Relationship between ISO9001 and Financial Performance

ISO 9001 specifies requirements for a quality management system where an organization needs to demonstrate its ability to consistently provide product that meets customer and applicable regulatory requirements. It is important that the effectiveness of ISO 9001be measured in financial terms. Quality is widely recognized as a critical success factor in long-term business performance. However, many organizations that have implemented ISO 9001 see little return on their investment in terms of performance improvement.

ISO 9001 certification does indeed enhance financial performance, and that this is achieved mainly through increased sales. This can be explained by looking more closely at the relationship between ISO 9001 mechanisms and the internal, external and signaling benefits that can lead to increased financial performance. ISO 9001 does not different form financial performance but while doing the implementation of ISO 9001; it helps to improve the financial performance.

Lower costs and increased income leads to give the financial performance while implementing the ISO 9001 standard. The motivation for implementing ISO 9001 can influence its effect on performance. Organizations may wish to obtain certification for external reasons such as pressure from customers, markets or governments, or for internal reasons such as improving productivity and efficiency. Those targeting short-term external benefits could expect to gain mainly external benefits, while those aiming at real quality improvement could expect to achieve higher overall benefits. ISO 9001 principles are adopted internally is dependent on the motivation of the organization, and is thought to be critical to successful implementation. Organizations with external motivation tended to implement measures prescribed by the standard while those with internal motivation were more likely to use the standard and the underlying principles in day-to-day decision making to really improve quality.

The effect of quality on business performance (financial perspective) is based on two main routes: manufacturing and market. In the manufacturing route, improving internal process quality results in better operational performance that leads to business performance. In the market route, improvement of product quality will influence marketing business performance. It is also important for organizations considering ISO 9001 implementation since the process of obtaining certification and maintaining the system involves time, money and effort - and they need to know if these costs outweigh the benefits of better business performance. Organizations reduce cost and increase revenues. It can reduce cost by reducing the number of defects, reducing waste, lowering warranty costs, improving staff motivation and productivity, reducing the number of incidents by taking preventive actions and solving problems more efficiently which leads to improve financial performance

ISO 9001 certification can increase revenues by opening new markets, winning more customers, increasing customer satisfaction, understanding customer needs better, developing new products and services that meet customer needs, reducing complaints and increasing the overall quality of service.

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