. Prior to fac-
tor analysis scatter plots were produced for vari-
ables showing large differences in skewness to
indicate a degree of confidence regarding linearity.
For the regression models scatter plots of pre-
dicted scores versus residuals were also produced
to assess linearity of the relationships being mea-
sured and to check for homogeneity of variance.
During factor analysis correlation matrices were
created, and a determinant of correlation matrix
statistic generated to test for multicollinearity and
singularity.
During multiple regression a tolerance statistic
was also produced testing the amount of variance
in each independent variable attributable to the
other independent variables. High tolerance values
indicated low multicollinearity. The process fol-
lowed for factor analysis employed an exploratory
model, with a minimum eigenvalue of 1 specified, a
principal components extraction employed and a
varimax rotation applied. The final factors ex-
tracted were also subjected to reliability testing
with alpha coefficients produced for each. In order
to regulate the development of the regression pro-
cess, a hierarchical (or sequential) regression model
was developed. This was structured in order to test
the amount of variance caused by sets of inde-
pendent variables after variance due to other in-
dependent variables had already been accounted
for.
Factor analysis. Within the groups of variables
identified above factor analysis was run and the
following combinations extracted that could be
used in subsequent analysis as independent and
dependent variables. This provided a simplified
group of factor variables capturing latent con-
structs facilitating less complicated analysis and
model creation.
Quality culture:
KMO measure of sampling adequacy 0.893
BartlettÕs test of sphericity 0.000
590 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
The KMO test being greater than 0.6 indicated
that factor analysis was appropriate for this ma-
trix, while the high degree of significance in the
BartlettÕs test indicates that the matrix is not an
identity matrix (i.e., the diagonal values are 1 and
the off diagonals are 0). Five factors were identified
from this analysis:
Factor 1: Resources provided for quality con-
struct. The combination of high factor scores and a
high alpha coefficient provided a good degree of
confidence that this scale had good construct va-
lidity and is a reliable measure. Due to the high
factor scores on all four items (Table 1) the corre-
lations were checked for multicollinearity. This
check revealed some high correlations, but nothing
higher than the nominal cut off point of 0.90 (Ta-
bachnick and Fidell, 1996). It was also taken into
account that factor analysis is particularly robust
to most underlying statistical assumptions (such as
normality, linearity, etc.), and that a certain amount
of multicollinearity is desirable for good factor
analysis (Hair et al., 1998). It was further noted that
deletion of any of these individual items reduced the
value of the alpha coefficient, thus weakening the
reliability of the measure whilst at the same time
reducing the strength of the overall construct.
Factor 2: Quality awareness construct. The high
alpha score for this factor again provided good
confidence as to the reliability of the scale. The
spread of the factor scores (Table 2) gave a wide
range of factor scores, with the lowest being .452.
Given that the sample size was greater than 350, a
factor score greater than 0.30 could be interpreted
as significant in both practical and statistical terms
(Hair et al., 1998).
Factor 3: Benchmarking for quality improvement
construct. Due to the high factor scores (Table 3)
correlations between these items were also checked
for multicollinearity with no values found to be
higher than 0.90. For the same reasons as stated
above for factor one the four items were left intact.
The high alpha score also gave confidence as to the
reliability of the scale.
Factor 4: Customer focus construct. The factor
scores (Table 4) for this grouping were deemed
adequate as per the criteria noted above, and the
good alpha score indicated adequate reliability.
Factor 5: Quality as a measure of performance
construct. The combination of a good alpha score
and significant factor loadings (Table 5) was also
evident for these items.
Motivation for certification:
KMO measure of sampling adequacy 0.710
BartlettÕs test of sphericity 0.000
The KMO test being greater than 0.6 indi-
cated that factor analysis was appropriate for
this matrix, while the high degree of significance
in the BartlettÕs test indicates that the matrix is
not an identity matrix. Two factors were iden-
tified:
Factor 1: Continuous improvement strategy
construct. As per the criteria detailed above this
group of items provided a good balance of reli-
ability and construct validity (Table 6). These
items also represented a group of ‘‘intrinsic’’ mo-
tivators for certification that provided a neat
contrast with the other variables in this section as
they represented a set of ‘‘extrinsic’’ or ‘‘reactive’’
reasons for seeking certification.
Factor 2: Reaction to environmental factors.
The low alpha coefficient for this factor presented
the possibility of deleting an item in order to
improve reliability (Table 7). It was decided to
leave the factor intact as the best possible result
from deletion of an individual item was an alpha
value of .6024. This marginal improvement in
reliability was not deemed sufficient to offset the
reduction in the strength of the construct that
would result.
Auditing style:
KMO measure of sampling adequacy 0.853
BartlettÕs test of sphericity 0.000
The KMO test being greater than 0.6 indicated
that factor analysis was appropriate for this ma-
trix, while the high degree of significance in the
BartlettÕs test indicates that the matrix is not an
identity matrix. It should be noted that the ques-
tions answered in the survey of clients of non-
financial auditors used in this analysis related to
perceptions of current audit practice. Three factors
were identified:
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
Factor 1: Auditing to facilitate continuous im-
provement construct. This group of variables
captured a combination of issues relating to the
perception of the purpose of the audit, the ap-
propriate style of the auditor and the skills
required to conduct a non-financial audit. The
combination of the high alpha coefficient and the
factor scores (Table 8) provided a good level of
confidence in the reliability and validity of this
scale.
Factor 2: Auditing for compliance. These vari-
ables related to the purpose of the audit and the
appropriate role of the auditor. The reliability and
validity of the scale are reinforced by the alpha
value and factor scores (Table 9).
Factor 3: Auditing style construct. These three
style related variables represent a detached and
non-facilitative style of auditing. The alpha score
of .6581 was deemed to be adequate as deletion of
any of the items substantially weakened the score
(Table 10).
Value of ISO 9000 certification:
KMO measure of sampling adequacy 0.911
BartlettÕs test of sphericity 0.000
The KMO test being greater than 0.6 indi-
cated that factor analysis was appropriate for
this matrix, while the high degree of significance
in the BartlettÕs test indicates that the matrix is
not an identity matrix. The variables contained
in this grouping related to the perceived contri-
bution of ISO certification to a range of business
performance outcomes. Two factors were iden-
tified:
Factor 1: Improved business performance. The
alpha value and the majority of the factor scores
(Table 11) are good for this group of items. The
lower factor score for the item relating to the im-
provement in organizational systems and docu-
mentation was deemed adequate based on the
sample size being greater than 350 (Hair et al.,
1998).
Factor 2: Reduced waste construct. Due to the
high factor scores these two variables were
checked for multicollinearity and found to have a
correlation less than 0.90. The high alpha value
was noteworthy for a scale with only two com-
591
ponents, and again provided a good level of con-
fidence in scale reliability (Table 12).
3.5. Summated scales
For each factor a single new variable was cre-
ated for the purpose of creating a summated scale.
Apart from simplifying further analysis the use of
a single composite measure of this type was pre-
ferred for the following reasons (Hair et al., 1998).
A means of overcoming the inherent measurement
error found in all measured variables is provided.
The underlying assumption is that the factors
capture the particular constructs with an accept-
able level of validity and reliability as demon-
strated in the five cases above.
3.6. Hierarchical regression models
The rationale for using hierarchical regression
models derived from a desire to test the nine hy-
potheses developed with a method that would
allow for comparison between the contribution of
different independent variables, whilst controlling
for specified demographics. The advantage of this
approach lies in the fact that:
Sequential regression allows the researcher to
control the advancement of the regression
process. Importance of IVÕs in the prediction
equation is determined by the researcher ac-
cording to logic or theory. Explicit hypotheses
are tested about proportion of variance attrib-
utable to some IVÕs after variance due to IVÕs
already in the equation is accounted for Ta-
bachnick and Fidell (1996, p. 156).
In our case the independent variables were fi-
nalized from the literature review and from qual-
itative data derived from the case study analysis.
The models developed were based on a theorized
logical relationship between the independent vari-
ables, with independent variables being entered
into the models as groups.
A set of control variables were entered first in
both models in order to extract the variance due to
organization size, industry, number of years cer-
tified and the position held by the respondent.
592 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
These were then followed by the quality culture
group, motivation for certification and auditing
style. The logic in this model being that after
organizational demographics have been accounted
for, quality culture will precede the motivation for
certification, which will precede auditing style. The
dependent variables in this model were the two
factors relating to value derived from certification
and the five individual variables relating to atti-
tudes to the audit process, and the model seeks to
test the effect of quality culture, motivation for
certification and auditing style on business out-
comes and organizational attitudes.
4. Testing of hypotheses
The two measures used for comparison of re-
sults are change in R2 and the final beta coefficient
of each combination for the full model. The
change in R2 gives a comparison between subse-
quent groups of factors of the effect of that group
on the dependent variables after the variance at-
tributable to preceding groups has been extracted.
Both the strength and significance of the change is
noted. The final beta value gives the strength and
significance of the relationships between the indi-
vidual elements of the model when all are included.
An adjusted R2 value for the full model is also
recorded to evaluate the total per cent contribu-
tion of all the independent variables to the change
in the dependent variables.
Analysis of the results using the change in R2
shows that there are significant changes in contri-
bution at each of Steps 1, 2 and 3. For Step 1
changes of 3% significant at p < :05 for DV1
(improved business performance) and 3.2% sig-
nificant at p < :05 are recorded. This indicates that
the control variables do have some impact on the
two business performance variables, and can thus
not be ignored as factors affecting performance in
the context of this model.
For DV1 the final beta values show no indi-
vidual items in this group having significant or
strong relationships, while for DV2 (reduced
waste) number of years certified makes the most
significant contribution with 0.180 at p < :001.
This indicates that over time certified companies
go through a process of organizational learning
that has the effect of reducing waste, and perhaps
points to certification as a catalyst for this process.
For DV1 (improved business performance) quality
culture shows a 9.5% increase in variance at
p < :001. The final beta scores show that of the five
elements of quality culture the strongest and most
significant contributor to this variance was cus-
tomer focus with 0.104 at p < :05.
The dominance of customer focus in contribu-
tion to improved business performance is not en-
tirely surprising, although it should be noted that
the five elements of quality culture are not neces-
sarily mutually exclusive. It is hard to imagine that
a high degree of customer focus can exist without
resources being provided for quality and there
being a poor awareness of quality related issues in
an organization.
The interdependence and interrelatedness of the
elements of quality culture is therefore an under-
lying assumption of the model. Motivation for
certification shows a further 8.3% change at
p < :001 for DV1, with the final beta scores indi-
cating that both elements make a significant con-
tribution (being 0.234 at p < :001 for continuous
improvement strategy and 0.174 at p < :01 for
reaction to environmental factors). The relatively
stronger and more significant contribution of the
pro-active and intrinsic motivator (continuous
improvement strategy) over the reactive and ex-
trinsic element (reaction to environmental factors)
supports some anecdotal evidence of links between
this type of motivation and ISO related benefits.
What is of interest is the fact that both types of
motivation are seen to contribute to business per-
formance, suggesting perhaps that both elements
are required. It could be argued that awareness of
customer requirements and changes in the external
environment of an organization can prompt the
recognition of the need for continuous improve-
ment strategies. The importance of the combina-
tion of these two forms of motivation, and perhaps
their interdependence, is being highlighted by the
model. For DV2 (reduced waste) quality culture
does not show a significant contribution while
motivation for certification does with 3.1% at
p < :01: The final beta values also show no sig-
nificant correlations between any of the individual
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595 593

Table 13
Hierarchical regression model results
Independent variables Dependent variable: value of Dependent variable: value of
certification – factor 1 – certification – factor 2 –
improved business performance reduced waste
All companies All companies
N ¼ 395 N ¼ 395
2
Change R Final beta Change R2 Final beta
Step 1 Control variables .030* 0.032*
No. of people employed by the organization )0.041 )0.025
in Australia
Organizational Category 0.016 )0.083
No. of years certified )0.062 0.180***
Position in organization )0.002 )0.055

Step 2 Quality culture .095*** 0.023

Quality culture – factor 1 – resources )0.005 0.031
provided for quality
Quality culture – factor 2 – quality awareness 0.071 0.020
Quality culture – factor 3 – benchmarking for 0.094 0.032
quality improvement
Quality culture – factor 4 – customer focus 0.104* 0.028
Quality culture – factor 5 – quality as a 0.017 )0.017
measure of performance

Step 3 Motivation for certification .083*** 0.031**

Reasons for certification – factor 1 – .234*** 0.180**
continuous improvement strategy
Reasons for certification – factor 2 – .174** 0.013
reaction to environmental factors

Step 4 Auditing style 0.006 0.005

Current audit practice – factor 1 – auditing 0.086 0.075
to facilitate continuous improvement 1
Current audit practice – factor 2 – auditing 0.004 )0.005
for compliance
Current audit practice – factor 3 – auditing 0.025 0.028
style that is detached and inflexible

elements of quality culture and DV2, a result that
on the face of it is surprising given the expected
link between reduction in waste and improved
business performance. Beta values for motivation
for certification with DV2 show that continuous
improvement strategy is the dominant factor
in contributing to waste reduction with 0.180 at
p < :01:
Auditing style shows no significant effect on
either dependent variable, and the individual beta
scores also show no significant relationships be-
tween the elements of auditing style and both de-
pendent variables. All significant correlations were
positive in direction. The results from this model
for these hypotheses are contained in Table 13.
Adjusted R2 values for DV1 (improved business
594 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
performance) was 0.186 and for DV2 (reduced
waste) was 0.056.
5. Interpretation of results
Based on the analysis several important find-
ings have emerged. There is a relationship between
the control variables and business performance,
particularly in the case of waste reduction and
the number of years an organization has been
certified. This relationship does not appear to
be overly strong, but is nonetheless significant and
therefore a factor that needs to be taken into ac-
count when assessing the importance of other re-
lationships. The quality culture variables identified
through the factor analysis have a highly signifi-
cant, if moderately strong, effect on business per-
formance in this model. The individual element
found to contribute most to this was customer
focus.
There is no link recorded between quality cul-
ture and reduction in waste in the model. Moti-
vation for certification has a highly significant and
moderately strong effect on business performance,
and highly significant and weak effect on reduction
of waste. Both elements contribute significantly to
business performance with continuous improvement
strategy being marginally stronger, while this same
element is also the key determinant of reduction in
waste. Results from this model show there is no
significant relationship between auditing style and
business performance. The final value for adjusted
R2 indicates a higher contribution overall of the
independent variables to improved business per-
formance compared to reduction of waste. In
terms of the hypotheses proposed these results
indicate that:
H1. There is a positive relationship between the
quality culture of an ISO certified organization
and the benefits derived from certification –
hypothesis accepted.
H2. The motivation for certification can be used as
a predictor of the value derived from certification
– hypothesis accepted.
H3. The style of the non-financial auditor is pos-
itively related to the benefits derived from certifi-
cation – hypothesis rejected.
H4. The relationships in H1, H2, and H3, are in-
dependent of the influence of company size and
the number of years an organization has been
certified – hypothesis rejected.
6. Conclusion
Our findings show that the motive for adopting
ISO 9000 certification and the maturity of the
quality culture are significant predictors of the
benefits derived from ISO 9000 certification.
The style of the auditor, on the other hand, does
not appear to have a significant and positive effect
on the benefits derived from ISO 9000 certifica-
tion. We conclude that organizations that have
been audited to the ISO 9000 standards believe
that the quality audit process contributes to busi-
ness performance when the quality culture in the
organization is well developed and the managerÕs
motivation to gain certification has been to im-
prove business performance and not to conform to
an international standard. The individual element
found to contribute most to business performance
was customer focus.
The principal motivation to pursue ISO 9000
certification was found to come from the custom-
ers. Auditing style shows no significant and posi-
tive effect on business performance. The findings
of this study are in agreement with several other
studies (Brown, 1995; Hoyle, 1994; Najmi and
Kehoe, 2000).
7. Implications for managers
The main implication for managers is the
emerging question whether the new ISO 9001-
2000 standard will over-time capture and meet
the conformance and performance requirements
of the organization as part of a continuous im-
provement strategy. This is likely be the prime
determinant of the extent to which managers will
 M. Terziovski et al. / European Journal of Operational Research 146 (2003) 580–595
embrace or reject ISO 9000 certification in the
21st century. For example, combining the disci-
pline of the ISO 9001-2000 compliant system
with the significant process improvements that
are derived from programs such as Six Sigma
and cycle-time reduction could facilitate rapid
process improvement that becomes the Ôbest
practiceÕ on which to build future organizational
success.
Acknowledgements
The authors wish to thank the Australian Re-
search Council and Quality Assurance Services Pty
Ltd., Standards Australia for providing the nec-
essary funding for this research project.
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