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ISO 9000 As an Investment Tool

People research companies for a variety of reasons. Some are evaluating potential suppliers. Others are sales types who are finding the best ways to sell and support a possible customer. And of course there are the throngs who are eager to invest in companies that will increase their net worth.

Many tools are used to interpret this research. P/E ratios, valuation, industry segment, rank in their market segment are but a fraction of the mechanisms employed to make prudent decisions regarding the future of companies.

There is an additional and potentially very insightful way of finding out the truth about a firm’s direction. That tool is the ISO 9000 standard.

ISO 9000 registration is an inexorable trend. It is the culmination of a standardization process that began with Eli Whitney’s interchangeable rifle parts in 1798. Not only is the standard being further refined, but it is also spreading into more and more industries. For example, the hospitality industry in the US had shown little interest in ISO. Their colleagues in Europe have been much more active in applying ISO philosophy to the Hotel industry. Recently, however, Quality Inns have announced that they will employ the ISO standards throughout their hotel network.

But what are the reasons that companies pursue the ISO stamp? Too often companies employ ISO procedures for the wrong reason. This severely limits the potential benefits of the ISO process and limits the growth potential of these companies. In fact the improper application of ISO standards can endanger the future of a company, the quality of life of its employees and the investments of its stockholders.

Many companies pursue ISO registration for the following reasons:

Their current customers demand it. Registration is required to land a new customer. ISO registered competitors put pressure on a company to comply lest they lose market share.

If these alone are reasons for complying with ISO they are examples of doing the right thing for the wrong reason. CEOs who view ISO as an overhead, an inconvenience, a source of additional paperwork and an expense will create a self-fulfilling prophecy.

However, those CEOs who truly embrace the spirit of the ISO 9000 philosophy and implement it accordingly will discover results such as:

Increased profitability
Increased market share
Lower costs
Reduced waste
Predictable ROI
Positive cultural change
Higher employee morale
Less employee turnover
Penetration of new global markets
Upgrading of the customer base

Individuals researching companies for any reason will want to know if those companies are on the road to achieving these kind of results.

ISO 9000 is a very flexible framework that can be implemented in many ways. It can fit into any corporate structure. It is possible to attain ISO registration and maintain it by merely putting procedures in place, assembling documents and making sure your act is together when the registrar comes by. But perfunctory compliance to avoid negative outcomes leaves your company far short of its potential.

ISO 9000 alone will not make your company more profitable. The ISO 9000 framework must be impregnated with the same spirit that Dr. Edwards Deming preached so successfully. Dr. Deming is often associated with tools such as SPC, histograms, fish-bone analysis and X and R charts. Tools such as these are completely complimentary with the ISO process. What is often missed, however, is the holistic philosophy incorporated into Deming’s message.

A successful CEO must not only put the proper procedures in place; he must also comprehend, appreciate and implement the concept of interdependence. This is the fiber that runs throughout Dr. Deming’s message and is the spiritual backbone of the ISO 9000 process.

All people employed within a company are dependent on one another. They all require the satisfactory output and cooperation of their co-workers to succeed. Deming focused much of his energies on eliminating internal factions within companies as these cause a breakdown in successful interdependence. Likewise a company is interdependent with its supply base. If your key supplier is unprofitable and cannot support a companies requirements, that in turn hurts that company. Clearly a company is interdependent with its customers. Unless your customers are successful in their end markets your success in turn will be limited. This is behind the conviction that business should not be awarded on price alone. Developing mutually beneficial partnerships leads to long term interdependent achievement.

Dr. Deming later in his career expanded his vision to encompass all of society in general. Break down factions, implement win-win partnerships and the future will be brighter. The last forty years have left little doubt as to the effectiveness of the Deming principles. Those companies who have viscerally adopted these principles mostly have been extremely successful.

For the ISO process to be successful and yield the greatest benefits, those charged with its daily execution (i.e. the employees of the company) will look to senior management for indications as to what kind of process this will be. Should the CEO be mostly concerned with the short term bottom line and shield herself from operations by her senior staff, those in the trenches will quickly realize that this ISO 9000 process is a hollow drill. The only goal is to pass the registrar’s scrutiny. This approach makes ISO a burden, an addition to overhead and an expense.

However, should the CEO visible embrace the interdependent spirit if the ISO process and lead by example by strengthening communications and breaking down barriers, the message will be quite different. When it is demonstrated that the goal is to create a better functioning organization increasing productivity, reducing waste and improving quality the intrinsic motivation of every employee will be enhanced. Pride in workmanship will provide rewards to the individual that goes beyond those of a paycheck. In these circumstances, the ISO process is a motivator, a facilitator and an investment.

Many firms have or will soon pass ISO 9000 registration. This alone does not guarantee success. Those investigating these firms should question employees, suppliers and customers to learn the emotional investment top management has made to the success of this process. Should the commitment be half-hearted, earning will come up short. Waste will not be reduced. Market share will be lost to more enthusiastic competitors. Employee loyalty will erode. The company’s performance will fall short of expectations. These companies are not the best investments.

Those who have the commitment and are enthusiastic about its successful implementation ISO 9000 can look forward to a much more rosy future. And so can their investors.


Al D. Traynor