Cover spine v14 i4 9/20/07 10:12 AM Page 1

14

Quality Management
4

Journal V O L U M E 1 4 , I S S U E 4

Does Six Sigma Improve Performance?

S. Thomas Foster
QUALITY MANAGEMENT JOURNAL

The Long-Term Impact of ISO 9000 Certification on Business Performance:

A Longitudinal Study Using Turkish Stock Market Returns
Musa Pinar and Ceyhun Ozgur

Applying the Toyota Production System to a Healthcare Organization:

A Case Study on a Rural Community Healthcare Provider
Kevin F. Collins and Senthil K. Muthusamy

Ranking Customer’s Requirements in QFD by Factoring in

Their Interrelationship Values
J. R. Sharma and A. M. Rawani
2007

www.asq.org
Contents v14 i4 9/20/07 10:11 AM Page 1

Volume 14 Issue 4

ARTICLES
Contents DEPARTMENTS
7 Does Six Sigma Improve Performance? 4 Introduction
S. Thomas Foster
A look at the long-term financial and operational results of companies
implementing Six Sigma.
5 Executive Briefs

21 The Long-Term Impact of ISO 9000 Certification on Business 61 Book Reviews

Performance: A Longitudinal Study Using Turkish Stock Market Returns
Musa Pinar and Ceyhun Ozgur The annual index for Volume 14
Do ISO 9000 firms have higher returns and lower variability than can be found online:
non-ISO 9000 firms?
http://www.asq.org/pub/qmj/.
41 Applying the Toyota Production System to a Healthcare Organization:
A Case Study on a Rural Community Healthcare Provider
Kevin F. Collins and Senthil K. Muthusamy
The TPS can be a powerful technique—even to companies unaccustomed
to advanced production techniques.

53 Ranking Customer’s Requirements in QFD by Factoring in Their

Interrelationship Values
J. R. Sharma and A. M. Rawani
The most neglected part of the QFD process—the interrelationship matrix
among customer requirements—is examined.

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Masthead v14 i4 9/20/07 10:13 AM Page 2

QMJ EDITORIAL

EDITOR
James R. Evans
University of Cincinnati

FOUNDING EDITOR
William A. Golomski

BOOK REVIEW EDITOR

James B. Kohnen
St. Mary’s College of California

QMJ ADMINISTRATION/PRODUCTION

PUBLISHER
William Tony

MANUSCRIPT COORDINATOR
Valerie Funk

COPY EDITORS
Leigh Ann Klaus
Kris McEachern
JoAnn Regenauer

PRODUCTION
Cathy Schnackenberg

DIGITAL PRODUCTION SPECIALIST

Laura Franceschi
Editorial Board v14 i4 9/20/07 10:12 AM Page 3

Editorial Editorial
Advisory Board Review Board

John Anderson Stefano Biazzo* Yongjin (James) Kwon

University of Minnesota University of Padova Drexel University
Selwyn Becker Ching-Wen Chen* Keong Leong
University of Chicago National Kaohsiung First University of Science The University of Nevada–Las Vegas
and Technology
Robert E. Cole A. Magid Mazen
University of California Michael B.C. Khoo* Suffolk University
Universiti Sains Malaysia
James W. Dean Jr. Kathleen L. McFadden
University of North Adrian S. Choo Northern Illinois University
Carolina Rensselaer Polytechnic Institute
Kate McKone-Sweet
James R. Evans Edward Duplaga Babson University
University of Cincinnati Winona State University
Satish Mehra
John P. Evans Susan West Engelkemeyer University of Memphis
University of North Babson College
Carolina Kim I. Melton
Byron Finch North Georgia College and State University
Frank M. Gryna Miami University
University of Tampa Henry R. Neave*
Mark P. Finster British Deming Association
John Hamburg University of Wisconsin
APEX, Inc. Yoram Neumann
Thomas S. Foster Jr. California State University
David Luther Boise State University
Luther Quality Associates William Newman
Brian Fynes* Miami University
Ram Narasimhan The Michael Smurfit Graduate School of Business
Michigan State University Gertrude P. Pannirselvam
Thomas Gattiker Southern Illinois University Edwardsville
Duke Okes Boise State University
Quality Management Darrell Radson
Division, ASQ Soumen Ghosh Drexel University
Georgia Institute of Technology
Roger G. Schroeder Gary Ragatz
University of Minnesota Glenn H. Gilbreath
Virginia Commonwealth University Michigan State University
Kalyan Singhal Gipsie B. Ranney
University of Baltimore John M. Groocock*
TRW (Retired) Belmont University
Michael J. Stahl Borut Rusjan*
University of Tennessee Robert Handfield
North Carolina State University University of Ljubljana

Sandra J. Hartman Brooke Saladin

University of New Orleans Wake Forest University

David Hartmann Joseph Sarkis

University of Central Oklahoma Clark University

Marilyn Helms Helmut Schneider

Dalton State College Louisiana State University

Mary Collins Holcomb Nirmal Sethia

University of Tennessee California State Polytechnic University

Hale Kaynak Rui Sousa*

University of Texas-Pan American Universidade Catolica Portuguesa

Gary Kern John G. Surak

Indiana University South Bend Clemson University

David Kerridge* Mile Terziovski*

Aberdeen University The University of Melbourne
Ray A. Klotz Michael D. Tveite
Qualcomm Inc. Polaris Industries
Frank Knight Peter Ward
FISI Madison Financial The Ohio State University
Ronald D. Kurtzmann L. David Weller
Diamond Management Systems University of Georgia

*International reviewer
Introduction v14 i4 9/20/07 10:13 AM Page 4

Intro
duction
I am extremely honored to have been selected as the new editor of the Quality Management Journal.
I would like to thank the ASQ Publications Management Board for putting their trust in me, and the out-
going editor, Barbara Flynn, for her help during the transition process and the preparation of this issue.
Barb’s stewardship of the journal will certainly be missed, but she has joined its Editorial Advisory
Board to continue to provide counsel and advice. I wish her well in her work at Indiana University.
For those of you who may not know me, my formal educational background is in industrial engineer-
ing, and I have been on the faculty in the College of Business at the University of Cincinnati for more than
32 years. My involvement in quality began some 20 years ago with the preparation of the first edition of
a textbook entitled The Management and Control of Quality, with my coauthor William Lindsay. We
wrote this book to fill a need for a comprehensive text that focused more on managerial issues taught in
business schools, rather than just technical topics such as statistical process control and reliability. Now in
its 7th edition with Thomson/South-Western, and retitled Managing for Quality and Performance
Excellence, this book has helped me maintain currency in the field. I continue to actively write both books
and research papers on various quality topics. In addition, I have engaged in a variety of professional
activities in the field, including serving on the Board of Examiners and the Panel of Judges for the
Malcolm Baldrige National Quality Award for a total of 11 years since 1994.
The frequent citations of quality issues in the automotive industry, food safety, and in developing coun-
tries that we so often read in the press point to the continued need to better understand both the theoretical
foundations of quality management and how to translate these into better management practice. This can
be facilitated through good applied research, reflecting upon W. Edwards Deming’s philosophy that there
is no knowledge without theory. That’s what this journal is all about—providing relevant knowledge about
quality management practice that is grounded in rigorous research. In the next issue, I will present a more
detailed editorial philosophy that will guide my tenure as editor, a new Editorial Review Board and
Editorial Advisory Board, and some key changes to the Guidelines for Authors, all of which are geared
toward better serving the readership of this journal and the professional quality community.
This issue begins with two empirical research papers that add to our understanding of the impact on
quality-related initiatives. Tom Foster’s article, “Does Six Sigma Improve Performance?” examines the
effects of Six Sigma programs on long-term financial and operating results in a similar fashion by which
others have examined the effects of more general TQM initiatives. Musa Pinar and Ceyhun Ozgur’s article,
“The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using
Turkish Stock Market Returns,” takes a similar focus, comparing long-term stock returns and variability
of returns of ISO 9000 certified versus noncertified firms in the Turkish stock market. Both of these articles
provide more rigorous evaluation of quality initiatives beyond the anecdotal knowledge commonly seen in
other publications. In “Applying the Toyota Production System to a Healthcare Organization: A Case Study
on a Rural Community Healthcare Provider,” Kevin F. Collins and Senthil K. Muthusamy present an inter-
esting case study of how healthcare can apply the principles of the Toyota Production System, focusing
on the challenges and techniques for effective implementation. This case study not only provides lessons
for practitioners, but also opportunities and ideas for further empirical research. Finally, J. R. Sharma
and A. M. Rawani propose a new approach to enhancing quality function deployment by considering
the interrelationships of customer requirements in their article, “Ranking Customer’s Requirements in
QFD by Factoring in Their Interrelationship Values.”
I look forward to your support of the journal. Please feel free to contact me with any questions or
suggestions.
James R. Evans
Editor

4 QMJ VOL. 14, NO. 4/© 2007, ASQ

Exec Briefs v14 i4 9/20/07 10:12 AM Page 5
Does Six Sigma Improve
Performance (pp. 7 – 20).
S. Thomas Foster, Brigham Young
University
What are the long-term financial
and operational results from the
implementation of Six Sigma? This
article seeks to answer this question.
In recent years, many firms have
adopted Six Sigma in an effort to
improve quality and reduce costs.
Whether they actually succeeded in
doing so, however, is not clear. There
is a need for more research eluci-
dating the benefits and costs of Six
Sigma implementation.
The authors present two propo-
sitions:
• Proposition 1: Six Sigma adop-
tion will positively affect financial
results. This proposition is then
translated into five hypotheses
for this study.
• Proposition 2: Six Sigma adop-
tion results in better operational
results. This proposition is also
translated into five hypotheses.
To identify a group of companies
to study, the authors performed a
keyword Lexis/Nexis online search
of corporate financial reports for the
terms Six Sigma, ISO 9000, TQM,
and Baldrige. They then performed
a content analysis to determine
which firms had announced the
implementation of Six Sigma. Their
search eventually resulted in 41
companies to study.
Executive
Briefs
The authors studied the follow-
ing outcome variables: free cash
flow per share; cost per dollar sales;
earnings before interest, taxes,
depreciation, and amortization
(EBITDA); sales; sales per employee;
asset turnover; return on assets;
return on investment; total assets;
and number of employees.
The results of the study were
somewhat mixed. It seems that Six
Sigma has a significant effect on
free cash flow, EBITDA, and asset
turnover. It did not, however, seem
to affect sales return on assets,
return on investment, for firm
growth.
The Long-Term Impact of
ISO 9000 Certification on
Business Performance: A Lon-
gitudinal Study Using Turkish
Stock Market Returns (pp.
21– 40). Musa Pinar and Ceyhun
Ozgur, Valparaiso University
Despite the expected benefits of
ISO 9000 certification, only a few
empirical studies have examined
whether ISO 9000 certified compa-
nies actually perform better than
non-ISO 9000 certified companies.
This article looks to identify the lon-
gitudinal effect of ISO 9000 certifi-
cation on business performance by
comparing the stock performances
of ISO 9000 certified firms vs. non-
ISO 9000 certified firms traded on
Turkey’s Instabul Stock Exchange.
It is thought that the impact of ISO
9000 success should be reflected in
their stock prices and returns.
Specifically, this article seeks to:
1) provide information about the
characteristics of ISO 9000 and
non-ISO 9000 firms; 2) analyze
the impact of ISO 9000 certifica-
tion on stock returns and stock
return variability; and 3) deter-
mine if the stock returns and the
variability of returns of ISO 9000
firms are influenced by certifying
organization.
For their study, the authors used
the monthly stock returns of all
manufacturing firms listed on the
ISE market of Turkey from January
1997 to September 2005. Then, to
be included in the analysis, the ISO
9000 certified firms had to: 1) have
received their certification before
January 1997; and 2) have been list-
ed on the ISE during the entire
study period. For non-ISO 9000
firms, the requirement was that
they were traded on the ISE for the
entire study period. The study
examined the yearly returns; vari-
ous combinations of two-, three-,
and four-year returns; and returns
over the nine-year period.
Using annual two-year, three-
year, and four-year averages of the
monthly stock returns, the results
indicated that ISO 9000 certified
firms generally have higher returns
and lower variability than non-ISO
www.asq.org 5
Exec Briefs v14 i4 9/20/07 10:12 AM Page 6
Briefs
9000 firms. Also, results showed
that ISO 9000 certified firms con-
sistently had higher means and
lower variances. Finally, the certi-
fying agency had little effect on the
stock performance and variability
of returns.
Applying the Toyota Produc-
tion System to a Healthcare
Organization: A Case Study on
a Rural Community Healthcare
Provider (pp. 41–52). Kevin F.
Collins, Healthcare Consultant, and
Senthil K. Muthusamy, Bowling
Green State University
Over the last five decades the
Toyota Production System (TPS)
has evolved from an advanced
sociotechnical concept in manufac-
turing to a participative design for
large-scale change management.
Toyota has been able to sustain a
strategic competitive advantage by
applying TPS as a process innova-
tion and intervention, as measured
by quality, reliability, productivity,
cost reduction, sales and market
growth, and market capitalization.
Many organizations are trying to
replicate Toyota’s success with TPS
in their respective business and
industry environments.
Community Health Systems
(CHS) is a network of rural hospitals
that is trying to improve perfor-
mance using advanced management
techniques. This article looks at
CHS’s application of TPS as a process
6 QMJ VOL. 14, NO. 4/© 2007, ASQ
innovation/intervention technique to
improve quality, safety, and cost
reduction, and survive accreditation
audits.
To achieve a competitive advan-
tage using TPS requires adherence to
the fundamental technical rules,
developing suitable organizational/
structural design, and fostering cul-
tural norms and values that facilitate
the TPS processes. The TPS method
is very scientific in that it clearly
delineates the responsibilities at the
operational level to a very high
degree of specification, and it does
not promote vertical command and
controls. TPS facilitates creative
behaviors and also emphasizes cer-
tain leadership qualities in managers
implementing TPS.
Using TPS, CHS devised a busi-
ness model that provides guidance to
its small rural community providers
in the area of quality and patient out-
come management, specifically
requiring standardization of accred-
itation documentation. This is a
model that, when enforced, can pro-
duce positive outcomes and result in
building competitive advantages.
Ranking Customer Require-
ments in QFD by Factoring
in Their Interrelationship
Values (pp. 53–60). J. R. Sharma,
Manoharbhai Patel Institute of
Engineering, and A. M. Rawani,
National Institute of Technology,
Raipur
Quality function deployment
(QFD) is a methodology used to
achieve higher customer satisfac-
tion. The engineering characteristics
affecting product performance are
designed to match the customer
requirements. The study discussed
in this article deals with the most
neglected and often-omitted part
of the QFD process—the interrela-
tionship matrix among customer
requirements.
This article presents a mathe-
matical solution to the correlation
triangle problem that incorporates
both customer requirements and
engineering characteristics. This new
approach addresses relationships in
a different and improved numerical
method.
This article shows the effective-
ness and preciseness of the proposed
model. Numbers are used to repre-
sent the imprecise nature of the
judgments and to define more
appropriately the relationships
among customer requirements.
The model is shown to be compu-
tationally feasible for realistic
problems and outperforms tradi-
tional approaches on the basis of
being relatively straightforward
and simplified. The proposed
approach is shown to produce
more informative results, adding
credibility to the outcome and its
analysis, for the benefit of the
product designers and developers.
Foster v14 i4 9/20/07 10:10 AM Page 7
Does Six Sigma
Improve Performance?
S. THOMAS FOSTER JR.
BRIGHAM YOUNG UNIVERSITY
This article presents the long-term financial and oper-
ational results coming from the implementation of Six
Sigma. The results from Six Sigma programs were
somewhat mixed. The author found a significant effect
on free cash flow (FCF), earnings before interest,
taxes, depreciation, and amortization (EBITDA), and
asset turnover. Six Sigma did not seem to affect sales
return on assets, return on investment, or firm
growth. As a result, if firms want to improve cash,
earnings, or productivity in using assets, Six Sigma
might be of use. In 1998, companies with high cash
flows and no quality management program (QMP)
had lower FCF in 2002 than companies that had
adopted Six Sigma. Companies with low cash flow and
no QMP did better than companies using Six Sigma,
suggesting that for cash-poor firms, Six Sigma may be
a drain on resources. Also, these companies may not
have the cash necessary to sustain effective Six Sigma
results over four years. Among companies with low
and medium asset turnover, Six Sigma led to higher
asset turnover. It could be that companies with low
asset turnover could benefit more from process
improvement implicit in Six Sigma than firms with
high asset turnover.
Key words: financial and operational outcomes, quality
management, Six Sigma
© 2007, ASQ
INTRODUCTION
In recent years, many firms have adopted Six Sigma in
an effort to improve quality and reduce costs (Pyzdek
2003). Six Sigma has been attractive to business exec-
utives, as it is thought to overcome some of the pitfalls
of historical quality management implementations
(Linderman et al. 2003). Quality management pro-
grams have been criticized for relying on improvement
without mechanisms for ensuring that positive results
will ensue (Howard, Foster, and Shannon 2005). That
is, if employees are trained and empowered in quality
improvement approaches, quality improvements and
benefits will “percolate to the top,” thereby improving
company performance.
On the other hand, the Six Sigma approach
requires more direction and leadership from top
management than traditional quality management.
This is termed “leadership for Six Sigma” (Foster
2007; Treichler et al. 2002). Along with this higher
degree of leadership is a more structured process for
improving performance. One approach to Six Sigma
is the five-phase define, measure, analyze, improve,
and control (DMAIC) process. Included with DMAIC
is a method for leaders to prioritize potential
improvement projects based on the probability that
such projects will result in financial benefit to the
organization.
Similarly, another defining aspect of Six Sigma is
its greater emphasis on cost reduction through quality
improvement. This aspect includes a target of at least
$200,000 in cost reduction for each Six Sigma project
taken on with two to three projects per Black Belt over
a one- to two-year period (Bisgaard and DeMast
2006). Such returns are the results expected from the
high cost of investing in Black Belt employees.
www.asq.org 7
Foster v14 i4 9/20/07 10:10 AM Page 8
Does Six Sigma Improve Performance?
The convergence of these dimensions of leadership,
structured process for improvement, and focus on
financial results present in Six Sigma was designed to
address the perceived weaknesses of traditional quality
management. It is expected that this increased focus
on financial outcomes should result in improvements
in financial and operational results. The purpose of
this research is to determine if this is indeed the case.
LITERATURE REVIEW AND
HYPOTHESIS DEVELOPMENT
Several studies have examined the impact of quality
practices on financial and operational results
(Kaynak 2003). Most of these studies compare the
results of firms that adopt quality practices versus
control groups to determine if quality practices signif-
icantly influence financial and operational results.
The purpose of this literature review is threefold. The
author defines Six Sigma. Then he identifies similar
studies that have examined the financial and opera-
tional impacts of different quality improvement
approaches such as total quality management (TQM).
Finally, he uses this review to provide a basis for
selecting variables to be studied in this research.
Six Sigma
The author’s literature review revealed only one article
relating to Six Sigma in an A-level journal (Linderman
et al. 2003). Linderman et al. studied Six Sigma from
a goal-theoretic perspective. They examined the rela-
tionship between goals and Six Sigma success and
developed a series of propositions suggesting that high,
yet attainable, goals were important to the success of
Six Sigma programs. They also examined the inter-
vening effects of effort, persistence, and direction
resulting from explicit Six Sigma goals. Given the wide
adoption of Six Sigma in many organizations around
the world, there is a need for more research elucidat-
ing the benefits and costs of Six Sigma implementa-
tion. Currently, no studies investigate the relationship
between Six Sigma implementation and financial and
operational results.
8 QMJ VOL. 14, NO. 4/© 2007, ASQ
The most common process for Six Sigma is DMAIC.
This is similar to the plan, do, check, act (PDCA) cycle
proposed by Walter Shewhart and W. Edwards Deming
(Deming 1986). Since results from Six Sigma are
closely related to the DMAIC process, the author dis-
cusses it in detail. It should be noted that as recently
as the 1990s, many companies used DMAIC to guide
Six Sigma projects.
In the define phase, projects are identified and
selected. Project selection is performed under the
direction and with the participation of a Six Sigma
champion. Also involved are Master Black Belts and
Black Belts or Green Belts. Project selection is per-
formed in four steps: 1) developing the business case;
2) project evaluation; 3) Pareto analysis; and 4) project
definition. Business case development involves identify-
ing a group of possible projects, writing the business
case, and stratifying the business case into problem and
objective statements. Project evaluation often involves
risk and return assessment. The key individuals in per-
forming this analysis are project champions. Project
champions are usually top management executives
who have legitimate and financial authority to support
Six Sigma projects (Treichler et al. 2002). The process
for defining Six Sigma projects helps in prioritizing
which projects will provide the greatest financial and
operational returns.
The measure phase involves two major steps:
1) selecting process outcomes; and 2) verifying meas-
urements. To select process outcomes, process mapping
is used to help understand and define the process
itself. A process map is a flowchart showing responsi-
bilities (Gourishankar 2003). The goal of a process
map is to identify nonvalue-added activities. Two
important measures that are monitored are defects per
unit (DPU) and defects per million opportunities
(DPMO). Measurement systems analysis (MSA) is
used to determine if measurements are consistent
(Conklin 2006).
The analyze phase involves gathering and ana-
lyzing data relative to a particular Black Belt project
(Pyzdek 2003). The analyze-phase steps are as follows:
1) define the performance objectives; 2) identify inde-
pendent variables (Xs); and 3) analyze sources of
variability. Defining objectives involves determining
Foster v14 i4 9/20/07 10:10 AM Page 9
Does Six Sigma Improve Performance?
what characteristics of the process need to be changed to
achieve improvement. Next, independent variables are
identified for gathering data. These are variables that
significantly contribute to process or product variation.
The goal of analyzing sources of variability is to use
visual and statistical tools to better understand the rela-
tionships between dependent (X) and independent (Y)
variables for use in future experimentation. A variety
of tools are used in this analysis, including his-
tograms, box plots, scatter plots, regression analysis,
and hypothesis tests.
The improve phase of the DMAIC process involves
off-line experimentation (Antony and Esamilla 2003;
Montgomery 2004). Off-line experimentation involves
studying the identified variables and using design of
experiments (DOE) to determine whether the inde-
pendent variables significantly affect variation in
dependent variables.
The control phase involves putting into place
process checks to ensure that improvements are long
lasting. The DMAIC process provides a process for
improving operational results that is cost-reduction
oriented. This results in the removal of waste from
processes. These improvements are expected to result in
operational and financial improvements. In this
research, the author examines whether this is the case.
Financial Results
Previous studies on the financial and operational
impacts of quality efforts have provided mixed results.
The Jacobsen and Aaker (1987) study using the Profit
Impact of Market Strategy (PIMS) database examined
the relationship between quality and market share,
return on investment (ROI), relative price, relative
cost, and relative quality. Jacobsen and Aaker (1987)
found the impacts of quality improvement practices to
be positive and significant. Depending on how busi-
nesses were grouped, however, they found variance in
results that might be reflective of business strategies.
Phillips, Chang, and Buzzell (1983) found similar
relationships and added that product quality appeared
to be negatively related to cost.
Several researchers have investigated the impact
of quality practices on stock prices. Easton and Jarrell
(1998) reviewed the financial results of 108 firms that
started TQM programs between 1981 and 1991. They
found that these firms’ stocks outperformed a control
group by finding excess cumulative returns. Hendricks
and Singhal (1996; 1997; 2001a; 2001b) found similar
results by analyzing the market returns of quality
award winners. Hendricks and Singhal used winners of
various awards to determine whether implementing
effective TQM resulted in improved operating perform-
ance in firms. They used the winning of a quality
award as a proxy for effective implementation of TQM.
In their research, they found strong evidence that
winners of quality awards outperformed control firms
on operating-income-based measures. Subsequent to
their studies, other researchers have continued to
study receipt of awards such as the Malcolm Baldrige
National Quality Award as indicative of mature quality
implementation (Rajan and Tamimi 1999; Wilson and
Collier 2000; Dean and Tomovic 2004). The literature,
however, is not unanimous. York and Miree (2004)
studied the links between TQM and financial perform-
ance. Conducting a comparison of the financial per-
formance of quality award winners against their
control firms by SIC groups, they studied performance
both before and after the winning of the Baldrige
Award. York and Miree found that TQM firms had better
financial performance before and after they won the
awards—some for even 20 years prior to winning the
awards. The author suggested that winning the award
was a covariate for financial success.
Adams, McQueen, and Seawright (1999) studied
the stock performance of Baldrige Award winners
from the day their award was announced. They found
only limited evidence to support the hypothesis that
stockholders are rewarded with abnormal returns on
the day of the quality award announcement. They
suggested that stock analysts may have been fore-
warned that the company was winning or that they
were at least aware of prior TQM efforts. They also
suggested that there may be little impact on stock
price, as stock impact is not the purpose of the
Baldrige Award. They do propose that stock impacts
relating to announcements are not as important as
improvements relating to quality improvement
efforts. While many studies have focused on the
www.asq.org 9
Foster v14 i4 9/20/07 10:10 AM Page 10
Does Six Sigma Improve Performance?
financial and operational results of TQM and the
Baldrige Award (Pannirselvam, Siferd, and Ruch
1998), the author’s literature review revealed no such
studies relative to Six Sigma.
It is expected that Six Sigma should result in
improved financial performance. Since Six Sigma
emphasizes reductions in cost and increases in meas-
ures such as rolled-throughput, one should find that
cash flows, earnings, and other financial measures will
show improvement. General Electric (GE) has reported
more than $12 billion in savings due to Six Sigma.
Similarly, Motorola reported $15 billion in savings over
11 years from Six Sigma implementation. As processes
and products are improved, it is also expected that sales
will improve. This research was performed to see if the
expected financial results occurred for companies that
implemented Six Sigma overall.
As the author has discussed, when compared with
traditional quality management, Six Sigma is much
more cost-reduction and financial-results oriented. A
comprehensive review of the quality management lit-
erature reveals that financial and operational perform-
ance could generally be categorized as measuring
profitability, cost, efficiency, and growth (Phillips,
Chang, and Buzzell 1983; Jacobsen and Aaker 1987;
Ward, Leong, and Boyer 1994; Flynn, Schroeder, and
Sakakibara 1995; Mohrman et al. 1995; Hendricks and
Singhal 1996; 1997; Easton and Jarrell 1998; Samson
and Terziovski 1999; Curkovic, Vickery, and Droge
2000; Lapre, Mukherjee, and VanWassenhove 2000;
Wilson and Collier 2000; Cua, McKone, and Schroeder
2001; Devaraj, Matta, and Conlon 2001; Douglas and
Judge 2001; Fynes and Voss 2001; Hendricks and
Singhal 2001a; 2001b; Park, Hartley, and Wilson 2001;
Sousa and Voss 2001; Eriksson and Hansson 2003;
Fullerton, McWatters, and Fawson 2003; Kaynak
2003). For this study, the author used a modified ver-
sion of Hendricks and Singhal’s (1997) performance
measures. Financial measures used in this study
include free cash flow per share; cost per dollar share;
earnings before interest, taxes, depreciation, and
amortization (EBITDA); sales; and sales per employee.
The author starts with the following proposition:
Proposition 1: Six Sigma adoption will positively
affect financial results.
10 QMJ VOL. 14, NO. 4/© 2007, ASQ
Next, this proposition is translated into five hypothe-
ses for this study. The author posits that investment in
Six Sigma training and implementation signals a
focus on aggressive cost reduction coupled with
process and organizational improvement. Given that
costs are reduced, cash is freed up for other uses. This
results in hypotheses H1a and H1b:
• H1a: Six Sigma adoption is positively associated with
free cash flow per share.
• H1b: Six Sigma adoption is positively associated with
cost per dollar sales.
As a result of this signaling of a focus on process
and organizational improvement, operating margins
should improve. This argument is similar to Deming’s
value chain—that focusing on quality will result in
lower costs and improved performance. Since operating
margin can be expressed as EBITDA/sales, the author
proposes the following three hypotheses:
• H1c: Six Sigma adoption is positively associated
with EBITDA.
• H1d: Six Sigma adoption is positively associated
with sales.
• H1e: Six Sigma adoption is positively associated
with sales per employee.
Operational Results
In addition to looking at financial results, many stud-
ies have examined the relationship between quality
implementation and operational results. Again, the
author reviews these studies to understand impacts
found by traditional quality improvement approaches.
Dow, Samson, and Ford (1999) studied the effect of
quality practices on quality outcomes. They categorized
quality practices into nine dimensions. Not all of their
dimensions, however, contributed to superior quality
performance. Employee commitment, shared vision,
and customer focus yielded positive correlations with
quality outcomes. Conversely, other hard quality
practices, such as benchmarking, work teams,
advanced manufacturing technologies, and close
supplier relations, were not related to superior quality
operational results.
Foster v14 i4 9/20/07 10:10 AM Page 11
Does Six Sigma Improve Performance?
Focusing on the competitive aspects of quality per-
formance, Douglas and Judge (2001) found strong
empirical support for a positive relationship between
the degree of TQM implementation and organizational
performance. They also found some empirical evidence
that this relationship between TQM implementation
and organizational performance was moderated by
organizational structure.
Das et al. (2000) used structural equation modeling
to study the impacts of international competition on
quality. They found that competitive intensity provided
an explanation for the absence of returns from invest-
ments in quality capital. Obtaining customer satisfaction
performance from quality practices was shown to be
contingent on the degree of international competition
present in the business environment.
Curkovic, Vickery, and Droge (2000) studied the
direct effects of 10 quality action programs on six firm
performance outcomes as well as their indirect effects
through eight quality performance dimensions. Two
paths from action programs through quality perform-
ance to firm performance in the automotive supply
industry were identified. The first path was product
quality, whose hallmarks were superior performance on
conformance and design quality. The second path
involved relationship quality. This path included supe-
rior customer responsiveness and service. Both the
product-quality and the relationship-quality paths led
to superior operational ROI. Product quality led to
enhanced return on assets (ROA), and relationship
quality led to enhanced market share performance.
Flynn, Schroeder, and Sakakibara (1995) con-
structed a framework that focuses on both core quality
management practices and the infrastructure used to
engender an environment supportive of their use. They
incorporated two measures of quality performance and
their roles in establishing and sustaining competitive
advantage. The author used path analysis to test a pro-
posed model that explained that perceived quality
market outcomes were primarily related to statistical
control/feedback and the product design process, while
the internal measure of percent that passed final
inspection without requiring rework was strongly
related to process flow management and statistical
control/feedback. The focus of most Six Sigma efforts
is on operational improvements. By focusing on the
processes and variables associated with operational
outcomes (for example, y=f(x)), it is expected that
Six Sigma programs will result in more efficient uses
of assets and higher ROI. The general proposition is
stated as:
Proposition 2: Six Sigma adoption results in better
operational results.
Using COMPUSTAT, the author computed several
operational measures using productivity ratios. Part of
the process of Six Sigma is to improve the use of assets.
During the improve phase of the DMAIC cycle, DOE
involves tolerance design, systems design, and parame-
ter design (Foster 2006). Systems design involves
choices, tradeoffs, and improvements to existing assets.
These improvements may include the optimization of
plant, equipment, or technology. Implicit in this
improved usage is a more productive usage of assets.
This results in hypotheses H2a through H2d.
• H2a: Six Sigma adoption is positively associated with
asset turnover.
• H2b: Six Sigma adoption is positively associated with
return on assets.
• H2c: Six Sigma adoption is positively associated with
return on investment.
• H2d: Six Sigma adoption is positively associated with
total assets.
Improvement efforts such as Six Sigma could help a
company to grow as profitability improves. Often these
efforts result in downsizing and the more productive use
of employees. Therefore, Six Sigma could result in either
growth in the number of employees or a reduction in the
number of employees. The literature is not clear on this
issue. Therefore, hypothesis H2e is stated in null form.
• H2e: Six Sigma adoption is not related to number of
employees.
METHODS
This study examines the long-term financial and opera-
tional impacts of implementing Six Sigma. In order to
create a population of Six Sigma-adopting firms, the
author performed a keyword Lexis/Nexis (LexisONE)
www.asq.org 11
Foster v14 i4 9/20/07 10:10 AM Page 12
Does Six Sigma Improve Performance?
online search of corporate financial reports for the terms
Six Sigma, ISO 9000, TQM, and Baldrige through the
LexisONE subscription database. Since annual reports
are used to transmit information to shareholders, the
mention of a quality management initiative such as Six
Sigma is interpreted as signaling an organizational
commitment to that effort. Since annual reports are
used to elucidate strategic emphases, it can be said that
these quality improvement efforts are strategic in nature.
Using this rationale, the author performed a content
analysis to determine which firms had announced the
implementation of Six Sigma. Initially, the year 1998
was searched. Since only 12 Six Sigma firms were
returned, the author also searched 1996 and 1997. This
content analysis of annual reports resulted in a list of 30
companies that had adopted Six Sigma as a means of
improving performance. In a further step, they assem-
bled a panel of six judges, including academics and
quality professionals, to perform a content analysis of
the annual reports found in LexisONE to determine
which firms showed strategic commitment to Six Sigma.
Based on this content analysis, six firms were removed
from the analysis, resulting in a final set of 24 Six Sigma
firms. They also found 24 Baldrige firms, 26 TQM firms,
and 23 ISO 9000 firms. In addition, a randomly selected
list of 50 companies from the 1998 Fortune 500 list was
used as a control group.
Company ticker symbols were obtained using
Hoover’s Online, and the database of firms the author
created was searched for duplicates and firms that were
returned in more than one search. If a firm in the control
group was also returned in the list of Six Sigma compa-
nies, it was deleted from the control group and another
firm in the Fortune 500 was randomly selected. In addi-
tion, firms no longer in business or that had been
acquired since 1998 were also stricken. In the end, the
database of control firms was reduced to 41 companies.
As stated, a modified version of Hendricks and
Singhal’s (1997) performance measures was used.
Profitability measures used were earnings (EBITDA),
ROA, operating margin (EBITDA/sales), and net sales.
Cost structure was analyzed by calculating cost per
dollar of sales and FCF per share. Relative firm growth
measures were obtained using total assets and number
of employees.
12 QMJ VOL. 14, NO. 4/© 2007, ASQ
Firm data were collected using Standard and Poor’s
COMPUSTAT database. Data were collected for the firms
drawn from the Lexis/Nexis database for fiscal years
1998 through 2004. This provided data for the author’s
longitudinal analysis.
In this article, the author compares results from the
time Six Sigma was mentioned in the annual report to
four years later. This four-year interval is needed, as it
takes time for quality improvement programs to yield
significant results. In a study of best quality practices,
Ozan (1992) found that quality improvement pro-
grams should be implemented gradually. A study by the
United States General Accounting Office (1991) stated
that, on average, 3.5 years were required to see signifi-
cant results for TQM programs. In a study of the U.S.
auto industry, Narasimhan, Ghosh, and Mendez (1993)
found a 2.26-year lag between quality improvement
efforts and sales improvements. Foster (1996) studied
the speed of quality improvement in five different pro-
duction facilities and found that plants that improved
more slowly actually had better financial results than
plants that attempted to improve rapidly. Given these
prior research results, it was thought that a four-year
interval would provide necessary time to see significant
improvement in results if it was present.
RESULTS
The results are organized according to the outcome
variables studied. For each dependent variable the
author discusses data transformation (when needed).
Next, analysis of covariance (ANCOVA) results for main
effects are presented. ANCOVA was used to test where sig-
nificant differences exist between outcomes for each of
the treatments. ANCOVA is a general linear model with
one explanatory variable and multiple factors. It was
applied where a potentially strong correlation exists
between independent and dependent variables. Then,
the author explains interactions between various quality
programs (Six Sigma, Baldrige, TQM, and ISO 9000)
and no quality program relative to each financial or
performance outcome. The interaction tests used
ANCOVA to determine if there are significant interaction
effects between quality management programs (QMP)
and outcomes. Model-based estimates are presented for
Foster v14 i4 9/20/07 10:10 AM Page 13

Does Six Sigma Improve Performance?

Table 1 Summary statistics for FCF in 1998 Table 2 ANCOVA results main effects.
and 2002. Term F value Pr>F
1998 2002
Free cash flow .94 0.3300
Number of companies 138 138
Log cost per dollar sales 36.07 <.0001
Minimum -14.05 -22.18
EBITDA 9.57 0.0027
25th percentile -0.54 0.33
Log of sales 579.24 <.0001
Median 0.25 1.05
Sales per employee 306.97 <.0001
75th percentile 0.85 2.38
Asset turnover 3.01 0.0800
Maximum 17.58 12.40
ROA 1.12 0.2910

© 2007, ASQ
Mean 0.19 1.19
ROI 1.81 0.1806
Standard deviation 2.82 3.63

© 2007, ASQ
Total assets 1.66 0.2006

Log number of employees 860.94 <.0001

companies in the 10th percentile, median, and 90th
percentile. The percentiles were determined according to
firm size, as prior research has suggested that firm size Table 3 ANCOVA results interaction terms.
has a moderating effect on QMP effects (Hendricks and
Term F Value Pr>f
Singhal 2001a; York and Miree 2004). Finally, hypothe-
sis tests were performed to study the author’s research Free cash flow by QMP 6.08 0.0002
propositions. The results are presented according to Log cost per dollar sales by QMP 16.99 <.0001
financial or performance outcome in order to enhance
EBITDA by QMP 8.56 <.0001
clarity of presentation.
Log sales by QMP .83 0.5101

Free Cash Flow Per Share Sales per employee by QMP 0.46 0.7600

Summary statistics for free cash flow per share (FCF) in Asset turnover by QMP 14.94 <.0001
1998 and 2002 are presented in Table 1. This summary ROA by QMP 2.45 0.0490
shows that 138 companies were evaluated for this
ROI by QMP 2.42 0.0517
research. These companies are rank ordered, with the
© 2007, ASQ

34th company in the 25th percentile, company 69 at the
median, and the 104th company at the 75th percentile.
These statistical tests were performed using SAS.
The model for FCF in 2002 was fit with all data
present and no transformations. Table 2 shows the
ANCOVA results for FCF (as well as the other measures).
The author has combined tables here for efficient pres-
entation. Table 2 shows that the main effect for FCF
was not significant. However, as is shown in Table 3,
the interaction term for FCF by QMP was significant
(p < 0.0002). With a low R2 of 0.22, this suggests that
other variables are having an effect on an otherwise
null model. The first five rows in Table 4 present
Total assets by QMP 17.4 <.0001
Log employees by QMP 1.14 0.3400
model-based estimates of FCF in 2002 at key levels of
FCF in 1998. For reference, Table 5 shows the counts
of companies in various percentiles of FCF in 1998 to
provide an indication of the range of data behind the
estimates shown in previous tables and figures.
Companies without a QMP appear to have a differ-
ent relationship between FCF in 2002 and 1998 than
all other companies. While FCF in 2002 appears to be
more or less positively related to FCF in 1998, these

www.asq.org 13
Foster v14 i4 9/20/07 10:10 AM Page 14

Does Six Sigma Improve Performance?

companies have a negative relation- Table 4 Model-based mean estimates (std. error of estimates)
ship between FCF in 2002 and 1998. of effects in year 5, based on levels of year 1.
Figure 1 plots this interaction.
Free Cash Flow 10th Median 90th
The author evaluates H1a in Table 6.
Among companies with high FCF in Six Sigma 1.59 (0.75) 1.64 (0.68) 1.7 (0.83)
1998, those with no QMP have an esti- Baldrige 1.27 (0.76) 1.94 (0.73) 2.65 (1.04)
TQM -0.29 (1.35) 1.61 (0.69) 3.61 (1.38)
mated FCF for 2002 that is substantially
ISO 0.79 (1.03) 1.21 (0.77) 1.65 (1.43)
lower than all other companies, whereas No QMP 2.59 (0.67) 1.13 (0.55) -0.4 (0.56)
companies using Six Sigma have an esti-
Cost Per Dollar Sales
mated 2002 FCF that is substantially
higher than all other companies. Thus, Six Sigma -0.18 (0.06) -0.13 (0.02) -0.11 (0.04)
they see Six Sigma companies and the Baldrige -0.34 (0.04) -0.13 (0.02) -0.02 (0.03)
TQM -0.1 (0.02) -0.1 (0.02) -0.098 (0.02)
average of all companies with a QMP as
ISO -0.16 (0.03) -0.07 (0.02) -0.02 (0.03)
having significantly higher FCF in 2002 No QMP -0.35 (0.03) -0.16 (0.02) -0.07 (0.02)
than those companies without a QMP.
EBITDA
At low FCF in 1998, however, those
companies without a QMP had signifi- Six Sigma 2.76 (3.56) 11.88 (2.97) 23.99 (3.14)
cantly higher FCF in 2002, leading to Baldrige 15.11 (4.96) 8.73 (3.49) 0.263 (3.79)
TQM 2.63 (4.8) 7.58 (3.07) 14.15 (7.04)
the patterns of significance displayed ISO 10.98 (4.27) 13.68 (3.29) 17.26 (3.79)
in Table 6. No QMP 5.69 (3.17) 13.8 (2.19) 24.57 (3.22)

Asset Turnover
Cost Per Dollar Sales Six Sigma 15,272 (2,550) 10,116 (2,083) 812 (2,725)
It was evident from the review of the Baldrige -2,352 (3,392) -627 (2,685) 2,487 (2,826)
TQM 11,426 (5,604) 4,765 (2,519) -7,255 (6,004)
1998 data that cost per dollar sales value
ISO 9,435 (8,878) 4,937 (2,614) -3,182 (12,084)
was extremely skewed, and to better No QMP 6,266 (1,957) 6,011 (1,579) 5,551 (2,252)
accommodate model fitting, the author
ROA
fitted the model to the natural log of
cost per dollar sales. The 2002 values, Six Sigma 2.18 (2.25) 2.28 (1.75) 2.37 (2.34)
however, were evenly distributed. Baldrige -1.17 (2.77) -1.12 (1.77) -1.13 (2.42)
TQM 3.74 (3.76) 3.08 (1.84) 2.55 (2.54)
Table 2 shows the ANCOVA results
ISO -1.52 (1.96) 2.65 (1.88) 5.96 (2.08)
for the model fit to logged cost per dol- No QMP 1.98 (1.71) 2.87 (1.29) 3.58 (1.8)
lar sales. As shown in Table 3, because
ROI
of the significant interaction between
1998 cost per dollar sales and QMP, the Six Sigma 3.91 (3.8) 4.25 (2.98) 4.47 (3.67)
effect of QMP is different depending on Baldrige -6.05 (4.76) -0.82 (3.02) 2.63 (3.68)
TQM 7.26 (7.96) 6.88 (3.06) 6.63 (5.32)
the level of cost per dollar sales in
ISO -2.08 (3.77) 6.81 (3.45) 12.67 (4.26)
1998. Table 4 gives the model-based None 8.2 (3.3) 6.46 (2.19) 5.3 (2.93)
estimates for mean (logged) cost per
Total Assets
dollar sales in 2002 by QMP and level
of 1998 logged cost per dollar sales. Six Sigma -705.3 (1659.4) 1894 (1 j610.9) 6140.6 (1562.7)
As can be seen in the plots of Baldrige 7682.9 (1937.1) 7523.7 (1804.5) 7263.5 (1741.2)
© 2007, ASQ

TQM -28.3 (3916.3) 1784.6 (1638.3) 4746.2 (6746.5)

means in Figure 1, the interaction
ISO 1502.8 (1846.6) 1950.3 (1718.7) 2681.4 (2220.2)
appears to result from different char- None 4135.2 (1193.8) 4545.1 (1167.6) 5214.9 (1396.8)
acteristics with respect to cost per

14 QMJ VOL. 14, NO. 4/© 2007, ASQ

Foster v14 i4 9/20/07 10:10 AM Page 15

Does Six Sigma Improve Performance?

dollar sales among compa- Table 5 Count of companies in each percentile category and QMP.
nies using TQM and those
Six Sigma Baldrige TQM ISO None Total
using either no QMP or one
of the other three under 0–10th percentile 3 6 1 4 14
study. All companies other 10th–50th percentile 7 10 14 16 7 54
than those with TQM appear
to have a direct relationship 50th–90th percentile 12 5 11 6 22 56

© 2007, ASQ
between cost per dollar sales 90th percentile and higher 2 3 1 8 14
in 2002 and 1998, while
Total 24 24 26 23 41 138
TQM companies appear to
have no such relationship.
Evaluation of the hypotheses of interest is given in was fairly symmetric, but it was peaked. Therefore, the
Table 6. Null hypotheses regarding Six Sigma compa- model for EBITDA in 2002 was fit with all data present
nies cannot be rejected. Among companies with low cost and no transformations.
per dollar sales in 1998, companies using the Baldrige Table 2 shows significant ANCOVA results (p < .0027).
Award criteria have a significantly lower predicted cost Table 3 shows the model-based estimates for EBITDA in
per dollar sales than companies using any of the other 2002. Because of the significant interaction between
three QMPs. Therefore, H1b is not supported. EBITDA 1998 and QMP, the effect of QMP is different
depending on the level of EBITDA in 1998. Table 4
shows model-based estimates of average EBITDA in
EBITDA 2002 at levels of 1998 EBITDA.
A review of the data showed that the distribution of Inspection of Figure 1 suggests the following as an
EBITDA in 1998 was skewed because of the presence of interpretation of the interaction: Among companies with
outlying companies. In 2002 the distribution of EBITDA the highest EBITDA in 1998, those using the Baldrige

Figure 1 Interaction Plots by Effect.

FCF 1998 by QMP interaction Return on Assets by QMP interaction
4 7
3.5 6
3 5
2002 Return on Assets

2.5 Six Sigma Six Sigma

4
2 Baldrige Baldrige
FCF 2002

3
1.5 TQM TQM
ISO 2 ISO
1
None 1 None
0.5
0 0
-2 -1 0 1 2 3 -4 -2 0 2 4 6 8 10
-0.5 -1

-1 -2
FCF 1998 1998 Return on Assets

Asset Turnover Logged Cost per dollar sales by QMP interaction ROI 1998 by QMP interaction
20,000 0 15
-0.35 -0.3 -0.25 -0.2 -0.15 -0.1 -0.05 0
-0.05
Logged cost/dollar sales, 2002

15,000
10
-0.1
2002 Asset Turnover

10,000 Six Sigma Six Sigma Six Sigma

-0.15 5
ROI, 2002

Baldrige Baldrige Baldrige

5,000 TQM -0.2 TQM TQM
ISO ISO 0 -4.1 8.4 16.6 ISO
-0.25
None None None
-3000 -2000 -1000 0 1000 2000 3000 4000 5000 6000
-0.3
-5
(5,000)
-0.35

(10,000) -0.4 -10

1998 Asset Turnover level Logged Cost/dollar sales, 1998 ROI, 1998

Mean EBITDA in 2002, by QMP and EBITDA in 1998 Total assets by QMP interaction
30.00 9000
8000
25.00 7000
6000
Six Sigma Six Sigma
Total assets 2002

20.00
5000
EBITDA 2002

Baldrige Baldrige
4000
15.00 TQM TQM
3000
ISO ISO
2000
10.00 None None
© 2007, ASQ

1000
5.00 0
-1000 0 1000 2000 3000 4000 5000 6000 7000
-1000
0.00 -2000
0 5 10 15 20 25 30
Total Assets 1998
EBITDA 1998

www.asq.org 15
Foster v14 i4 9/20/07 10:10 AM Page 16

Does Six Sigma Improve Performance?

Award criteria had the low- Table 6 Hypothesis results.

est EBITDA in 2002, and
Free cash flow 10th1 Median2 90th3
those using Six Sigma or no
QMP had the highest. That Six Sigma vs. No QMP -1 (0.99) 0.5 (0.87) 2.1 (1.01)*
result is somewhat reversed Six Sigma vs. Other QMP 1 (0.99) 0.05 (0.81) -0.94 (1.12)*
among companies with the
lowest EBITDA in 1998. Any QMP vs. No QMP 1.75 (0.85)* -0.46 (0.67) -2.8 (0.82)*

Evaluation of the Cost per dollar sales

hypotheses of interest is
Six Sigma vs. No QMP 0.17 (0.08) 0.03 (0.03) -0.04 (0.05)
given in Table 6. The
EBITDA in 2002 is statisti- Six Sigma vs. Other QMP 0.01 (0.07) -0.03 (0.03) -0.06 (0.05)

cally equivalent between Any QMP vs. No QMP -0.16 (0.04)* -0.06 (0.02)* -0.01 (0.03)
Six Sigma companies and
EBITDA
companies with no QMP,
regardless of EBITDA in Six Sigma vs. No QMP -2.93 (4.71) -1.92 (3.66) -0.57 (4.54)
1998. Among companies Six Sigma vs. Other QMP -6.81 (4.44) 1.88 (3.52) 13.43 (4.3)*
with a QMP, Six Sigma
Any QMP vs. No QMP -2.17 (3.84) 3.33 (2.76) 10.65 (4.13)*
companies have a higher
EBITDA in 2002. However, Asset turnover
this only holds among Six Sigma vs. No QMP 9005.74 (2813.7)* 4105.52 (2592.55) -4738.12 (2696.38)
companies with a higher
Six Sigma vs. Other QMP 9101.92 (4355.24)* 7091.12 (2571.04)* 3462.13 (5065.76)
EBITDA in 1998; for all
others, performance of Any QMP vs. No QMP -2179.08 (3458.55) 1213.03 (2110.05) 7334.95 (3709.69)
EBITDA in 2002 is equiva-
ROA
lent. This provides partial
support for H1c. Six Sigma vs. No QMP 0.20 (2.82) -0.58 (2.17) -1.21 (2.97)

Six Sigma vs. Other QMP 1.81 (2.85) 0.76 (2.06) -.09 (2.70)

Sales Any QMP vs. No QMP 1.16 (2.22) 1.15 (1.63) 1.15 (2.21)

Despite a large range of Total assets

sales data, the raw data Six Sigma vs. No QMP -4,840.5 (2,029.3) -2,651.1 (1,975.6) 925.7 (2,087.3)
were left in their original
scales. The author exam- Six Sigma vs. Other QMP -3,757.9 (2,293.2) -1,858.9 (1,894.2) 1,243.5 (2,895.8)
© 2007, ASQ

ined the summary of sales Any QMP vs. No QMP
data and found they were
* p < .0001
extremely skewed. To bet-
ter accommodate model
fitting, he modeled the natural log of sales.
Table 2 gives the ANCOVA table for the model for
logged sales. While the overall R2 for the model is 0.93,
no terms other than sales in 1998 have any explanatory
power for sales in 2002 (see Table 3). For this reason, the
author concludes that the null hypotheses of interest
cannot be rejected and that Six Sigma has no influence
on sales. Therefore, H1d is not supported.
2,022.1 (1,754) 1,257 (1,476.2) 7 (2,362.3)
Sales Per Employee
The raw data were divided by 1,000 to drop the scale to a
more useable level. It was evident from the summary
data that this value was extremely skewed, and to better
accommodate model fitting, the author used the natural
log of sales per employee (in thousands). Table 2 gives
the ANCOVA table for the model fit. While the overall

16 QMJ VOL. 14, NO. 4/© 2007, ASQ

Foster v14 i4 9/20/07 10:10 AM Page 17
Does Six Sigma Improve Performance?
R2 for the model is a high 0.77, no terms other than
sales per employee in 1998 have any explanatory power
for sales per employee in 2002 (see Table 3). For this
reason, they concluded that the null hypotheses H1e
cannot be rejected and that QMP has no influence on
sales per employee.
Asset Turnover
Once again, Table 2 shows the ANCOVA table for the
model fit, and Table 4 shows the model-based esti-
mates for asset turnover in 2002. These estimates
indicate that companies with high asset turnover in
1998 had a lower 2002 asset turnover than companies
with a low asset turnover in 1998. This is generally
true for companies using Six Sigma, TQM, and ISO
9000. The 2002 asset turnover for Baldrige companies
shows the opposite pattern (companies with high asset
turnover in 1998 had higher asset turnover in 2002
than those with lower 1998 asset turnover). Those
companies with no QMP showed no real difference in
2002 asset turnover, regardless of their 1998 asset
turnover. Figure 1 plots these estimates from Table 4.
Evaluation of the hypotheses of interest is given in
Table 6. Among companies with low and median 1998
asset turnover, companies using Six Sigma QMP had
significantly higher asset turnover in 2002 than com-
panies with no QMP; the asset turnover of these Six
Sigma companies was also higher than the average of
companies with the other three programs. Among
companies with high asset turnover in 1998, there was
no significant difference among any of the hypotheses
of interest. Therefore, H2a is partially supported.
Return on Assets
Table 2 gives the ANCOVA table for the model fit, and
Table 3 shows the model-based estimates for ROA in
2002. Table 3 shows a significant interaction between
ROA and sales (p < .05). Table 4 provides the model-
based estimates of average 2002 return on investments
at levels of 1998 ROA.
Evaluations of the hypotheses of interest are given
in Table 6. While the interaction is significant, none
of the hypotheses of interest are. Table 6 provides
means and standard errors of the return on asset data
used in the model by QMP, company size, and year.
Therefore, H2b is not supported.
Return on Investment
ROI for either year looks bell-like in distribution except
for the presence of very long tails that show outlying
observations in both the positive and negative direction.
Attempts at transformation did little to pull in these
strong outliers. Thus, the ANCOVA model was fit on the
raw data. Table 2 shows the ANCOVA table. As one can
see in Table 3, at p < .05, the interaction of QMP by
ROI in 1998 is technically not statistically significant.
However, it is of borderline significance. Table 5 gives
the model-based estimates for ROI in 2002 by per-
centiles of ROI in 1998 and QMP. Figure 1 plots these
means for easier interpretation. From Figure 1 it
appears that Baldrige and ISO 9000 companies may be
responding differently than the companies with the
other three QMPs. This is descriptive only, however,
owing to the lack of significance of any of the terms in
the ANCOVA model. Therefore, H2c is not supported.
Total Assets
To bring the data to a more manageable scale, the
original data were divided by 1,000. The model was fit
with all available data for total assets in 2002. The
nonsignificant ANCOVA result is presented in Table 2.
As is shown in Table 3, because of the significant
interaction between total assets 1998 and QMP, the
effect of QMP is different, depending on the level of
total assets in 1998. Table 4 shows the model-based
estimates of the average total assets (in thousands) for
2002 for each QMP by levels of total assets in 1998.
Figure 1 shows a plot of the estimates to facilitate
general interpretation of the interaction. Generally, it
appears that the relationship between 1998 total assets
and 2002 total assets does not hold for companies
using Baldrige, ISO 9000, or no QMP.
Table 6 contains the tests of the hypotheses of
interest. Among companies at the highest level of total
assets in 1998, there is no difference in 2002 total
assets. For all others, however, those using the
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Foster v14 i4 9/20/07 10:10 AM Page 18
Does Six Sigma Improve Performance?
Baldrige Award criteria have higher total assets in
2002 than those using any other QMP. Therefore, H2d
is not supported.
Number of Employees
Because these data are skewed, the author used the
natural logarithm as the outcome in modeling efforts.
Table 2 gives the results of the ANCOVA model. For this
model, adding the indicator for company size was not
appropriate, so it was not included here. Because no
term other than the number of employees in 1998 is
statistically significant, H2e is not supported.
DISCUSSION AND CONCLUSIONS
As has been seen, the results from Six Sigma programs
are at best mixed. The author found a significant effect
on FCF, EBITDA, and asset turnovers; however, Six
Sigma did not seem to affect sales, ROA, ROI, or firm
growth. As a result, if firms want to improve cash,
earnings, or productivity in using assets, Six Sigma
might be of use. An intervening variable in this analy-
sis was firm size, which confirmed Hendricks and
Singhal’s finding on the importance of firm size. It
appears that firm size mitigates the effects of programs
like Six Sigma. Certainly, large firms such as GE and
Motorola have resources and assets to invest in Six
Sigma programs. These firms also showed great
capacity for improvement. Smaller firms may not
have the same resources to apply to such programs;
however, smaller firms that invest in efforts such as
Six Sigma may be impacted more significantly as a
total proportion of the firm’s business results.
Companies with high cash flows in 1998 and no
QMP had lower FCF in 2002 than companies that had
adopted Six Sigma. Companies with low cash flow
and no QMP did better than companies using Six
Sigma, suggesting that for cash-poor firms, Six Sigma
may in fact be a drain on resources. Also, these com-
panies may not have the cash necessary to sustain
effective Six Sigma results over four years. Therefore,
H1a was supported for firms with high cash flows, but
may have a negative effect for companies with poor
cash flows.
18 QMJ VOL. 14, NO. 4/© 2007, ASQ
Among companies with low and medium asset
turnover, Six Sigma led to higher asset turnover.
Therefore, H2a was supported for companies with low
and medium asset turnover in 1998. It could be that
these companies with low asset turnover could benefit
more from process improvement implicit in Six Sigma
than firms with high asset turnover.
The adoption of Six Sigma seemed to not affect ROA
and ROI significantly. This may not be surprising
because many factors affect ROA and ROI, as evidenced
by the DuPont model. Further investigation showed that
large firms using Six Sigma performed better. That is,
the improvement rates were in the correct direction. The
differences, however, were not significant. Reflecting
on the original research question regarding financial
and operational outcomes, it appears that at a macro
level, the effects, while in some cases significant, are
somewhat modest. While the author did see benefits in
both financial and operational areas, quality profes-
sionals should be careful to not oversell the benefits of
Six Sigma or any other QMP.
That Six Sigma did not affect firm growth was not
surprising. There were many exogenous macroeconomic
factors, including 9/11, that could have influenced
growth during this period. Powell (1995) and others
have stated that there are many factors that affect firm
growth other than quality management approaches.
Indeed, many quality programs have been associated
with reductions in number of employees. On the other
hand, that one is able to find any significant results for
these small numbers of firms demonstrates that quality
programs such as Six Sigma can potentially provide
important financial and operational returns. This
research is very high level with much room for future
study. Future studies should examine specific effects on
specific projects in companies. It is expected that such
studies could verify and clarify these findings.
Limitations
There were several limitations to this research. As was
discussed previously, financial results during this period
were influenced by 9/11 and other events. In addition,
these firms’ use of Six Sigma or other quality programs
in 1998 does not guarantee that they implemented these
Foster v14 i4 9/20/07 10:10 AM Page 19
Does Six Sigma Improve Performance?
programs effectively or maintained their strategic
support through 2002 and beyond. Of course, the
normal provisos concerning COMPUSTAT hold, as
these data were firm-level data, and many times Six
Sigma programs are implemented at the business unit
level. While the methodology the author used is
adapted from prior QMP studies, it is difficult to isolate
the effects of Six Sigma at a macro level. Future stud-
ies at a more micro level may help the understanding
of these phenomena.
This study included firms from a variety of indus-
tries. For future research, the author suggests industry-
specific studies of the effects of Six Sigma adoption. It
has been suggested that Six Sigma is best suited for
process industries. It is expected that in some ways such
industries would have been leading-edge adopters.
Implications for Managers
This research has implications for managers. The
author found negative cash flows for small firms, but
positive cash flows for larger firms. It is apparent that
managers in smaller firms should carefully consider
the cash flow impacts of quality improvement invest-
ments. Managers should also carefully monitor the
effects of Six Sigma efforts and focus on “hard dollar”
benefits. If not skillfully implemented, the benefits of
Six Sigma may be marginal. The “fad” element of Six
Sigma should also be noted. It is more likely that
companies that understand the benefits of Six Sigma
are able to effectively manage to achieve those bene-
fits. It could be that companies that implement Six
Sigma to merely parrot industry practice will likely
find modest competitive benefits from Six Sigma or
any other quality improvement effort.
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BIOGRAPHY
S. Thomas Foster is area leader of global supply chain at
Brigham Young University. He has published more than 50 quality-
related ar ticles in journals such as Decision Sciences,
International Journal of Production Research, the Journal of
Operations Management, the International Journal of Quality
and Reliability Management, the Quality Management Journal,
and Quality Progress magazine. His book is titled, Quality
Management: Integrating the Supply Chain (Prentice Hall).
Foster is founder of http://www.freequality.org, was awarded
the ASBSU 2000 Outstanding Faculty Award, and received the
prestigious 2002 Decision Sciences Institute Instructional
Innovation Award. He is currently serving as guest editor for a
special issue on supply chain quality for the Journal of
Operations Management. He served twice as an examiner for
the Malcolm Baldrige National Quality Award and is a member
of ASQ. He can be reached by e-mail at tom_foster@byu.edu.
Pinar v14 i4 9/20/07 10:10 AM Page 21
The Long-Term Impact of ISO 9000
Certification on Business Performance:
A Longitudinal Study Using Turkish
Stock Market Returns
MUSA PINAR AND CEYHUN OZGUR
VALPARAISO UNIVERSITY
The goal of this research was to examine the longitudinal
impact of ISO 9000 certification on business perform-
ance. The study compared the monthly stock returns and
variability of the returns of ISO 9000 certified versus
non-ISO 9000 certified firms traded on the Istanbul
Stock Exchange (ISE) from January 1997 to September
2005. The study also compared the stock returns and the
variability of the returns for the firms certified by
Turkish agency vs. foreign certifying agency. Using
annual two-year, three-year, and four-year averages of
the monthly stock returns, the results indicated that
ISO 9000 certified firms generally had higher returns
and lower variability of returns than non-ISO 9000
firms. Moreover, the comparisons of the longitudinal
means covering successive years showed that ISO 9000
certified firms consistently had higher means and lower
variances, some of which were statistically significant.
Finally, the certifying agency (Turkish or foreign) and
the length of time with ISO 9000 certification had little
effect on the stock performance and variability of the
returns.
Key words: business performance, ISO 9000 certification,
quality, Turkey
© 2007, ASQ
INTRODUCTION
Over the last two decades, the implementation of quality
systems has become a major initiative of companies
throughout the world. The concepts of quality gurus
such as W. Edwards Deming, J. M. Juran, and Philip B.
Crosby became highly publicized. Japan’s successful
implementation of continuous improvement, Kaizen,
and statistical quality tools, concepts, and practices
started the worldwide quality revolution. Eventually,
Japan became the world leader in quality for a wide
range of products. The emergence of Japan as a leader
in quality products eroded markets of U.S. companies.
In response, U.S. companies began implementing total
quality management (TQM) in their operations in the
late 1970s and early 1980s. By improving the quality of
their products, U.S. automobile makers recaptured
much of their lost market share. For example, Chrysler
moved from the brink of bankruptcy to being a highly
profitable company. In summary, the quality award
winners experienced increased income and sales after
they implemented TQM. Effective TQM implementation
results in improved customer satisfaction, employee
involvement, and continuous improvement.
In response to the global quality movements, the
European Community (EC) countries initiated their
quality standards known as ISO 9000 certification. ISO
9000 is an international standard for quality manage-
ment systems. The International Organization for
Standardization (ISO) formed Technical Committee 176
(TC 176) to develop a universally accepted set of quality
www.asq.org 21
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
standards. ISO adopted a series of quality standards in
1987, known as the ISO 9000 series of standards. These
standards have been applied to firms of all sizes and
from all areas of business. The worldwide impact of ISO
9000 could be illustrated by the fact that the number of
countries adopting the standards has continually
increased from 51 prior to 1992 (Bureau of Business
Practices 1992) to 161 at the end of 2005 (ISO 2006a).
Worldwide the number of ISO 9000 certificates grew
from only a few in 1987 to 776,608 by the end of 2005
(ISO 2006a). Large international industrial companies
such as Corning, Exxon, Du Pont, Volkswagen, Sandoz,
and Kodak initiated vigorous company programs to
implement standards at their operation sites (Rao,
Ragu-Nathan, and Solis 1997).
ISO 9000 is not a quality standard per se, but a series
of requirements for a quality management system. As
indicated in ISO 9001:2000 (Clause 1.1), the scope of
ISO 9000 is to specify requirements for a quality man-
agement system that: 1) consistently provides products
and services that meet the requirements of its cus-
tomers; and 2) enhances customer satisfaction through
the effective application of the system, including
processes for continual improvement and the assurance
of conformity to customer requirements. The 2000 ver-
sion of ISO 9000 comprises three documents: ISO 9000,
ISO 9001, and ISO 9004. The latest document provides
information and guidelines to help organizations estab-
lish and improve their quality management systems to
go beyond the minimum requirements (Peyrat 2001).
Many have examined the motives for implementing
ISO 9000 standards and the benefits the companies have
gained from ISO 9000 certification (Al-Ghamdi 1998;
Barnes 1998; Bhuian 1998; Brumm 1995; Chittenden,
Poutziouris, and Mukhtar 1998; Ebrahimpour, Whithers,
and Hikmet 1997; Eddy 1995; LRQA 1996; MORI 1996;
Morita 1996; O’Brien 1996; Peach 1997; Rabbit and
Bergh 1993; Rao, Ragu-Nathan, and Solis 1997; Rayner
and Porter 1991; SGS Yarsley 1996; Struebing 1996;
Vloeberghs and Bellens 1996; Weston 1995). These stud-
ies found that the most common motives for implement-
ing ISO 9000 fell into one of two broad categories of
internal or external company motives or activities. The
internal motives were improved customer service/reduced
customer complaints, increased efficiency, and the desire
to embed a quality culture or management control. The
22 QMJ VOL. 14, NO. 4/© 2007, ASQ
external motives were customer requirements and
responding to competitors’ demands. In addition,
achieving quality assurance certification is required by
legislation in several countries, and is implemented as a
marketing and promotional tool.
Several reasons for seeking ISO 9000 certification
have been suggested and/or documented empirically.
Anderson, Daley, and Johnson (1999) found, in a sample
of both certified and noncertified U.S. firms between 1990
and 1996, that contrary to the view held by many critics
of ISO 9000, managers obtained certification as a signal
of effective quality management practices rather than in
response to regulatory requirements. Two other surveys
revealed the most common reasons U.S. companies seek
ISO 9000 certification are: 1) to increase market share,
meet customer requirements, and improve process effi-
ciency (Ebrahimpour, Whithers, and Hikmet 1997); and
2) to meet customer requiremetns and the belief that ISO
certification would increase operational efficiency and
reduce costs (Struebing 1996). Compliance with various
regulatory and customer requirements were significant
explanatory variables for firms dealing with customers in
the EU (Anderson, Daley, and Johnson 1999). Brown, van
der Wiele, and Loughton (1998) found that, in a study of
firms in Western Australia, the main reasons for seeking
ISO 9000 certification included customer service, market-
related factors, and potential quality improvement.
With increasing globalization of trade, the ISO 9000
standards have rapidly become a force to be reckoned
with for any company doing business in international
markets, either directly or indirectly. As a result, a consid-
erable research effort has been devoted to investigating
the awareness, attitudes, concerns, barriers, and pre-
paredness of companies, especially manufacturing firms,
in regard to ISO 9000 in different countries. In fact, it has
become a competitive necessity for firms doing business
globally to acquire ISO 9000 certification. Several studies
provided support for the strategic role of ISO 9000 certifi-
cation for enhancing and facilitating international trade
and marketing, especially in Europe (Brumm 1995;
Ferguson 1996; Morita 1996; Peach 1997; Rao, Ragu-
Nathan, and Solis 1997; Reimann and Hertz 1996;
Simmons and White 1999). As a series of standards, ISO
9000 lays out the requirements for quality management
systems, which ensures a company’s buyers that it at least
has a fundamental quality system (Erel and Ghosh
Pinar v14 i4 9/20/07 10:10 AM Page 23
The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
1997). In different countries standards provide a com-
mon reference point of quality. For more information
about ISO 9000 readers may refer to Clements (1993) or
Rothery (1993).
Quality Initiatives and
ISO 9000 in Turkey
In recent years, the quality of Turkish products exported
to European countries has been steadily improving.
Evidence of this improvement is the number of
European Quality Awards and prizes won by Turkish
manufacturing companies in the last few years. In 1998
a consumer durable manufacturing company, Beko
Ticaret, a subsidiary of Turkish conglomerate Koc Group,
and Netas Inc., a Turkish telecommunications company,
won the small and medium enterprises (SME) and the
large business sector European Quality Awards, respec-
tively. In 2000, Eczacibasi Vitra, a major pharmaceutical
company, and Arcelik A.S., another Turkish durable con-
sumer goods manufacturer, were both named as two of
the “Large Business European Quality Prize” winners. As
the prospect of European Union (EU) membership
improves Turkish firms’ abilities to export their goods
to EU members, TQM programs, especially ISO 9000
certification, has gained more significance for the
competitiveness of the companies in Turkey.
In a study of 140 large Turkish manufacturing firms,
Ozgur, Meek, and Toker (2002) found differences in
usage and awareness of quality tools and concepts
between ISO 9000 certified and noncertified companies.
ISO 9000 certified companies constituted 78 percent of
the companies surveyed that used basic quality tools
more than noncertified companies. A study of ISO 9000
experiences of Turkish firms (Pinar, Guder, and Yucel
2000) showed that: 1) improving organizational per-
formance and product quality were the most important
motives for seeking ISO 9000 certification; and 2) ISO
9000 had the highest impact on management and
human resource factors, followed by organizational effec-
tiveness and customer factors. ISO 9000 certification had
the least impact on financial market factors. Another
study of ISO 9000 certified Turkish companies (Pinar and
Crouch 2001) found that 38.1 percent of firms have
“totally or somewhat achieved” their expectations from
ISO 9000 certification, while 61.9 percent said it was “too
early to decide or have not achieved” their expectations.
The results also showed a significant difference between
“achievers and nonachievers” of ISO 9000 expectations
with respect to firm size and export volume, and whether
the firm is classified as an exporter or a nonexporter,
where the achievers outperformed the nonachievers in all
performance areas.
While ISO 9000 is arguably the most influential set
of standards of its kind in the world, there is no com-
pelling evidence that the standards are ultimately good
or bad (Uzumeri 1997). Studies have shown that ISO
9000 companies expect that their quality systems will
lead to improved product design, process design, prod-
uct quality, public image, and supplier relationship
(Ebrahimpour, Whithers, and Hikmet 1997). Simmons
and White (1999), however, claim that the specific
empirical relationship between ISO 9000 registration
and business performance has not been established,
especially in the long term, based on objective measures.
They state that while there has been much published
work associated with ISO 9000, the empirical research
on this question is lacking systematic measurement and
multiorganizational comparisons.
Research Objectives
The purpose of this article is to examine the longitudinal
effect of ISO 9000 certification on business performance
by comparing the stock performances of ISO 9000 certi-
fied firms versus non-ISO 9000 certified firms traded on
Turkey’s Istanbul Stock Exchange (ISE). It is believed
that the impact of ISO 9000 success should be reflected
in their stock prices and returns. The main premise of
the study is that ISO 9000 certified firms are expected to
outperform the non-ISO 9000 firms in their respected
industries and, ultimately, on the stock market. The
specific objectives of the article are:
1. To provide information about the characteristics of
ISO 9000 and non-ISO 9000 firms traded on the ISE
2. To analyze the impact of ISO 9000 certification on
stock returns and stock return variability
3. To determine if the stock returns and the variability
of returns of ISO 9000 certified firms are influenced
by certifying organization (Turkish vs. non-Turkish)
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
To accomplish these objectives, the study will use the
average stock market returns and variances obtained
from monthly stock returns covering a time period from
January 1997 through September 2005. The study also
examines the difference in certifying agency (Turkish
vs. foreign). It is expected that the impact of ISO 9000
success should be reflected in their stock price returns
and variances. In other words, the main premise of the
study is that ISO 9000 firms should experience higher
returns and lower variances than non-ISO 9000 firms.
Since this study uses historical stock returns of the
companies, it is possible to examine the longitudinal
impact of ISO 9000 certification on business perform-
ance over a 105-month time period from January 1997
to September 2005.
BACKGROUND AND PRIOR
RESEARCH ON ISO 9000
One of the primary means of providing quality verifi-
cation is through ISO 9000 certification. ISO 9000
certification is based on quality standards written in
1987 by ISO and was adopted by the EC in 1989
(Wilson 1999). The only requirement of the original
ISO 9000 standards was that the organization should
have documentation and a verifiable process in place
to ensure that it consistently produced what it said it
would produce. Thus, a company could comply with
the standards and still produce a poor-quality product.
As a result, these standards have been criticized in the
literature (Erel and Ghosh 1997; Jackson and Ashton
1995; Reimann and Hertz 1996; Zuckerman 1997) for
omitting clauses that address customer satisfaction,
continuous improvement, and top management sup-
port. In a response to the dissatisfaction with the old
standards, these standards were revised in 1994 and
again in 2000. The most recent version is called the
ISO 9000:2000 family of standards (ISO 2006b). The
current standards represent a fundamental change in
approach over the earlier versions by focusing on the
following elements: top management commitment,
customer satisfaction, emphasis on processes, and con-
tinual improvement. These ISO 9000 standards are
closely aligned with the philosophy and objectives of
most quality programs such as TQM and the Malcolm
24 QMJ VOL. 14, NO. 4/© 2007, ASQ
Baldrige National Quality Award. Flynn, Schroeder, and
Sakakibara (1995) demonstrate the importance of
TQM in implementing various quality programs. Their
paper establishes that measures of quality performance
were related to competitive advantage. Many ISO 9000
firms in Turkey got their certification believing that it
would enable them to gain a competitive advantage.
Because of this, ISO 9000 appears to be related to TQM
and other quality initiatives.
It is claimed that ISO 9001:2000 is now firmly estab-
lished as the globally accepted standard for providing
assurance of the quality of goods and services in supplier-
customer relations (ISO 2006a). ISO 9000 is the world’s
largest developer of voluntary international standards
for business, government, and society. At the beginning
of June 2006 its portfolio comprised more than 15,900
standards that provide practical solutions and achieve
benefits for almost every sector of economic activity and
technology (ISO 2006a). The best-known standards are
ISO 9001:2000 for quality management systems, ISO
14001 (both 1996 and 2004 versions) for environmental
management systems, ISO/TS 16949:2002 for the auto-
motive sector, and ISO 13485:2003 for medical devices
(ISO 2005). The ISO 9000 2006 survey (ISO 2006a)
reports the recent status of each of these standards.
Table 1 presents the growth of the number of certifi-
cates issued in different countries from December 2001
to December 2005 for 608 ISO 9001:2000, ISO 14001,
ISO/TS 16949:2000, and ISO 13485:2003. These num-
bers in Table 1 signify the global importance of ISO
9000 certification for each of the standards.
The revised ISO 9000:2000 series includes eight
quality management principles as the basis of quality
management system standards (ISO 2006b). These
principles are derived from the collective experience
and knowledge of the international experts. They are:
1) customer focus; 2) leadership; 3) involvement of
people; 4) process approach; 5) system approach;
6) continuous improvement; 7) factual approach to
decision making; and 8) mutually beneficial supplier
relationships. Peyrat (2001) states that the primary
objective of this new version of standards is customer
orientation: the ISO 9000:2000 series focuses on satisfy-
ing the customers of the organization, in the case of
ISO 9001, and on satisfying all interested parties, in the
case of ISO 9004 and ISO 14001. With the publication
Pinar v14 i4 9/20/07 10:10 AM Page 25

The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

of the 1994 versions Table 1 Distributions of ISO 9000 standards in the world.
and after several years
of additional experi- ISO 9001:2000 Dec. 2001 Dec. 2002 Dec. 2003 Dec. 2004 Dec. 2005

ence, Peyrat (2001) World total 44,388 167,919 497,919 660,132 776,608
indicated that the ISO No. of countries & economies 97 133 149 154 161
9000 standards gradu-
ally acquired a reputa- ISO 14001:2000 Dec. 2001 Dec. 2002 Dec. 2003 Dec. 2004 Dec. 2005

tion of being fairly World total 36,464 49,440 64,996 89,937 111,164
easily transportable No. of countries & economies 112 116 113 127 138
management system
standards. In fact, they ISO /TS 16949:2002 Dec. 2001 Dec. 2002 Dec. 2003 Dec. 2004 Dec. 2005

have been imple- World total 0 0 0 10,019 17,047

mented by all types of No. of countries & economies 0 0 0 62 80
organizations, from
multinational corpora- IOS 13485:2003 Dec. 2001 Dec. 2002 Dec. 2003 Dec. 2004 Dec. 2005

tions to SMEs and from World total 0 0 0 2,403 5,065

humanitarian NGOs No. of countries & economies 0 0 0 55 67
(nongovernment-
organizations) to pub- Total 80,852 217,359 562,915 762,491 909,884

lic services. This makes ISO 9001:2000 for quality management systems, ISO 14001 (both 1996 and 2004 versions) for environmental
management systems, ISO/TS 16949:2002 for the automotive sector, and ISO 13485:2003 for medical devices
the 2000 version of the Source: The ISO Survey—2005
ISO 9000 series truly
generic (Peyrat 2001).
There have been several recent studies that investi-
gated the relationship between ISO 9000 certification
and business performance. There are no agreements
among results of the studies. Some support a positive
relationship between the two, while others indicate no
direct relationship. Haversjo (2000) reported that in
Denmark, ISO 9000 certified companies seem to have
higher returns than non-ISO 9000 certified companies.
He believes, however, that ISO 9000 registration did not
cause the change in superior financial performance of
the firm; rather, it could be attributed to other factors
such as innovative management. The study by Brown,
van der Wiele, and Loughton (1998) found that the
most significant benefits of ISO 9000 certification are
in the area of raising quality awareness and in setting
a foundation to improve quality (internal factors).
Gustafson et al. (2001) analyzed the implementation of
ISO 9000 in small business enterprises in Sweden. Their
results showed that the higher the level of involvement of
the CEO and the employees, the higher the satisfaction
level of the company with ISO 9000 certification and
the higher the continuation of quality improvements
after obtaining it. Singels, Ruel, and van de Water
© 2007, ASQ
(2001), based on their results, concluded that ISO 9000
certification serves organizations that are internally
motivated better than organizations that are externally
motivated (as a result of external pressures such as
buyer demands). While these papers indicate and discuss
possible benefits of ISO 9000 certification, none shows a
direct relationship between ISO 9000 certification and
bottom-line performance.
The findings of several studies concerning a rela-
tionship between ISO 9000 certification and business
performance were contrary to those findings cited pre-
viously. For example, Jeng (1998) found that at least
30 percent of Taiwanese managers don’t believe that
having ISO 9000 approval or pursuing certification is
the best way to improve organizational performance,
and 70 percent of ISO 9000 certified Taiwanese compa-
nies surveyed exhibited performance results similar to
those prior to certification (Jeng 1998). However, the
results of Jeng’s study showed that ISO 9000 implemen-
tation works well for the entire organization in improv-
ing overall performance. Terziovski, Samson, and Dow
(1997) found that, for manufacturing companies in
Australia and New Zealand, ISO 9000 certification is

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
not significantly related to organizational performance
measures.
Despite the expected benefits of ISO 9000 certification,
the standards have several criticisms (Erel and Ghosh
1997; Jackson and Ashton 1995: Reimann and Hertz
1996; Zuckerman 1997). Some of the ISO 9000 criticisms
are: 1) the standards are static, inflexible, and cannot be
adapted to certain situations; 2) they are not customer
driven/market oriented; 3) they mainly concentrate on
production firms; and 4) concentration on ISO 9000
takes the attention away from continuous improve-
ment. Despite these concerns, adoption of ISO 9000 is
rapidly growing.
Quality Movements in Turkey
TQM had to be sponsored by a number of national
organizations in Turkey. Data indicated that Turk
Standard Enstitusu (TSE) (or Turkish Standards
Institute), National Council for Quality Accreditation
(KAMK), and quality association (KALDER) had signif-
icant roles in convincing managers through training
and publications that TQM was a good initiative and, if
implemented, companies would experience rewarding
benefits. The mission statement of Turkish companies
reflected the commitment to TQM; however, on a global
basis all companies must be able to demonstrate that
they have the systems in place to provide a quality
product if they wish to be competitive. The demand for
quality in products and services brought about the
development of the ISO 9000 series of quality system
requirements and made ISO certification an important
quality factor in the international marketplace. ISO
quality certification has almost become a prerequisite
for doing business in the
global arena. In Turkey one Table 2 Distributions of ISO 9000 standards in Turkey.
motivation for quality came
Type of certification Dec. 2001 Dec. 2002 Dec. 2003 Dec. 2004 Dec. 2005
from Turkey’s desire to
become a member of the EU. ISO 9001:2000
Companies that desire to ISO 14001:2000
market to countries in the EU
ISO/TS 16949:2002
are expected to be ISO 9000
certified. This is especially ISO 13485:2003
true for companies that are Total
doing or desire to do business
Source: The ISO Survey—2005
in the EU.
26 QMJ VOL. 14, NO. 4/© 2007, ASQ
In Turkey, TSE has been approved to consider and
certify firms with ISO 9000. TSE is the only organization
in Turkey that can approve ISO 9000 certification.
KALDER also promotes quality by offering training pro-
grams and publishing a quarterly practice journal, but
cannot offer any quality certification. In addition to TSE,
there are a number of European certification agencies
operating in Turkey that also issue ISO 9000 certification.
It has been argued that the source of certification makes
a difference in the reputation of the certified company,
and it may affect them getting certain export contracts.
A study performed by Erel and Gosh (1997) indicates
that 57 percent of companies were certified by foreign
agencies and approximately 30 percent had both foreign
certification and TSE certification.
The popularity of ISO 9000 certification as a part
of a quality program among Turkish companies has
grown in recent years. More companies in Turkey are
looking to become ISO 9000 certified. As of the end of
December 2005, there were 12,133 Turkish firms with
some form of ISO 9000 certification (ISO 2006a).
Table 2 shows the distributions of ISO 9000 certifica-
tion by type of certification (ISO 2006a). Based on the
survey results, at the end of December 2005, 10,929
Turkish firms had received ISO 9000:2000 certification,
918 firms had received ISO 14001:2000 certification,
265 firms had ISO/TS 16949:2002 certification, and 21
firms had received ISO 13485:2003 certification.
It seems that only a small number of ISO certified
Turkish firms, however, applied for the National Quality
Award. Even though Turkish firms appear to be interested
in improving quality, as evidenced by a large number
of ISO 9000 certifications, only a few of them have truly
adopted TQM (Yildirim 1999). The duration of getting
72 911 3,248 5,009 10,929
91 135 240 338 918
0 0 0 98 265
0 0 0 12 21
© 2007, ASQ
163 1,046 3,488 5,457 12,133
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
to be ISO 9000 certified takes one to one-and-a-half
years, and the certification time is affected among oth-
ers by employee involvement, top management support,
existence of relevant procedures, professional consultant
participation, and effective communication within the
organization (Halls and Oztas 2002). Difficulties
encountered in ISO 9000 implementation in Turkey
include: changing the department’s traditional policies
and procedures, using statistical techniques/tools, and
motivating personnel (Calisir, Bayraktar, and Beskese
2001). A 1996 study by Erel and Ghosh (1997), which
documented the state of ISO 9000 implementation in
Turkey, showed that 68 percent of the 73 firms surveyed
had an ISO 9000 certification.
In a study by Calisir, Bayraktar, and Beskese (2001),
the following factors were considered important in the
implementation of ISO 9000 in Turkey: 1) enhancing
the quality reputation, and 2) increasing market share.
They point out that, using ISO 9000, the importance of
achieving the expected improvements included reducing
the defect rate, improving product/service quality,
enhancing organization’s quality reputation, and
improving standardization. Moreover, ISO certification
implies that a bona fide commitment to quality and to
obtaining ISO 9000 certification can be: 1) a strategic
marketing tool; 2) a means for improving productivity;
3) a strategy for gaining competitive advantage; and 4) a
way to enhance position in the global marketplace.
Impact of ISO 9000 Certification
on Business Performance
Despite the expected benefits of ISO 9000 certification,
only a few empirical studies have examined whether
ISO 9000 certified companies actually perform better
than non-ISO 9000 companies. Past studies have
detailed perceived relationships between quality and
business success in Deming (1982); Garvin (1987);
Kannan et al. (1999); Lam (1996); Lofgren (1991); and
Pfau (1989). There are also a few studies that empiri-
cally compared the performance of ISO 9000 certified
firms to non-ISO 9000 firms. Some of these studies
include LRQA (1996); Lee (2003); Rajan and Tamimi
(2003); Simmons and White (1999); and Terziovski,
Power, and Sohal (2003).
A survey by Lloyd’s Register Quality Assurance (LRQA
1996) compared the financial and sales performances of a
sample of 222 ISO 9000 certified British companies with
the industry average. The survey found that ISO 9000
registered companies: 1) were two or three times more
profitable than their nonregistered competitors and sig-
nificantly outperformed the industry average on five
other key financial and sales measures of profit margin,
return on capital employed, sales per employee, capital
employed per employee, and asset turnover; 2) experi-
enced improved efficiency and productivity, reduced waste
and costs, and had improved market share; and 3) were
financially stronger than their noncertified competitors.
Simmons and White (1999) conducted a systematic,
multiorganizational analysis of the relationship between
ISO 9000 registration and objective measures of business
performance, using the ratio sales/stockholder equity,
profitability (ROA), and foreign sales (as a percentage of
total sales) as indicators of business outcome. Based on
126 U.S. companies (63 ISO 9000 and 63 non-ISO 9000
firms) with cross-sectional data from seven SIC coded
industries, Simmons and White (1999) found that ISO
9000 companies had significantly higher average prof-
itability than non-ISO 9000 certified companies, but ISO
9000 certified companies did not have higher opera-
tional performance or higher foreign sales than non-ISO
9000 companies. Their findings did not support the
claim that ISO 9000 companies realize advantages in
operational performance and foreign sales over non-ISO
9000 companies; thus, they did not offer any evidence
that ISO 9000 may ultimately be good for organizations.
Given that their sample data only covered 1995, they rec-
ommend longitudinal analysis to better examine the
long-term impact of ISO 9000 on business performance.
Lee (2003), based on a survey of ISO 9000 and non-
ISO 9000 firms in the Korean electronics industry,
found that manufacturing strategies differed signifi-
cantly between the two groups, and these differences
significantly impacted firms’ business practices and
performance. Specifically, his results showed that the
ISO 9000 certified firms are more likely to do business
globally and be affiliated with foreign firms, tend to be
more quality-conscious and more concerned about
product identity, are more likely to have just-in-time
(JIT) or Kanban-based production planning and control
systems, tend to have lower material cost with less labor
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
intensive operation, are likely to have much less safety
margin of inventory, and tend to put more priority on
research and development and the introduction of new
products with more focus on quality.
In investigating the link between attaining ISO 9000
certification and the benefits to the shareholders, Rajan
and Tamimi (2003) compared the performance of a
portfolio consisting of the stocks of ISO 9000 certified
companies to the performance of the S&P 500 index for
different investment holding periods. They found that
while the ISO 9000 portfolio appears to be considerably
more volatile than the S&P, it has significantly outper-
formed the market index. Also, Terziovski et al. (2003)
showed a significant and positive relationship between
the manager’s motives for adopting ISO 9000 certifica-
tion and business performance.
In order to determine whether ISO 9000 certification
pays off, Corbett et al. (2002) used “event study” to com-
pare the financial performance of a group of companies
that have gone through ISO 9000 certification with the
financial performance of a comparable group of compa-
nies that did not have ISO 9000 certification. The authors
of the paper claimed that superior performance of ISO
9000 firms may not be related to ISO 9000 certification,
but may simply reflect that these firms already had supe-
rior performance prior to their certification. Their results
showed that the companies demonstrated better perform-
ance after deciding to seek ISO 9000 certification than
non-ISO firms from the same industry with similar per-
formance prior to certification. Corbett et al. (2002) state
that the decision to get certified led to superior cost con-
trol and higher sales; therefore, one could argue that the
decision to seek ISO 9000 certification is positively related
to other good management practices that result in
improvements in sales and ROA, instead of certification
itself. Also, since the control group consists of companies
with the similar ROA prior to certification, this indicates
that certification is helpful, where the companies with
ISO 9000 certification experienced significant improve-
ments in their ROAs. Their results suggest that companies
that are not seeking ISO 9000 certification have gradually
decreasing performance in terms of their ROA and sales.
Some studies alluded that ISO 9000 improved the
smoothness of the business operations, which might
imply that ISO 9000 certification could lower the vari-
ability of the returns. The prior studies, however, did not
28 QMJ VOL. 14, NO. 4/© 2007, ASQ
empirically examine the impact of ISO 9000 certification
on the variability (or volatility) of business performance.
As variability of returns represents a measure of risk, it is
important to examine how ISO 9000 impacts the risk (or
variability) of the returns. Brigham and Houston (2007)
claim that risk is a difficult concept to grasp. They indi-
cate that the tighter the probability distribution of
expected future returns, the lower the variability of the
returns, thus the smaller the risk. Therefore, it is custom-
ary to assess risk by using standard deviation (sigma).
The lower the value of sigma, the lower the risk
(Brigham and Houston (2007: 251). Following the same
logic, the lower the variability (variance) of the returns,
the lower the risk of those returns.
Many of the ISO 9000 studies used surveys to examine
the performances of ISO 9000 firms based on financial
and sales measurements. The literature on ISO 9000 is
overwhelmingly either prescriptive or descriptive, with
studies that are speculative, anecdotal, and often based
on the observation of a single company (Ebrahimpour,
Whithers, and Hikmet 1997). In addition, Simmons and
White (1999) also claim that the specific empirical rela-
tionship between ISO 9000 registration and business
performance has not been established. They state that
while there has been much published work associated
with ISO 9000, the empirical research on this question
is lacking systematic measurement and multiorganiza-
tional comparisons. Unlike most of the other studies
with self-reported (subjective) performance measures
involving ISO 9000 certification or cross-sectional stud-
ies, this paper used objective measures of monthly stock
returns that include 105 months or almost nine years of
data. This is a significantly longer time than the study
by Pinar, Guder, and Yucel (2000), which included only
four years of data.
Research Hypotheses
As stated before, the main goal of this study is to investi-
gate the performance of ISO 9000 and non-ISO 9000
firms traded on Turkey’s ISE market of Turkey by using
their average stock market returns and the variability of
the stock returns from January 1997 through September
2005. Both theoretical research (Fine 1986; Lederer and
Rhee 1995) and empirical studies (Chowdhury and
Menon 1995; Hendricks and Singhal 1997; Jacobson
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
and Aaker 1987; Powell 1995) have established links
between quality and business performance, which is
consistent with the conceptual and empirical founda-
tions provided by the authorities on quality (that is,
Deming 1986; Juran 1974; Ishikawa 1985). There have
not been enough studies on the effectiveness of the ISO
9000 standard on business performance. Based on the
claims of expected higher business performance,
increased profitability, and marketing and global com-
petitive advantages of ISO 9000 certified companies
presented in the previous sections, the following
research hypotheses were developed:
• H01: ISO 9000 certified firms don’t have higher stock
returns than non-ISO 9000 firms.
• H a1: ISO 9000 certified firms have higher stock
returns than non-ISO 9000 firms.
• H02: ISO 9000 firms don’t have lower stock variability
than non-ISO 9000 firms.
• Ha2: ISO 9000 firms have lower stock variability than
non-ISO 9000 firms.
• H03: ISO 9000 firms certified by non-Turkish certifying
organization’s returns do not differ from returns of
ISO 9000 firms certified by TSE.
• Ha3: ISO 9000 firms certified by non-Turkish certifying
organizations have higher returns than ISO 9000
firms certified by TSE.
• H04: ISO 9000 firms certified by non-Turkish certify-
ing organizations’ variability of returns do not differ
from variability of returns of ISO 9000 firms certified
by TSE.
• Ha4: ISO 9000 firms certified by non-Turkish certifying
organizations have lower variability than ISO 9000
firms certified by TSE.
Expressed in mathematical notation the aforemen-
tioned hypotheses are as follows:
H01: α1 < – α2 = 0 where 1 = ISO certified and
2 = non-ISO,…,n
Ha1: α1 > α2 ≠ 0 where 1 = ISO certified and
2 = non-ISO,…,n
2> 2
H02: σ1 – σ2 = 0 where 1 = ISO certified and
2 = non-ISO,…,n
Ha2: σ12 < σ22 = 0 where 1 = ISO certified and
2 = non-ISO,…,n
H03: γ3 <
– γ4 = 0 where 3 = foreign certified and
4 = TSE certified
Ha31: γ3 > γ4 = 0 where 3 = foreign certified and
4 = TSE certified
H04: σ32 > 2
– σ4 = 0 where 3 = foreign certified and
4 = TSE certified
Ha4: σ32 < σ42 = 0 where 3 = foreign certified and
4 = TSE certified
DATA AND METHODOLOGY
For this study, the authors used the monthly stock returns
(the percent change in their prices from one month to
the next month) of all the manufacturing firms (with or
without ISO 9000 certification) listed on the ISE market
of Turkey from January of 1997 to September of 2005 (a
full year of data was not available for 2005). This study
excludes the service firms because of their different
income statement structures. The monthly stock returns
were obtained from the ISE (ISE 2006). Previous studies
used monthly return data to examine the ISE of Turkey
(that is, Akdeniz, Altay-Salih, and Aydogan 2000). A list
of all ISO 9000 certified companies traded on the ISE
were obtained from KALDER (KALDER 2006). The list
included the names of the companies, their ISO 9000
certification dates, the certifying organization, and the
primary industries they were operating in.
The stock market and ISO 9000 certification are
recent phenomena in Turkey. As a part of the economic
stabilization and liberalization programs in the early
1980s, Turkey’s ISE market was established in 1986.
According to ISE (2001), there were only 80 companies
listed at the beginning with market capitalization of
$938 million. The number of firms has steadily
increased and reached 387 in 2001 (ISE 2001), but
because of recent economic crises, the number of firms
listed on ISE declined to 319 in late 2005 (ISE 2006).
Market capitalization has also experienced dramatic
growth over the years, reaching more than $93.1 billion
at the end of 2001 (ISE 2001) and $201.8 billion at the
end of 2005 (ISE 2006). ISE officials classified all the
firms on the stock market into 17 distinct industry
groups (ISE 2001; 2006).
Turkish companies began receiving ISO 9000 cer-
tification in 1992. Throughout 1992, there were six
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
companies on the ISE that were ISO 9000 certified. At the
beginning of the study period, there were about 220 firms
that traded on the ISE market (ISE 2001). One hundred
and three firms had ISO 9000 certification and 117 of
them did not have ISO 9000 certification. Sixty percent of
the firms on the ISE belong to seven industry groups as
classified by the ISE board (food and beverage, textile and
leather, wood, paper and printing, chemical, petroleum
and plastics, non-metal minerals, basic metals, and
machinery and metal products) and 40 percent belong to
other industry groups. The majority (87.4 percent) of the
103 ISO 9000 certified firms on the ISE belongs to the
seven industry groups (manufacturing industries) and
the remaining 12.6 percent belong to other industry
groups. It is just the opposite for non-ISO 9000 firms,
where only 35.9 percent belong to the seven industry
groups and 64.1 percent belong to other groups. Of the
ISO 9000 certified companies, 62.1 percent received
their ISO 9000 certification from the TSE, the govern-
ment quality-certifying agency, and 37.8 percent of
them from certifying agencies from other countries.
Selection of Sample and
Research Design
The objectives of the study and time period covered set
the criteria for the firms to be included in the study. The
two criteria for ISO 9000 certified firms to be included in
the analysis were that they should: 1) have received their
ISO 9000 certification before January 1997; and 2) have
been listed on the ISE during the entire study period.
For non-ISO 9000 firms, the requirement was that they
were traded on the ISE for the entire time period. This
was important to examine the longitudinal impact of
ISO 9000 certification on business performance. In
addition, the selected companies operate in seven man-
ufacturing industries, as was stated earlier. Companies
from other industries were not included in the study, to
prevent any potential inconsistency in the data.
Given the aforementioned criteria and requirements,
a total of 95 firms were qualified for the study. These were
the only firms that were traded on ISE for the entire time
period of nine years. In fact, the authors do not have a
sample, but the entire population. Later, more firms
started being traded on the ISE, but the authors could not
30 QMJ VOL. 14, NO. 4/© 2007, ASQ
include them because of the requirement of keeping the
same firms on their panel. Of these companies, 62 were
ISO 9000 certified and 33 were non-ISO 9000 firms that
met the two requirements to be included in the study for
analysis. While these requirements limited the number of
firms in the study, it made the results and interpretations
more consistent for both ISO 9000 and non-ISO 9000
firms. Given that this was a longitudinal study, it was
important to keep the same companies over the study
period so that the results would not be distorted with the
addition and/or deletion of new companies. This process
of studying the same companies over time is similar to
consumer panel studies, where a group of same con-
sumers is observed over time to examine various pur-
chase behaviors and activities (Churchill and Iacobucci
2005; Hair, Bush, and Ortinua 2006). Also, it is desirable
to have the same number of ISO 9000 and non-ISO com-
panies from the same industries; however, this was not
possible because of the limited number of companies
traded on the ISE and the authors’ selection criteria.
The study examined the yearly returns, various com-
binations of two-, three-, and four-year returns, and
returns over the nine-year period. The yearly returns
allowed the authors to compare the stock performance of
ISO 9000 vs. non-ISO 9000 firms on a year-by-year basis.
They also used the two-, three-, and four-year averages to
smooth out the effects of yearly fluctuations or changes
in returns of ISO 9000 or non-ISO 9000. For example,
1999 and 2000 seem to be unique years for stock
returns. By having averages for different time periods
(that is, two-, three-, four-year), the authors were able
to smooth out these extreme situations of 1999 or 2000
and eliminate these random changes. This is similar to
the time-series procedure recommended for economic
data by Makridakis, Wheelwright, and McGee (1978).
Therefore, the averages of the stock returns for different
time periods were essential to capture the long-term
effects of ISO 9000 certification vs. non-ISO 9000 certifi-
cation. The authors also obtained the variances of ISO
9000 and non-ISO 9000 firms for the yearly returns as
well as other time periods used for means.
The aforementioned mean and variance values were
used to compare the performances of ISO and non-ISO
9000 firms with the two-sample t-test procedure.
Specifically, the authors compare means and variances of
ISO 9000 certified and non-ISO 9000 certified companies
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

Table 3 Distribution of the firms by industries.

that they are more quality oriented than the firms in
other industries, and certain industries seem to be more
ISO 9000 Non-ISO 9000 receptive than others to quality improvements.
n Percent n Percent
Food and beverage 5 8.06 6 18.18

Textile and leather 7 11.29 13 39.39

RESULTS
Wood, paper, and
printing 6 9.68 3 9.09 Comparison of ISO 9000 vs.
Chemical, petroleum,
and plastics 13 20.97 5 15.15 Non-ISO 9000 Firms
The main purpose of this study was to investigate the
Non-metal minerals 14 22.58 1 3.03
impact of ISO 9000 certification on stock returns and
Basic metals 6 9.68 1 3.03 stock variability. Based on this intent, two hypotheses
Machinery and were developed.
© 2007, ASQ
metal products 11 17.74 4 12.12
• H01: ISO 9000 certified firms don’t have higher stock
Total 62 100.00 33 100.00 returns than non-ISO 9000 firms vs.
• H a1: ISO 9000 certified firms have higher stock
for yearly data as well as for other time periods. The two- returns than non-ISO 9000 firms and,
sample t-test procedure allows them to determine if the • H02: ISO 9000 firms don’t have lower stock variability
means and variances of ISO 9000 and non-ISO 9000 than non-ISO 9000 firms vs.
firms were significantly different. Even though p < .05 • Ha2: ISO 9000 firms have lower stock variability than
and p < .01 are most commonly used for testing sig- non-ISO 9000 firms.
nificance, the studies have also used p < .10 in their
In order to test these two hypotheses, the authors
statistical significance testing (Jain and Tabak 2002).
used two-sample independent sample t-test to compare
Thus, they consider p-values less than .10 (p < .10) as
the means and variances of returns from January 1997
significant for their mean comparisons.
to September 2005 for ISO 9000 certified and non-ISO
9000 certified firms. As shown in Table 4, these compar-
Selected Characteristics of isons covered: 1) yearly returns for nine years; 2) the
two-year moving average returns; 3) three-year and
the Firms four-year simple average returns; 4) nine-year average
Table 3 presents a distribution of the firms by industry. return. All of these resulted in a total of 23 time-period
The distributions of ISO 9000 firms by industry show scenarios. These combinations provided an opportunity
that five firms were in the food and beverage industry; to compare the performances of ISO 9000 certified firm
seven firms were in the textile and leather industry; six vs. those of non-ISO 9000 certified firms over multiple
firms were in wood, paper, and printing; 13 firms were time periods. As stated before, having different time
in chemical, petroleum, and plastics; 14 firms were in period averages, it was possible to smooth out the effects
non-metal minerals; six were in basic metals; and 11 of fluctuations and changes in any year in order to better
firms were in machinery and metal products. The distri- identify the impact of ISO 9000 certification.
butions of non-ISO certified firms were six firms in the The comparisons of the mean returns for both ISO
food and beverage industry; 13 firms in textile and 9000 vs. non-ISO 9000 firms in Table 4 and Figure 1
leather industry; three firms in wood, paper, and print- show that ISO 9000 firms had significantly higher
ing; five firms in chemical, petroleum, and plastics; one returns than non-ISO 9000 firms for the years of 1999
in nonmetal minerals; one in basic metals; and four in (means of 16.41 percent for ISO 9000 vs.13.87 percent for
machinery and metal products. A large number of firms non-ISO 9000, p < .05) and 2000 (means of .05 percent
with ISO 9000 certification in certain industries indicate for ISO 9000 vs. -2.05 percent for non-ISO 9000, p < .05).

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

The mean annual returns for Table 4 Comparisons of means and variability of the returns for ISO 9000
other years are not statisti- vs. non-ISO firms on the Istanbul Stock Exchange, 1997-2005.
cally significant. This indi-
Means Variances
cates that both ISO 9000 and
Years ISO 9000 Non-ISO 9000 p-sign. ISO 9000 Non-ISO 9000 p-sign.
non-ISO 9000 firms seem to
have similar performances. Avg 97 9.56 8.58 0.389 18.38 45.84 0.108

During the nine-year period, Avg 98 0.38 0.40 0.985 24.05 21.62 0.691
the increase and decrease of Avg 99 16.41 13.87 0.015 21.84 21.62 0.879
the annual returns for ISO
Avg 00 0.05 -2.05 0.018 16.14 16.42 0.840
9000 and non-ISO 9000
firms appear to follow simi- Avg 01 7.27 8.15 0.546 14.90 60.40 0.006
lar patterns. In 1999 both Avg 02 0.86 1.58 0.390 10.49 23.71 0.027
ISO 9000 and non-ISO
Avg 03 4.54 4.89 0.635 10.84 13.64 0.588
90000 firms had very good
returns, but ISO 9000 firms Avg 04 3.89 3.39 0.678 52.70 18.92 0.001
had significantly higher Avg 05 2.87 1.31 0.101 18.30 20.28 0.969
returns than non-ISO 9000
97-98 4.97 4.49 0.524 9.77 16.77 0.287
firms. The year 2000 was the
worst year for non-ISO 9000 98-99 8.40 7.13 0.059 6.81 14.20 0.287
firms (mean of -2.04 percent 99-00 8.23 6.25 0.002 8.10 8.30 0.625
returns) and not a very good
00-01 3.66 3.39 0.750 5.25 21.15 0.000
year for ISO 9000 certified
firms either (mean of .05 01-02 4.07 4.86 0.213 5.86 14.20 0.116

percent return), but ISO 02-03 2.70 3.24 0.385 4.32 10.14 0.079
9000 firms still had a signifi- 03-04 4.21 4.14 0.931 18.64 7.79 0.636
cantly higher average return
04-05 3.45 2.50 0.282 21.01 8.30 0.584
than non-ISO 9000 firms.
Similar comparisons of 97-99 8.78 7.62 0.058 6.50 10.74 0.239
ISO 9000 versus non-ISO 00-02 2.73 2.79 0.921 3.27 10.09 0.003
9000 were conducted for
03-05 3.85 3.37 0.465 11.53 4.44 0.356
other time period combina-
tions. As presented in Table 4 97-00 6.60 5.37 0.011 2.93 5.65 0.033
© 2007, ASQ

and Figure 1, the mean com- 01-04 4.14 4.50
parisons for two-year moving
97-05 5.16
average returns show that
the mean returns for ISO
9000 are significantly higher than those for non-ISO
9000 firms for the time periods of 1998 to 1999 (mean
of 8.40 percent for ISO 9000 vs. 7.13 percent for non-
ISO 9000, p < .10) and 1999 to 2000 (8.23 percent for
ISO 9000 vs. 6.25 percent for non-ISO 9000, p < .05).
The study found no significant difference between the
returns for ISO 9000 and non-ISO 9000 firms during
other two-year periods. Also, the mean comparisons of
three-year and four-year simple mean returns show that
ISO 9000 firms had significantly higher returns than
0.460 4.74 5.97 0.297
4.63 0.082 1.91 1.95 0.567
non-ISO 900 firms for 1997-1999 period (mean of
8.78 percent for ISO 9000 vs. 7.62 percent for non-ISO
9000, p < .10) and for 1997-2000 period (mean of
.6.60 percent for ISO 9000 vs. 5.37 percent fro non-ISO
9000, p < .05). During other time periods, there was
no significant difference between the returns for ISO
9000 and non-ISO 9000 firms. Finally, the study com-
pared the mean returns over a nine-year time period
from 1997 to 2005 and found that ISO 9000 firms
(mean of 5.16 percent) had significantly higher

32 QMJ VOL. 14, NO. 4/© 2007, ASQ

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

Figure 1 Mean Comparisons of ISO 9000 vs. Non-ISO 9000 Returns on the Istanbul Stock Exchange, 1997-2005.

17.00

12.00

7.00

2.00

-3.00
Avg Avg Avg Avg Avg Avg Avg Avg Avg 97- 98- 99- 00- 01- 02- 03- 04- 97- 00- 03- 97- 01- 97-
97 98 99 00 01 02 03 04 05 98 99 00 01 02 03 04 05 99 02 05 00 04 05
** ** * ** * ** *
ISO 9.56 0.38 16.41 0.05 7.27 0.86 4.54 3.89 2.87 4.97 8.40 8.23 3.66 4.07 2.70 4.21 3.45 8.78 2.73 3.85 6.60 4.14 5.16

© 2007, ASQ
Non- 8.58 0.40 13.87 -2.05 8.15 1.58 4.89 3.39 1.31 4.49 7.13 6.25 3.39 4.86 3.24 4.14 2.50 7.62 2.79 3.37 5.37 4.50 4.63
ISO
p-sign.: *p < .10, **p < .05, ***p < .01

returns than non-ISO 9000 firms (mean of 4.63 percent)
at p < .10 level (see Table 4 and Figure 1).
These mean comparisons indicate that ISO 9000
firms did not outperform non-ISO firms for all time
periods or for all scenarios. However, the study found
that during two years (1999 and 2000) ISO 9000 firms
had significantly higher returns than non-ISO 9000
firms. Some of these findings support H01, and others
support Ha1. The results, based on various time period
combinations, suggest that the returns for both ISO
9000 and non-ISO 9000 firms seem to follow fairly sim-
ilar patterns. The nine-year average stock returns show
that in the long run ISO 9000 firms appear to perform
better than non-ISO 9000 firms, which supports Ha1.
the returns. To explore this issue, a part of the second
objective was to examine the impact of ISO 9000 certifi-
cation on stock return variability (or volatility). This led
to the hypothesis that H02: ISO 9000 firms don’t have
lower stock variability than non-ISO 9000 firms vs. Ha2:
ISO 9000 firms have lower stock variability than non-ISO
9000 firms. To test this hypothesis, the variances of ISO
9000 and non-ISO 9000 firms were compared over differ-
ent time-period scenarios, and the results are presented in
Table 4 and Figure 2. The comparisons of the variances
for annual returns covering from 1997 to 2005 show that
ISO 9000 firms had significantly lower variances than
non-ISO 9000 firms for the years 2001 (p < .01), 2002
(p < .05), and marginally for 1997 (p = .108). However,
non-ISO 9000 firms had a significantly lower variance

Comparisons of Variances and
Cumulative Means for ISO 9000
vs. non-ISO 9000 firms
The prior studies did not consider the impact of ISO 9000
certification on the variability (or volatility) of business
performance. As variability of returns represents a meas-
ure of risk (Brigham and Houston 2007), it is important
to examine how ISO 9000 impacts the risk (or variabil-
ity) of the returns. As indicated before, some studies
alluded that ISO 9000 improved the smoothness of the
business operations, which might imply that ISO 9000
certification could lower the variability (or volatility) of
than ISO 9000 firms in 2004 (p < .01). The study found
no significant differences between the return variances of
ISO 9000 and non-ISO 9000 firms for other years. Some
of these results support H02, while others support Ha2.
Again, the similar comparisons were conducted for
two-year, three-year, four-year, and nine-year average
returns. The variances of two-year moving average
returns for ISO 9000 and non-ISO 9000 did not seem
to follow any predictable pattern, and neither group
had consistently lower or higher variances. The com-
parisons of the variances showed that ISO 9000 firms
had a significantly lower variance than non-ISO 9000
only during two periods (2000-2001, p < .01 and 2002-
2003, p < .10). For the three-year and four-year periods,

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

Figure 2 Variance Comparisons of ISO 9000 vs. Non-ISO 9000 Firms on the Istanbul Stock Exchange, 1997-2005.

60.00
50.00
40.00
30.00
20.00
10.00
0.00
Avg Avg Avg Avg Avg Avg Avg Avg Avg 97- 98- 99- 00- 01- 02- 03- 04- 97- 00- 03- 97- 01- 97-
97 98 99 00 01 02 03 04 05 98 99 00 01 02 03 04 05 99 02 05 00 04 05
*** ** *** *** * *** **
ISO 18.38 24.05 21.84 16.14 14.90 10.49 10.84 52.70 18.30 9.77 6.81 8.10 5.25 5.86 4.32 18.64 21.01 6.50 3.27 11.53 2.93 4.74 1.91

© 2007, ASQ
Non- 45.84 21.62 23.85 16.42 60.40 23.71 13.64 18.92 20.28 16.77 14.20 8.30 21.15 14.20 10.14 7.79 8.30 10.74 10.09 4.44 5.65 5.97 1.95
ISO
p-sign.: *p < .10, **p < .05, ***p < .01

ISO 9000 firms had signifi-

Table 5 Comparisons of means and variability of the returns for ISO 9000
cantly lower variances during
vs. non-ISO firms on the Istanbul Stock Exchange.
2000-2003 (p < .01) and
1997-2000 (p < .05). Finally, Means Variances
Years ISO 9000 Non-ISO 9000 p-sign. ISO 9000 Non-ISO 9000 p-sign.
comparison of the variances
of ISO 9000 and non-ISO Avg 97 9.56 8.58 0.389 18.38 45.84 0.108
9000 over a nine-year period 97-98 4.97 4.49 0.524 9.77 16.77 0.287
found no significant differ-
97-99 8.78 7.62 0.058 6.50 10.74 0.239
ence between the two groups.
These findings indicate that 97-00 6.60 5.37 0.011 2.93 5.65 0.033
ISO 9000 certification does 97-01 6.73 5.37 0.004 1.88 5.65 0.000
not seem to lower the vari-
97-02 5.76 5.20 0.088 1.70 3.26 0.029
ability of the stock returns
significantly for all time peri- 97-03 5.58 5.16 0.197 1.37 2.75 0.034
© 2007, ASQ
ods and scenarios. Similar to 97-04 5.37 4.94 0.165 1.85 2.36 0.216
yearly returns, some of these
97-05 5.16 4.63 0.079 1.91 1.95 0.578
results support the hypothesis
H02, while others support Ha2.
In addition to yearly return comparisons, the study and variance comparisons are presented in Table 5.
compared the mean and variability of returns for ISO The unique feature of these returns is that they make it
9000 vs. non-ISO 9000 over time by combining the possible to measure the cumulative effect of ISO 9000
returns for successive years. This allows one to examine certification over time, rather than year by year. The
the cumulative impact of ISO 9000 on business per- comparisons of mean returns in Figure 3 (also in
formance (in this case stock returns) over time. To Table 5) indicate that ISO 9000 companies consis-
accomplish this, the average returns for successive years tently had higher stock returns than non-ISO 9000
of one, two, three, and so on were calculated, which firms during nine scenarios. However, they were signifi-
produced nine scenarios consisting of one-year, two- cantly higher only for 1997-1999 (p < .10), 1997-2000
year, three-year, four-year, five-year, six-year, seven-year, (p < .01), 1997-2001 (p < .01), 1997-2002 (p < .10),
eight-year, and nine-year mean returns. These mean and 1997-2005) (p < .10). These findings support H01

34 QMJ VOL. 14, NO. 4/© 2007, ASQ

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

Figure 3 Comparisons of Mean Returns Over Time for ISO vs. Non-ISO 9000 firms on the Istanbul Stock
Exchange, 1997-2005.
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Avg 97 97-98 97-99* 97-00*** 97-01*** 97-02* 97-03 97-04 97-05*
ISO 9.56 4.97 8.78 6.60 6.73 5.76 5.58 5.37 5.16

© 2007, ASQ
Non-ISO 8.58 4.49 7.62 5.37 5.37 5.20 5.16 4.94 4.63
p-sign.: *p < .10, **p < .05, ***p < .01

Figure 4 Comparisons of Variability of Returns Over Time for ISO vs. Non-ISO 9000 firms on the Istanbul
Stock Exchange, 1997-2005.
50.00

40.00

30.00

20.00

10.00

0.00
Avg 97 97-98 97-99 97-00** 97-01*** 97-02** 97-03** 97-04 97-05
ISO 18.38 9.77 6.50 2.93 1.88 1.70 1.37 1.85 1.91

© 2007, ASQ
Non-ISO 45.84 16.77 10.74 5.65 5.65 3.26 2.75 2.36 1.95
p-sign.: *p < .10, **p < .05, ***p < .01

for these time periods, and the findings for other peri-
ods support Ha1. As stated previously, after nine years
ISO 9000 certified firms still have a significantly
higher return than non-ISO 9000 certified firms. This
could be an indication of the long-term effect of ISO
9000 certification on business performance.
Also, the study examined the cumulative impact of
ISO 9000 certification on the variability of the stock
returns. Figure 4 (also Table 5) shows the comparisons
of the variability of the stock returns for ISO 9000 vs.
non-ISO 9000 firms. The results show that ISO 9000
firms had lower variances than non-ISO 9000 firms for
each of the nine scenarios over the nine-year period.
However, the differences were significantly lower in
1997-2000 (p < .05), 1997-2001 (p < .01), 1997-2002
(p < .05), and 1997-2003 (p < .05), which support H02.
The variances were not significant during other periods.
These findings support Ha2. One interesting thing is that
the variances of ISO 9000 and non-ISO 9000 seemed to
converge over time, and after nine years their variances
were almost identical. This may suggest that the impact
of ISO 9000 on the variability of business performance
might disappear over time.
The Effects of ISO 9000
Certifying Agency
The final objective of the study was to examine whether
the stock returns of ISO 9000 certified firms were influ-
enced by the certifying organization. As there seems to be
a preference among the Western European countries for

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns

the European certifying registrars (Barnes 1998), Table 6 Comparisons of means and variability of returns
the study examined whether such a preference is for Turkish vs. foreign ISO 9000 certified firms
reflected by the stock returns of the ISO 9000 on the Istanbul Stock Exchange, 1997-2005.
firms certified by foreign non-TSE vs. TSE agen-
Means Variances
cies. Based on this notion, the authors developed
Years Turkish Foreign p-sign. Turkish Foreign p-sign.
hypothesis H03: The returns of ISO 9000 firms
certified by non-TSE certifying agencies are not Avg 97 9.08 9.74 0.646 28.89 14.85 0.075

significantly higher than those returns of ISO Avg 98 1.71 -0.12 0.193 40.17 17.79 0.124
9000 firms certified by TSE vs. Ha3: The returns Avg 99 16.03 16.55 0.700 21.06 22.55 0.251
of ISO 9000 firms certified by non-TSE certify-
Avg 00 -0.48 0.25 0.524 12.47 17.69 0.677
ing agencies are significantly higher than those
returns of ISO 9000 firms certified by TSE. This Avg 01 7.61 7.14 0.677 20.81 13.03 0.128
hypothesis was tested with data covering Avg 02 0.34 1.06 0.442 11.77 10.11 0.579
January 1997 to September 2005, again using:
Avg 03 5.32 4.24 0.252 15.58 9.04 0.427
1) yearly returns for nine years; 2) the two-year
moving average returns; 3) three-year and four- Avg 04 3.89 3.89 0.999 16.53 67.05 0.930
year simple average returns; and 4) nine-year Avg 05 3.64 0.81 0.019 12.83 18.45 0.129
average return. The comparisons of means for
97-98 5.40 4.81 0.516 11.48 9.28 0.745
different time periods in Table 6 found that,
with the exception of 2005, there were no signif- 98-99 8.87 8.22 0.382 5.59 7.29 0.526

icant differences between returns of TSE and 99-00 7.77 8.40 0.443 10.19 7.42 0.914
non-TSE certified firms. These results indicate 00-01 3.56 3.70 0.837 4.94 5.48 0.695
that hypothesis H03 cannot be rejected in all sce-
01-02 3.97 4.10 0.855 5.84 6.00 0.952
narios but one. The results for 2005 show that,
in contrast to the prediction of Ha3, TSE certified 02-03 2.83 2.65 0.796 7.01 3.43 0.056
firms had higher returns (3.64 percent) than 03-04 4.60 4.06 0.664 10.40 21.98 0.860
non-TSE certified firms (.81 percent), which is
04-05 2.57 3.78 0.356 4.21 27.19 0.264
significant at p < .05 level. These findings do
not support the implied preferences for the 97-99 8.94 8.73 0.769 5.38 7.04 0.592
European certifying agencies. 00-02 2.49 2.82 0.526 2.34 3.66 0.356
Concerning the variances, the authors tested
03-05 3.57 3.95 0.697 5.66 13.89 0.617
the following hypothesis H04: The variances of
the returns for ISO 9000 firms certified by non- 97-00 6.58 6.61 0.963 3.61 2.75 0.376
© 2007, ASQ

TSE agencies are not significantly different 01-04 4.29 4.08 0.741 2.17 5.77 0.775
from the variances of returns for ISO 9000 97-05 5.04 5.20 0.689 1.95 1.93 0.501
firms certified by TSE vs. Ha4: The variances of
the returns for ISO 9000 firms certified by non-
TSE agencies are significantly higher than the variances Based on these results, hypothesis H04 can be rejected for
of returns for ISO 9000 firms certified by TSE. The all scenarios, except two. This indicates that the firms
analysis for variability of the returns in Table 6 showed certified by non-TSE certifying agencies had a lower
that the variances of TSE and non-TSE certified firms variability in their returns. However, these results from
were not significantly different in all time periods but two scenarios do not provide strong evidence for rejecting
two years. During the year of 1997 and the time period H04. In fact, the comparisons over longer time periods
of 2002-2003, non-TSE firms had significantly lower suggest that the certifying agency does not have any
variances than those of TSE certified firms (p < .10). impact on the variability of the stock returns.

36 QMJ VOL. 14, NO. 4/© 2007, ASQ

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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
CONCLUSIONS AND LIMITATIONS
In contrast to previous studies, which used surveys to
examine the performance of ISO 9000 certified firms, this
study examines the performance of ISO 9000 certified
firms and non-ISO 9000 firms on the ISE by using their
average monthly stock market returns over 105 months.
Specifically, the article compared: 1) the monthly stock
returns and their variability of ISO 9000 certified firms
with non-ISO 9000 firms that are traded on Turkey’s ISE
market; and 2) the returns of ISO 9000 certified firms
traded on the ISE based on ISO 9000 certifying organi-
zation (Turkish vs. non-Turkish). The study used aver-
age monthly stock market returns of 95 firms listed on
the ISE, 62 of which had ISO 9000 certification and 33
of which did not have ISO 9000. The main premise of
this research was that ISO 9000 firms, because of their
quality orientation (Lee 2003; Ozgur, Meek, and Toker
2002), are expected to have higher performance than
those of non-ISO 9000 certified firms.
To determine if there was a difference between the
performances of ISO 9000 certified firms and non-ISO
9000 firms, the study compared the mean stock returns
and average stock variances of ISO 9000 certified and
non-ISO 9000 firms over various time periods of one
year, two years, three years, and four years during a time
period between 1997 and 2005. The results of these sce-
narios showed that the ISO 9000 certified firms generally
seem to have higher mean returns than those of non-
ISO 9000 firms, but they not are significantly higher for
all time periods/scenarios. In addition, comparing the
average variances of ISO 9000 firms and non-ISO 9000
firms, the authors found that ISO 9000 firms had lower
variances than non-ISO 9000 firms over a nine-year
period. It appears that, in addition to higher perform-
ance given by higher average stock returns, ISO 9000
certification seems to reduce the volatility (variability) of
the stock returns, making these stocks less risky. One
interesting observation is that the variability (variances)
of stock returns for ISO 9000 and non-ISO 9000 firms
declined over time and converged after nine years. This
may suggest that in the long-run ISO 9000 may not be
an important factor in reducing the variability of their
performance (or variance of the returns).
The authors also made comparisons to see if there
were differences in performance (mean returns and
variability) between Turkish (TSE) certified firms and for-
eign certified firms. These findings do not support the
implied preferences for the European certifying agencies
both in average returns and variability of the stock returns.
These findings are consistent with other empirical
ISO 9000 studies (LRQA 1996; Simmons and White 1999;
Uzumeri 1997) that say ISO 9000 certification is benefi-
cial for the companies. This study also provides support
for the links between quality and business performance
suggested by theory (Deming 1986; Fine 1986; Juran
1974; Lederer and Rhee 1995) and empirical studies
(Chowdhury and Menon 1995; Hendricks and Singhal
1997; Jacobson and Aaker 1987; Powell 1995). While only
one prior study examined the impact of variability on
business risk, future studies could include the impact of
ISO 9000 (or any quality system) on the variability of
the business performance.
Since the study found no significant difference
between the mean stock returns and variances of TSE
certified ISO 9000 firms and those of non-TSE certified
ISO 9000 firms, the ISO 9000 certifying organization
did not have a significant impact on the performance
of the Turkish firms that are traded on the ISE. These
findings indicate that the firms do not gain any com-
petitive advantage from being certified by foreign
(European) agencies. Since international marketing
and foreign sales is one of the potential expected bene-
fits of ISO 9000 certification, one could expect that the
foreign (all European in this case) certified firms
might be more successful with their exports.
Limitations of the Study
There are several limitations to this study. It is impor-
tant to state that ISO 9000 registration does not cause
or lead to higher stock returns. Following the sugges-
tions by Hendricks and Singhal (1997) and Simmons
and White (1999), the longitudinal data covering a
105-month time period provided an opportunity to
examine the long-term impact of the ISO 9000 certifi-
cation on business performance. While results showed
that ISO 9000 firms had generally higher average stock
returns and lower stock variability than non-ISO 9000
certified firms, this study, by design, included only few
variables (factors) and omitted many others, which
could have impacted the performance of individual
www.asq.org 37
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The Long-Term Impact of ISO 9000 Certification on Business Performance: A Longitudinal Study Using Turkish Stock Market Returns
firms. Since this study used the stock market returns, it
was not possible to identify additional firm profiles to be
included in the analysis. To overcome this limitation,
future studies may wish to include additional variables/
firm characteristics to better understand the impact of
ISO 9000 certification on business performance. Stock
market returns of the firms in this study fluctuated
widely during the 105 months of this study. A study in
the past analyzed differences in ISE stock returns and
stock variability and reached similar conclusions (Pinar,
Guder, and Yucel 2000). The contribution of this study is
that it enables one to examine the long-term impact of
ISO 9000 on business performance with objective data
and also to analyze the changes in the stock market
returns and variability over a long time period (nine
years). Unlike the short time period, over nine years
unexpected positive changes or negative changes will
tend to balance out.
The second limitation is that the study did not con-
sider other quality programs or initiatives that might be
implemented by the companies, especially by non-ISO
9000 companies. Although the research by Lee (2003)
and Ozgur, Meek, and Toker (2002) suggests that the
ISO 9000 firms seem to be more quality oriented than
non-ISO 9000 firms, it was not possible to determine if
non-ISO firms used any other quality programs from
the stock market returns. To obtain this information, the
survey must be conducted. Even so, the survey gives a
snapshot of the firms, not long-term perspectives, and
these contributing factors may change year to year. It is
believed that stock market returns should reflect the
impact of the factors operating in the environment. It is
also assumed that ISO certification should prepare those
ISO certified firms to better cope with these factors. Future
research could attempt to overcome this limitation by
supplementing stock market returns with survey data.
The third limitation is that there were many
unidentifiable causal forces at work. Some of them
could have affected ISO 9000 certified and non-ISO
9000 firms in different ways. A future study may wish
to include some causal forces in the analysis.
The fourth limitation of the study is that the stock
market and ISO 9000 certification are somewhat recent
phenomena in Turkey. There were a limited number of
firms that met the criteria to be included. This somewhat
38 QMJ VOL. 14, NO. 4/© 2007, ASQ
restricted the authors’ analysis, especially with the com-
parisons of ISO 9000 vs. non-ISO 9000 firms within the
same industries. Therefore, the differences in industries
and the number of companies from these different
industries could pose some problems for comparisons.
Despite this limitation, this article offers some insights
into the long-term effect of ISO 9000 certification on
business performance. However, the authors recom-
mend that similar analysis must be replicated in other
countries where the stock market is more established
and where many firms are listed.
The final limitation is that this study included only
Turkish firms. While the results provided some insights
into the long-term effect of ISO 9000 certification, the
future studies should include other countries, as well as
multicountry comparisons. Given these limitations, the
authors’ findings must be interpreted with caution.
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BIOGRAPHIES
Musa Pinar is associate professor of marketing in the College of
Business Administration at Valparaiso University in Indiana. He
received his undergraduate degree from Ege University in Turkey and
his MBA and doctorate from Mississippi State University. He has
published numerous articles in proceedings and refereed journals
such as Journal of Euromarketing, Services Marketing Quarterly,
Journal of Global Awareness, Tourism Analysis, Journal of Business
and Economics, The Journal of American Academy of
Business – Cambridge, The International Journal of Business and
Public Administration, Journal of Business and Behavioral Sciences,
Sex Roles, and Journal of International Food and Agribusiness
Marketing, and also presented papers at regional, national, and inter-
national conferences. Pinar teaches various undergraduate and MBA
marketing classes. His research interests are in the areas of market
orientation and marketing strategy, tourism marketing, service quality,
and services marketing in banking, ISO 9000, and gender effect on
sales recruiting, selling performance, and sales management. He
has conducted various marketing seminars in Turkey.
Ceyhun Ozgur is a professor of information and decision sciences
in the College of Business Administration at Valparaiso University.
He earned a bachelor’s degree in industrial management and a
master’s degree in management from the University of Akron and a
doctorate in business (operations management/operations
research) from Kent State University. He coauthored a textbook by
McGraw-Hill Irwin titled Introduction to Management Science with
Spreadsheets, first edition. Among others, Ozgur has published in
the Journal of Modern Applied Statistical Methods, Journal of Data
Science, Decision Sciences Journal of Innovative Education,
Interfaces, OMEGA, Quality Management Journal, Mid-American
Journal of Business, Production Planning and Control, International
Journal of Operations and Quantitative Management, International
Journal of Quality and Reliability Management, International
Journal of Business Disciplines, Bogazici Journal, and Industrial
Mathematics and Teaching Statistics. He is a member of the
Decision Sciences Institute and APICS. He can be reached by e-mail
at Ceyhun.ozgur@valpo.edu.
Collins v14 i4 9/20/07 10:09 AM Page 41
Applying the Toyota Production
System to a Healthcare Organization:
A Case Study on a Rural Community
Healthcare Provider
KEVIN F. COLLINS, HEALTHCARE CONSULTANT
SENTHIL K. MUTHUSAMY, BOWLING GREEN STATE UNIVERSITY
Over the last five decades the Toyota Production
System (TPS) has evolved from an advanced socio-
technical concept in manufacturing to a participative
design for large-scale change management. Toyota
has been able to sustain a strategic competitive
advantage by applying TPS as a process innovation
and intervention, as measured by quality, reliability,
productivity, cost reduction, sales and market share
growth, and market capitalization. Many organiza-
tions are trying to replicate Toyota’s success with TPS
in their respective business/industry environments. It
could be argued that the correlation between the
application of TPS as part of organizational strategy
and Toyota’s documented success in achieving the
aforementioned outcomes creates an “industrial
engineering paradigm” or “social change interven-
tion” that crosses multiple industries. In this light, TPS
can be a powerful intervention technique, even in
industries unaccustomed to advanced production
techniques such as the healthcare industry. Because
the healthcare industry is under enormous pressure to
reduce costs, increase reliability and quality, and
enhance organizational effectiveness, TPS-like inter-
ventions are significant to healthcare organizations.
This article captures the process of applying TPS to a
healthcare organization. It analyzes the challenges,
problems, and outcomes, and addresses remedies for
enhancing the success of TPS implementation.
Key words: healthcare, patient safety, quality, Toyota
Production System
© 2007, ASQ
INTRODUCTION
Small rural community healthcare providers, in gen-
eral, have limited access to labor and capital resources
compared to their larger counterparts; however, they
face the same regulatory pressures from accreditation
organizations with regard to quality of care and patient
safety. A paradoxical relationship exists between the
amount (and changing nature) of regulation that
exists within the healthcare environment, and the
ability of community healthcare providers to absorb
the impact of frequent policy and market changes.
This is because such providers generally serve smaller
dedicated markets and, because of aging populations,
are dependent on federal Medicare program reim-
bursement. Because that reimbursement is established
prospectively (not based on cost), the requirement for
providers to effectively manage their cost per patient
case is paramount to ensure viable margins. In addi-
tion to the challenge of managing costs, community
healthcare providers also must be able to offer broad-
based healthcare services to the populations they
serve. That puts them in a position to manage quality
care as well as cost and do so in an environment of
intense patient safety compliance concerns.
Community Health Systems (CHS) is one network
that is facing these challenges and trying to improve
the performance of its rural hospitals through
advanced management techniques. Rural community
healthcare systems constitute 41 percent of the com-
munity healthcare service provided in the United
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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
States (AHA 2006). Heartland Regional Medical Center
in Marion, IL, is one of the hospitals in the CHS net-
work that is addressing quality, cost management,
and patient safety goals together. This hospital is
Medicare dependent (qualifying also as a Medicare
disproportionate share hospital) and designated as a
“small/rural” provider, according to the Illinois
Hospital Association Health Information Department.
In preparation for a 2005 accreditation survey, this
hospital applied a business-level strategy that not only
created a compliant environment of quality care and
safety, but also established the foundation for
improved margins based on cost control. In this arti-
cle, the authors capture the application of the Toyota
Production System (TPS) as a process innovation/
intervention technique in this hospital to improve
performance in quality, safety, and cost reduction, and
survive accreditation audits.
This article reviews various historical and modern
conceptualizations of TPS; traces the significance of
TPS in strategy, structural, and cultural interventions;
and highlights the role of TPS in establishing control
systems and standards. Through this case study on
Heartland Regional Medical Center, the authors assess
the prerequisites for successful intervention and eval-
uate the preparedness of rural community healthcare
providers to implement TPS. The authors also analyze
the regulatory environment within the healthcare
industry, and highlight the need for TPS to improve
patient safety outcomes. Emphasis is placed on TPS as
a participative design (PD) intervention within the
healthcare setting. Projects undertaken by the Quality
Assurance/Regulatory Compliance Department at
Heartland Regional Medical Center also are identified.
TOYOTA PRODUCTION SYSTEM
(TPS) AND ITS APPLICATIONS:
A REVIEW
The TPS is a manufacturing philosophy and method-
ology created by Toyota with the main objective of
reducing wastes, defects, transportation costs, inven-
tory, waiting time, and the extent of processing (Liker
2003; Monden 1998; Ohno 1995). A modern viewpoint
42 QMJ VOL. 14, NO. 4/© 2007, ASQ
describes TPS as striving toward an ideal whole system
(Emiliani et al. 2003; Spear and Bowen 1999) or one
that has the following output characteristics:
• Is defect free (elimination of “Jidoka” or “Andon”
events causing the warning system to “flash”)
• Can be delivered one request at a time
• Can be supplied on demand in the version requested
• Can be delivered immediately
• Can be produced without wasting materials, labor,
energy, or other resources
• Can be produced in a work environment that is safe
physically, emotionally, and professionally for every
employee
This definition combines employee involvement in
work design output objectives, and is possibly more
suitable for organizations of all kinds to directly relate
to, regardless of technology employed.
The Need for TPS in
Healthcare Organizations
Based on the aforementioned conceptualizations of
TPS, one can visualize how TPS can result in outcomes
that can be considered building blocks of competitive
advantage, for example, efficiency (elimination of
waste), customer responsiveness (time and cus-
tomization elements), quality (zero defect output),
and innovation (creation of a culture that involves and
empowers all employees to enhance creativity). Toyota
has been able to sustain strategic competitive advan-
tage by applying this process intervention/innovation
over five decades, as measured by quality, reliability,
productivity, cost reduction, sales and market share
growth, and market capitalization. It could be argued
that the correlation between the application of TPS as
part of organizational strategy and its documented
success in achieving the aforementioned outcomes
creates an “industrial engineering paradigm” that
crosses multiple industries. Further, from a strategic
perspective, it could be argued that the application of
TPS plays to cost leadership advantage in industries
unaccustomed to advanced production techniques,
Collins v14 i4 9/20/07 10:09 AM Page 43

Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider

Table 1 Applicability of TPS attributes to hospital operations.

TPS attribute Hospital application

• Product delivered defect free
• Defects correlate to patient safety standards in healthcare. Standards that are established
by JCAHO require adherence in order for hospitals to be licensed, participate in the
federal Medicare program, and differentiate themselves on the basis of quality, in order
to effectively deal with increasing demand for specialized acute services. Higher quality
hospitals will be rewarded.

• Product delivered one request at a time • Each patient represents a unique treatment complexity and demands a customized
• Product can be supplied on demand treatment plan. When presenting for treatment, care is requested, but may not be available
in the version requested immediately; however, providers can differentiate themselves based on the speed with
• Product can be delivered immediately which they can deliver care.

• Product can be produced without • Faced with increasing costs for drugs, technology, and labor, hospital expenses must be
wasting materials carefully contained within the context of net revenue produced. Sophisticated material
• Product can be produced without and labor management systems assist hospitals with controlling and budgeting costs.
wasting labor

© 2007, ASQ
• Product can be produced in a work • Labor shortages in healthcare are expected to grow. With this in mind, hospitals are
environment that is physically, required to ensure adequate employee training and development in order to mitigate
emotionally, and professionally safe turnover, improve morale, and ensure a safe working environment.

such as healthcare services (Spear 2004). Healthcare
providers in general and small rural healthcare
providers in particular are in need of a process inter-
vention such as TPS and are characteristically similar
to that of a manufacturing environment.
Moreover, the external industry environment is also
forcing the healthcare industry to seek performance
enhancements through the application of techniques
such as TPS (Spear 2004; 2005). There are several
environmental forces that are demanding a change
within the healthcare industry (Futurescan 2005).
These forces include:
1. The level and nature of demand for acute care services
is changing to include dramatic increases in the
need for specialized services, due to the aging popu-
lation and the increasing uninsured population.
2. Hospitals are facing increasing competition in
delivering acute care services. Physician-based clin-
ics and specialty hospitals are taking business away.
An emphasis on quality also is making consumers
proactive.
3. New technology offers advantages and challenges.
Increased patient safety value comes at a high price.
4. Costs grow while available capital may be shrinking.
Increasing costs for wages and pharmaceuticals are
challenging profits.
5. An adequate work force is not guaranteed. Labor
shortages are expected to grow.
6. Improved quality and safety standards are a must.
Higher performing hospitals will be rewarded.
These trends are more painstakingly realized by
rural community hospitals, as access to capital, tech-
nology, and resources is somewhat limited because of
their locations and size.
Like manufacturing organizations, healthcare
providers like those within the CHS network are facing
challenges from rising labor and material costs,
intense competition, scarce human resources, cus-
tomer demand for impeccable quality, and stringent
safety and performance standards. Table 1 represents
applicability of TPS attributes to hospital operations.
CRITERIA FOR SUCCESSFUL
APPLICATION OF TPS
To achieve a competitive advantage using TPS
requires adherence to the fundamental technical
rules, developing suitable organizational/structural
design, and fostering cultural norms and values that
facilitate the TPS processes. Several scholars have
traced the important criteria for successful applica-
tion of TPS in terms of task, structural, cultural, and

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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
control systems prerequisites (Emiliani et al. 2003;
Spear and Bowen 1999). For example, Spear and
Bowen (1999) have identified four rules that form the
basis of TPS as a suitable application within the
organization. To be applied successfully, TPS demands
that an organization’s task structure comply with
these rules:
1. All work must be highly specified as to content,
sequence, timing, and outcome.
2. Every customer-supplier connection must be direct,
and there must be an unambiguous yes-or-no way
to send requests and receive responses.
3. The pathway for every product and service must be
simple and direct.
4. Any improvement must be made in accordance
with the scientific method, under the guidance
of a teacher, at the lowest possible level of the
organization.
These rules specify how the work is performed,
how knowledge is transferred between workers and
within the system, how production is coordinated
between tasks and services, and how the process is
controlled, measured, and sustained. These rules also
implicitly prescribe the organizational structure and
control systems that are required to be in place to
implement TPS gainfully. Additionally, organizational
cultural norms that need to be adhered to are evident
in the knowledge exchanges demanded in the TPS
model. For example, TPS emphasizes knowledge
transfers, knowledge creation at the lowest level of the
organization, and the contributions required of
employees at all levels as they interact with their work
environment. Structure, control systems, and cultural
specifications are integrally built into the TPS model,
and in order for this system to work appropriately,
organizations need to evaluate these areas and design
them to match the demands of TPS.
The TPS method is scientific in that it clearly
delineates the responsibilities at the operational level
to a very high degree of specification, and it does not
promote vertical command and controls (Spear and
Bowen 1999). As a result one can see the structure in
a TPS environment as decentralized, flat, and having
44 QMJ VOL. 14, NO. 4/© 2007, ASQ
a minimum chain of command. Additionally, control
systems are established to raise the level of both inno-
vation and quantitative performance. TPS facilitates
creative behaviors and stimulates workers and man-
agers to engage in “experimentation” that is widely
recognized as the cornerstone of the learning organi-
zation. Successful companies adapting versions of
TPS use the collective talents of multiple individuals
to invent or reinvent work processes. TPS also
emphasizes certain leadership qualities in managers
implementing TPS. For example, it demands an
operations-oriented team leader who is passionate
about ideas and innovations (Moore 2004; Spear
2004). So, it is evident that TPS as a process innova-
tion demands sponsorship and commitment from all
levels of employees, and emphasizes organizational
culture that is driven by knowledge creation and
innovation. While this may be a hurdle for some
companies, it is a prerequisite to the implementation
of TPS.
ACHIEVING QUALITY CARE AND
PATIENT SAFETY THROUGH TPS
Under the audit methodology established by the
Joint Commission on Accreditation of Healthcare
Organizations (JCAHO), hospitals must explicitly
demonstrate a compliant environment of care in
each of the six patient safety goal categories (see
Table 4). They must do so through the process intelli-
gence of patient caregivers, and appropriate action
steps along the clinical pathway. The clinical pathway
or “production line” is audited using two techniques:
the patient tracer methodology and the system tracer
methodology. JCAHO defines the patient tracer
methodology as “taking the patient’s experience and
tracing it through the organization and determining
in a variety of different areas—it could be informa-
tion management, assessment, treatment, patient
education — for that individual patient how the
organization is performing, how it’s executing on its
plans related to standards compliance, and best quality
safest care” (JCAHO 2005). System tracer methodol-
ogy is defined as “tracing a process through the
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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
Table 2 The correlation between TPS elements and the accomplishment of quality and patient safety.
TPS rule
All work shall be highly specified as to content,
sequence, timing, and outcome.
Every customer-supplier connection must be direct
and there must be an unambiguous yes-or-no way
to send requests and receive responses.
The pathway for every product and service must
be simple and direct.
Any improvement must be made in accordance with
the scientific method, under the guidance of a teacher,
at the lowest possible level of the organization.
organization and focusing on the process or the system
itself” (JCAHO 2005). JCAHO uses these tools to review
the confluence of individual activities and organiza-
tionwide systems and processes to gain a complete
picture of effectiveness and performance, much like
the TPS analysis technique. In Table 2, the authors
show the correlation between TPS elements and the
accomplishment of quality and patient safety.
Hospitals, in general, are in need of a high degree
of integration, because often they are organized
around functions or disparate departments. As such,
they inherently lack the reliable mechanisms for inte-
grating the individual departments into a coherent
whole (Spear 2004). One such example of this need
for integration is that in hospital environments, the
revenue generation process is started at the time of
patient registration, with the input of a “raw mate-
rial,” that is, patient demographic, insurance, and
chief complaint information. In order for the hospital
to appropriately bill for patient care, there must be
significant coordination between the registration
process, the throughput clinical and ancillary diag-
nostic areas that charge for services, and the
billing/patient accounting department that sends an
invoice to the insurance companies to get paid.
Without coordination, lapses in information and
process standards result in delays, defects, and extra
cost burdens. TPS allows for effective coordination
to occur.
Enhancement to patient safety
• All patient treatment is highly specified through documentation of actions,
located in patient’s medical record.
• Events, specification of treatment intervention times, and patient outcomes
management must be noted.
• The patient-nurse interaction is direct, as is the nurse-alternate caregiver.
• Ambiguity can result in compromises to patient safety; therefore, communication
must be precise and clear.
• Clinical pathways established for each treatment initiative, ensuring that a
“best practice” methodology is employed.
• Quality improvements initiated under the direction of an internal independent
© 2007, ASQ
body (Quality and Regulatory Compliance), which documents, experiments,
guides, and coordinates patient safety initiatives to be compliant with patient
safety goals, at the caregiver level within the organization.
ORGANIZATIONAL ASSESSMENT
OF RURAL COMMUNITY
HEALTHCARE SYSTEMS
A small rural healthcare provider is defined as one that
has fewer than 150 acute care beds and/or is located
outside a metropolitan statistical area. Heartland
Regional Medical Center represents a prototype of a
small rural healthcare provider in the CHS network.
Located in Marion, IL, it is the only full-service hospital
in Williamson County, IL, which has a population of
63,094 (U.S. Census Bureau 2004). Its business
model is defined as follows (CHS 2006):
• Increase the share of healthcare dollars spent by
local residents and limit inpatient and outpatient
migration to larger urban facilities. This is done
through the recruitment of primary care physi-
cians and specialists; targeted capital expenditures
designed to expand the breadth of services; and
providing capital to invest in facilities, primarily
the emergency room and ancillary services.
• Growth through selective acquisitions (approxi-
mately three to four per year).
• Reduce costs through standardizing and centraliz-
ing operations; optimize resource allocation by
optimizing the company devised case and resource
management program; capitalize on purchasing
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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider

Table 3 Quality and regulatory compliance

team case problems.
Case problems
Obstetrical admission/
check-in procedures
Medication management
and storage procedures
Use of standard abbreviations
at the facility. This banding, by JCAHO standards, is to
have two patient identifiers. As part of the audit process
at Heartland, it was found that expectant mothers
Accountable areas
arriving for delivery were told by their physicians to
Patient registration/ report directly to the obstetrical unit and bypass admis-
Obstetrical nursing unit
sions. By doing so, the admission requirements were
Pharmacy/ not being met and, therefore, a breach in the standard
Emergency nursing unit was identified. This created ambiguity in the nursing
Health information unit and resulted in the patient being sent back
management/ upstream in the process. In this case, treatment com-
Nursing administration
menced on the patient prior to proper identification

© 2007, ASQ
Reconciling patient medications Pharmacy/Nursing units
Patient risk prevention program Nursing units
efficiencies; install standardized management
information systems; and manage staffing levels.
• Improve quality through training, best practice
sharing, assistance in complying with regulatory
requirements, standardized accreditation documenta-
tion, and patient/ physician/staff satisfaction surveys.
As part of the strategy to improve quality, the CHS
network has established a standard structure that sup-
ports regulatory compliance objectives and internal
operating performance. Table 3 identifies the quality
and regulatory compliance team case problems.
DEMONSTRATION OF TPS
ACTION STEPS WITHIN
HEARTLAND REGIONAL
and treatment consent, which is a JCAHO violation of
patient safety goal no. 1.
To deal with this issue, a team comprising first-
shift nursing unit staff and two admitting clerks from
the dayshift hypothesized that coordinating patient
registration closer to the point of presentation/care
would alleviate incorrect routing of patients. The
team devised a countermeasure plan to create a
mini-registration unit in the obstetrical unit. They
stocked supplies and forms, and requested a label
printer from information services to be used for identi-
fication banding, so they could band patients arriving
directly from the physician’s office. Admitting clerks
trained nurses on the proper procedures, and the
method was tested with staff members acting as
patients. The result was improved customer respon-
siveness from the patient, as well as physicians, who
previously received negative feedback from their
patients. And although complaint issues had been
documented, directly observing the breakdown in the
system prompted the change to occur.

MEDICAL CENTER Testing of Hypotheses

Observation
In action, TPS insists on learning from the defects or
failures in operations. Observing failures or defects
within the system that cause that system to be inefficient
is a key principle of TPS. An example of inefficiencies in
hospital operations is observing patients being routed to
a nursing unit after arrival for inpatient admission. The
admission check-in procedures require all patients to
have identification banding performed when they arrive
Through Experimentation
TPS also involves fine tuning or constant “experi-
mentation.” This allows contingencies to be explored
in greater depth, and the interaction among the staff
creates more unity as alternative options are
explored, problem scenarios are presented, and
results are debated. In the previous example, two
original alternative hypotheses were agreed upon
to move to experimentation. The first one has been

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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
discussed; the second one involved a paging system,
whereby an admitting clerk would receive notifica-
tion that a breakdown had occurred on the unit, so as
to then be summoned to the unit to complete the
admitting and banding procedure. A pilot of this
hypothesis failed for the following reasons: respon-
siveness from the admitting staff could not always be
predicted. When a page was sent, it was found that
admitting clerks may not have been available at the
time because they were performing admitting proce-
dures on other patients. Their ability to respond to
the page was compromised, but for good reason. Also,
because of staffing constraints on the second shift,
particularly during the 3:00 p.m. to 6:00 p.m period,
admitting clerks were unable to leave the work area.
On the nursing side, the staff members were primarily
interested in ensuring that the patient received initial
treatment and, therefore, became ambivalent to going
through the paging procedure. This hypothesis was
discarded, but only after experimentation among the
same group of workers occurred and findings were
confirmed.
Coordinated Constant
Experimentation
As customization increases, demand increases, and
service or product categories are enhanced, existing
sociotechnical systems cannot remain static. As a
result, existing processes must undergo coordinated,
constant experimentation. Documentation of the
coordinated experimentation efforts through a log-
ging system allows for reflection and progression. This
process permits the adaptation of design as the prod-
uct or service changes, and it does so in shorter cycle
times, allowing for quicker changes to occur. As such,
any redesign process does not become burdensome,
overcomplicated, or drawn out over long periods of
time. Members of the original obstetrical department
“mini-registration” initiative continue to evaluate
the process as new physicians are recruited, a change
in key personnel takes place, or other departments
such as case management require information from
the task. Constant experimentation also battles the
constraint of worker turnover. It acts as a learning lab
for new employees, and shortens the learning curve on
required processes.
It’s important, therefore, to engage in constant
experimentation to solicit better ideas and ensure
continuous training, as Heartland and hospitals in
general compete to recruit and retain valuable
human resources.
Manage Through Enabling
Lower-Level Workers
TPS is effective only when lower-level workers are
involved in solving problems. Spear (2004) points out
that the higher the level of management, the lesser the
level of employee involvement in problem solving.
Within the hospital sphere, the Quality Assurance and
Regulatory Compliance (QRC) department manages
the boundary. They are observed acting as enablers in
the system, using the JCAHO patient safety goals as a
guideline for staff and managers to produce their own
results. The result is measured against the patient
safety goal and the QRC department processes
descriptive statistics to allow for team evaluation.
The QRC team is also there for interpretation—to
evaluate experimentation against the context of the
patient safety goal, as intended by JCAHO. Also, func-
tional managers are not formal managers in the
change management process within Heartland’s
quality initiatives. They are members of the team,
and content expertise is pushed down the formal
chain of command. Another example solidifies the
rules of engagement and TPS action steps described
up to this point.
Establishing Countermeasures to
Breaching Quality/Safety Goals
The QRC observation practices usually result in evi-
dence of a gap in the process of delivering patient
care. Something within the clinical pathway can be
pinpointed as askew, and in the case of medication
management within three clinical departments, that
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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
gap was discovered. A drowning victim arrived in the
emergency room at Heartland. At the same time, a
QRC team member was stationed in the emergency
room setting, observing practices being followed on a
number of patient encounters. Drowning victims
have a hypothermic body temperature of less than 95
degrees F. Part of the treatment protocol is introduc-
ing warm intravenous (IV) fluid to the victim in an
attempt to revive the organs. This technique also
increases body temperature slowly, without inducing
shock.
The QRC team member observed the case nurse
proceed to an incubation storage unit, which looks
much like a refrigerator except that it is designed to
warm the contents rather than cool them. Each IV fluid
set has a manufacturer’s recommended temperature-
level threshold, so as not to disable the effectiveness
of the medication when introduced to a patient. The
sequence of steps involved in obtaining the IV fluid
from the incubation unit includes verification of date
stored, temperature setting, and manufacturer’s rec-
ommended threshold. The discovery by the case nurse
of an excessive temperature setting within the incu-
bation unit caused her to question the reliability of
the IV solution she was obtaining for the patient
under her care. To her surprise, the heat threshold
had been exceeded to a level greater than what was
recommended by the manufacturer and, of course,
caused an immediate patient safety concern.
Because of the ambiguous situation, the nurse cre-
ated a work-around, which meant a “stat” page to
pharmacy for retrieval of the same IV solution from
their storage unit. Luckily for everyone involved, the
clinical pathway continued with a favorable outcome
for the patient, notwithstanding the delay involved in
procuring the IV solution. This is precisely the value of
TPS. The observation of a work-around, a noticeable
defect in the process, and an ambiguity of next steps all
required intervention toward standardization so as to
confirm patient safety rather than guess at it. When
the “red light” went on, a “Jidoka” or “Andon” event
occurred, and the wheels were put into motion to
break down the sequence of events. Within minutes, a
team comprising first-shift nurses and two emergency
room clerks huddled with the QRC team member to
48 QMJ VOL. 14, NO. 4/© 2007, ASQ
analyze this situation. The first point made was that
this represented a breach in patient safety goal no. 3, as
prescribed by the JCAHO, and if the JCAHO was on site
during this event it would be considered a “type 1,” or
severe, violation causing the hospital to potentially
lose accreditation. This was the “burning platform”
required for the next step, and that was the solicita-
tion of open ideas to mitigate this from occurring in
the future. Focus was on accountability to ensure an
adequate record was kept of the three variables
involved in the storage of IV fluid medication, that is,
existing temperature of the incubator, date of original
storage, and manufacturer’s recommended storage
threshold. The team members chose a lead from each
shift to comply with completion of a mediation man-
agement log on the incubator, which included these
three items as well as the name of the team member
checking them.
For a period of one month, the same person is
required to perform the evaluation, and a second team
member verifies that it was performed. This project is
in the “experimentation” stage at Heartland. The
important lessons are: 1) the huddle took place
immediately after the observation; 2) the QRC team
member acted only to create the “burning platform”
instead of acting as the problem solver; and 3) the
team created a countermeasure within the context of
participative design, that is, the form and accountabil-
ity for completing it was generated by a collaboration
of workers. This exercise clearly follows the spirit of
TPS. However, for it to be useful to the hospital as a
whole, it must be spread throughout the institution,
and the process of observation and experimentation
must be everyone’s task.
Additional Observations
It was found that the QRC team employed the same
TPS “whole system” methodology when performing
additional patient safety audits. These findings and the
implemented remedies are explored here. In order to
improve communication among caregivers and ulti-
mately ensure patient safety, a common theme within
hospital facilities is to implement a standardized list of
abbreviations and also identify a “dangerous” list of
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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider

Table 4 Goals related to improving quality of care and patient safety and the associated TPS strategy.
Goals Affect on healthcare operations Application of TPS philosophy

Goal 1 Wrong-patient errors occur in virtually all aspects of
Improve the accuracy diagnosis and treatment. The intent for this goal is
of patient identification twofold; first, to reliably identify the individual as
the person for whom the service or treatment is
intended; second, to match the service or treatment
to that individual.
Creating a treatment plan that is unique to the
individual fulfills the TPS requirement that all work
is highly specified as to content. While clinical
pathways can be created for “categories” of care,
each represents a customized version of the care
template. Pathways must be documented and act
as controls during delivery of care.

Goal 2 Ineffective communication is the most frequently
Improve the effectiveness cited category of root causes of sentinel events.
of communication Effective communication, which is timely, accurate,
among caregivers complete, unambiguous, and understood by the
recipient, reduces error and results in improved
patient safety.
Reduction in errors is the direct result of creating
an unambiguous customer-supplier connection.
Role-playing and experimentation allows caregivers
to identify weaknesses in that connection.

Goal 3 When medications are part of the patient treatment
Improve the safety of plan, appropriate management is critical to
using medications ensuring patient safety. The development of
standardized and redundant systems has been
shown to decrease errors and improve outcomes.
A specific pathway must be created and followed
consistently in order to analyze variations from
the standard.

Goal 4 Compliance with the CDC hand-hygiene guidelines Work environments must be physically safe.
Reduce the risk of will reduce the transmission of infectious agents by Training and development programs that address
healthcare-associated staff to patients, thereby decreasing the incidence the environment of care satisfies the TPS attribute
infections of healthcare-associated infections. of workplace safety.

Goal 5 Patients are most at risk during transitions in care Implementation of a product delivery plan
Accurately and (handoffs) across settings, services, providers, or (reconciling medications at the point of production
completely reconcile levels of care. The development, reconciliation, and dispensing) ensures safe customized delivery.
medications and communication of an accurate medication list
throughout the continuum of care is essential in the
reduction of transition-related adverse drug events.

Goal 6 Falls account for a significant portion of injuries in Identify risks that create a potential for failure,
Reduce the risk of hospitalized patients, long-term care residents, and through repeat assessment of patient care areas
patient harm resulting home care recipients. In the context of the population from shift to shift. Identify potential risks as “defects”
from falls it serves, the services it provides, and its environment and mitigate them accordingly.
of care, the organization should evaluate its patients’
risk for falls and take action to reduce the risk of
falling and to reduce the risk of injury, should a
fall occur. The evaluation could include fall history,
medications and alcohol consumption review, gait
© 2007, ASQ

and balance screening walking aids, assistive

technologies and protective devices assessment, and
environmental assessments.

abbreviations to be avoided. The QRC team at
Heartland, through chart auditing, discerned that
several abbreviations and symbols were potentially in
use that could result in the intended meaning being
misinterpreted and patient safety being compromised
(a potential breach of patient safety goal no. 2).
Two examples of this are illustrated here to draw the
link between interpretation and potential patient safety
compromise. The abbreviation “IU” was documented
with the intended meaning of “international unit;”
however, it could have been misinterpreted as “IV”—
“intravenous,” or the number 10. To abate this prob-
lem, the recommendation was to require that the
phrase “international unit” be appropriately spelled
out, instead of abbreviated. Another “dangerous”
abbreviation identified was the symbol “Q.D,” which

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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider

Table 5 Specific case problems categorized by patient safety goal.

Goals Process rules to implement TPS Problem assessment Remedies

Goal 1 • Use at least two patient identifiers (neither to be the • Direct admissions to • Implementation of
Improve the accuracy of patient’s room number) whenever administering obstetrical unit precluded “mini-registration”
patient identification medications or blood products, taking blood proper identification of process on the
samples and other specimens for clinical testing, patients. obstetrical unit.
or providing any other treatments or procedures.

Goal 2 • For verbal or telephone orders, verify the complete • Potential misinterpretation • Eliminate common
Improve the effectiveness order or test result by having the person receiving of abbreviations and misinterpretations in
of communication the order or test result “read back” the complete symbols. favor of mandated
among caregivers order or test result. documentation.
• Standardize a list of abbreviations, acronyms, and
symbols that are not to be used throughout the
organization.
• Measure, assess, and take action to improve the
timeliness of reporting of critical test results.
• Implement a standardized approach to “hands off”
communications including an opportunity to ask
and respond to questions.

Goal 3 • Standardize and limit the number of drug • Excessive temperature • Implementation
Improve the safety of concentrations available within the organization. setting within IV storage of medication
using medications • Identify and annually review a list of look alike/ incubation unit. management log,
sound alike drugs used in the organization, and accountability for
take action to prevent errors involving the completion of log
interchange of these drugs. assigned to team lead.
• Label all medications, medication containers, or
other solutions in preoperative and sterile settings
and ensure proper storage conditions.

Goal 4 • Comply with the CDC hand-hygiene guidelines. • Potential noncompliance • Install signage and
Reduce the risk of • Manage as sentinel events all identified cases with CDC handwashing provide emblematic
healthcare-associated of unanticipated death or major loss of function guidelines. method as a reminder.
infections associated with a healthcare infection.

Goal 5 • Implement a process for obtaining and documenting • Potential avoidance of • Mandate use of
Accurately and a complete list of the patient’s current medications medication management medication
completely reconcile upon admission. assessment. management
medications • A complete list of the patient’s medications is documentation as
communicated to the next provider of service essential component
when a patient is referred or transferred to of patient’s chart.
another setting. Subject to QRC audit.

Goal 6 • Implement a fall reduction program and evaluate • Potential improper lifting • Implement employee
Reduce the risk of the effectiveness of the program. and transportation retraining and build
© 2007, ASQ

patient harm resulting techniques. training into new

from falls employee orientation.
Subject to QRC audit.

was intended to mean “everyday.” This, however, was
routinely misinterpreted as “Q.I.D” or “every other
day.” Clearly, this misinterpretation could result in
medication errors and a patient safety concern. This
abbreviation was discontinued in favor of the phrase
“daily,” or “every day.”
To reduce the risk of healthcare-acquired infec-
tions (patient safety goal no. 4), the QRC department
at Heartland not only installed reminder signs to
“wash hands for a minimum of 10 to 15 seconds”
within each clinical area, but also came up with a
rhetorical/symbolic method for helping employees

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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
understand this. During orientation for new employees,
and reorientation of existing employees, the QRC team
demonstrated the use of the “Happy Birthday” song,
that is, singing the song while washing one’s hands to
ensure hygiene guidelines are met. This was not only
engaging, but also emblematic and pragmatic.
Patient safety goal no. 5 requires hospitals to
accurately and completely reconcile patient medica-
tions. As a patient proceeds through the admission
process and is referred to a clinical unit, that unit is
required to document existing medication use. The
QRC team facilitates this requirement by ensuring
that the medication management documentation is a
mandated component of the patient’s chart and sub-
ject to review by the QRC audit team. Finally, patient
goal no. 6 requires hospitals to engage in a risk
reduction program to manage patient harm resulting
from falls. In many cases, it was determined that
patient falls resulted from inappropriate physical
assistance provided to the patient by the caregivers.
This was observed by QRC members, and a retraining
program was implemented to ensure proper lifting
and transportation techniques. In addition, the pro-
gram was instilled in the new employee orientation
program, and is also subject to audit through QRC
observation. A summary of the goals related to
improving quality of care and patient safety, the effect
on healthcare operations, and the associated TPS
strategy are presented in Table 4.
The specific case problems are categorized accord-
ing to patient safety goal, with remedies identified in
Table 5.
LESSONS LEARNED
As previously mentioned, small rural community
providers have a magnified challenge in dealing with
current trends, particularly access to capital, technol-
ogy, and resources, and dealing with cost burdens
imposed by pharmaceuticals and technically skilled
human resources. CHS has devised a business model
that provides guidance to its small rural community
providers in the area of quality and patient outcome
management, specifically requiring standardization
of accreditation documentation. This is a model that
when enforced can produce positive outcomes, and
when implemented with the help of methods like TPS
can result in building competitive advantages.
In returning to Emery’s (1995) rationale for devel-
oping participative design, one can find constraints in
introducing TPS to a community hospital. In essence,
the rationale describes universal organizational con-
straints that must be overcome. Traditional hierarchies
are unacceptable in a TPS environment, where partici-
pation of employees creates collective consciousness
and a shared mental model, rather than fragmented
top-down solutions. This requires rethinking the role
of management, one that precludes the higher levels
of the hierarchy exclusively acting in roles of problem
solvers at the expense of the ideas of the work group.
Additional studies that account for variations in
management style are recommended.
Systemwide, expansion of TPS from a work unit
concept to a whole system change is limited by “silo”
affects, or the divisional nature of hospital operations.
Breaking down these silos through challenging
processes within each of them increases the interaction
among divisional employees and recognizes their
interdependence. Additional TPS intervention studies
that take into account the diversity of multidiscipli-
nary operations is necessary to ascertain the level of
sustainability of the TPS intervention.
Successful projects that are not sustainable through
time because of worker turnover can be mitigated by
strategic reward systems such as pay for performance
or best practice rewards tied to patient safety and cost
reduction outcomes. Incentives built into a control
system help the employees to realize a sense of owner-
ship in their actions. Additional studies are needed to
determine the strength of correlation between com-
pensation/reward systems and TPS sustainability.
Finally, hiring practices and skill-building mecha-
nisms associated with a learning organization can
create an expert-driven process that possesses the
energy for change rather than the complacency of
resistance. This would include creating observation
skills associated with TPS, training in the scientific
method, and establishing interdisciplinary process
education sessions. This will build the perception that
redesign is part of the job description rather than a
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Applying the Toyota Production System to a Healthcare Organization: A Case Study on a Rural Community Healthcare Provider
complicated process, and move the right people into
the right “experimentalist” positions, such that the
organization will start to achieve documented strate-
gic results, much like Toyota. The structure, control
systems, and culture will make the difference.
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Spear, S., and H. K. Bowen. 1999. Decoding the DNA of the Toyota
Production System. Harvard Business Review (Sept.-Oct): 97-106.
U.S. Census Bureau. 2004. Estimate. Washington D.C.: U.S.
Census Bureau, Population Division.
BIOGRAPHIES
Kevin F. Collins is a management consultant to a diverse range of
healthcare organizations. He received his master’s degree in
organization development from Bowling Green State University.
He specializes in revenue optimization and organizational
process improvement strategies. Collins is a member of the
American Health Information Management Association, the
Healthcare Financial Management Association, and the Academy
of Management. His research interests include healthcare strat-
egy, organizational behavior, clinical quality outcomes analysis,
and leadership development. He can be reached by e-mail at
Kevincollins3@lycos.com.
Senthil Kumar Muthusamy is an associate professor of strategic
management in the College of Business Administration at
Bowling Green State University. He received his doctoral degree
in management from Oklahoma State University. He is a member
of the Academy of Management, the Strategic Management
Society, and the Organization Development Network. His
research interests include social exchanges in interfirm alliances,
cooperative strategies, knowledge management, and organiza-
tional cognition. His articles have appeared in Organization
Studies, Journal of Business Research, Organization Development
Journal, and Journal of Information & Knowledge Management.
Sharma v14 i4 9/20/07 10:11 AM Page 53
Ranking Customer Requirements
in QFD by Factoring in Their
Interrelationship Values
J. R. SHARMA, INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR
A. M. RAWANI, NATIONAL INSTITUTE OF TECHNOLOGY, RAIPUR
Quality function deployment (QFD) is a methodology
used to achieve higher customer satisfaction. The engineer-
ing characteristics (ECs) affecting product performance
are designed to match the customer requirements (CRs).
Computing raw weights of CRs and priority scores of ECs
from various input variables is one of the most critical
phases in QFD application. This study deals with the most
neglected and often-omitted part of the QFD process—the
interrelationship matrix among customer requirements.
This article presents a mathematical solution to the cor-
relation triangle problem that incorporates both CRs and
ECs. An attempt is made to address the issue by consider-
ing the impact of these interrelationships on the overall
calculations, using weighted average method for the CR
interrelationship value operator in order to prioritize
customers’ requirements in QFD. The outcome of the
study is a mathematical solution to the perennial corre-
lation triangle problem in the form of a framework that
factors in the correlation triangle values in conjunction
with computed raw weights for customer requirements.
The model fine tunes and adds precision to an otherwise
qualitative strategic decision process. The applicability
of the authors’ proposed model is demonstrated with a
real-life example.
Key words: customer requirements, interrelationship
values, prioritization, QFD
© 2007, ASQ
INTRODUCTION
In any kind of project, the design team needs to create,
improvise, innovate, or improve a product by incorporat-
ing the customer requirements (CRs) and engineering
characteristics (ECs) recognized in the quality function
deployment (QFD) planning process into a product. A
design team needs to make tradeoffs while selecting the
CRs and ECs based on the order of their relative raw
weights and priority scores and their ranking to achieve
total customer satisfaction without violating the time,
money, and effort constraints. The technical priority
score and their rankings are the key results of QFD, since
they guide the design team in decision making, resource
allocation, and the subsequent product analyses.
Therefore, deriving the final importance rankings of CRs
and ECs from input variables is a crucial step toward
successful QFD. The inherent abstraction and the
inexactness of the result, however, presents a special
challenge in effectively calculating the customer raw
weights and technical priority scores and, hence, the
importance rankings of CRs and ECs. The aim of this
article is to advance the theory and practice of incor-
porating and factoring in the interrelationship values
of the house of quality (HoQ). Implementation of
this improvised approach to comprehensive matrix
analysis is discussed from the perspective of a product
by conducting a hypothetical analysis.
QFD: ORIGIN AND PROGRESSION
QFD is the systematic translation of the voice of the
customer (VOC) to the actions of the manufacturer
required to meet the customers’ desires, based on a
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Ranking Customer Requirements in QFD by Factoring in Their Interrelationship Values
matrix that compares what the customer wants and
how the supplier plans to provide it. It is said that QFD
was proposed in Japan in 1966 by Yoji Akao. However,
it did not emerge as a viable and formalized approach
to quality control in planning until 1972 when Akao
developed a quality control chart previously introduced
at the Kobe shipyard of Mitsubishi Heavy Industries
and instituted the QFD quality tables (Griffin and
Hauser 1996). QFD is an innovative approach to
bringing quality—as demanded by the customers—
upstream into the product development process (Akao
1990). QFD’s first industrial applications in the United
States originated primarily in the automotive industry.
With some modifications, QFD could be applied to the
continuous improvement of any product, process, or
technique (Sharma and Rawani 2006). Early users of
QFD included Ford Motor Company, Procter & Gamble,
and 3M Corp., but many other U.S. companies have also
adopted it. In Europe, the first symposium on QFD took
place in 1992 in the United Kingdom, but companies
like Philips Corporation have reportedly worked with
QFD since 1986 (Govers 1996). QFD has been in use in
the manufacturing industry since 1987. Meanwhile,
many authors have advocated it as a planning tool to
help manage product and process development.
QFD FRAMEWORK
In the QFD approach, the matrix to be built is the
product planning matrix. It also is called the “house”
of quality (HoQ) because of its house-like shape. Its
purpose is to translate important customer require-
ments regarding product quality into key end-product
control characteristics. The HoQ comprises several
different parts or rooms, which are sequentially filled
in order to achieve an actionable translation from
requirements into characteristics (see Figure 1).
Voice of Customer
The HoQ’s first room concerns the product and deals
with the definition of the selected product for which QFD
is constructed. The second room concerns the VOC, but
before this there is a need to identify the customers.
There are different ways to identify the customers of a
54 QMJ VOL. 14, NO. 4/© 2007, ASQ
Figure 1 Basic building blocks of QFD
(Sharma, Sharma, and Rawani 2006).
Roof
Voice of
Product engineer
customers
Voice of
triangle
Strategic
Relationship
CR
planning
room
room
Technical
© 2007, ASQ
priorities
room
product or service. The most common approach is to
ask: Who must be satisfied with the product for it to be
considered successful? Identifying the CRs and their
importance remains one of the most serious obstacles to
a successful QFD application in product development.
CR Triangle
The CR correlation triangle is designed to show the
interrelationship between the CRs of the matrix.
Tradeoffs between the different CRs are identified and
captured as strong positive, positive, negative, and strong
negative. If two CRs help each other move in their
desired direction, they are considered to be positively
related. Similarly, if moving in the desired direction on
one CR has a detrimental effect on another, they are
considered to be negatively related. Since they are gener-
ally not used in calculation, the interrelationship data
are defined with symbols for associated relationships.
Strategic Planning Room
Once the CRs and their priority rankings are established,
the next step is to understand where the company and
its competitors stand in terms of satisfying customers in
the marketplace. This is achieved through an index of
the customer perceptions as to how well the product
one uses meets his or her needs. This section provides a
link between the QFD project and the company’s strate-
gic vision by uncovering market opportunities and
Sharma v14 i4 9/20/07 10:11 AM Page 55
Ranking Customer Requirements in QFD by Factoring in Their Interrelationship Values
identifying priorities for product development or
improvement. Moreover, it helps build competitive
advantage by focusing on the requirements that cus-
tomers would like to see better addressed by the market.
Voice of the Engineer and Roof
At this stage, the QFD team should have a clear picture
of what the customer requires from the concept or
product and how this can be related to the company’s
strategy. The team now has to decide how these require-
ments can be incorporated into the final product, so that
the customer is satisfied. This is achieved by building
the Voice of Engineer Room. The goal is to develop a
set of engineering specifications from the CRs.
Relationship Room
The Relationship Room is the core of the HoQ—where
the relationship between each CR (VOC) and the ECs
(voice of the engineer), as well as their intensity, is
depicted. The relationship between CRs and ECs might
be achieved by asking, “To what degree does this engi-
neering characteristic predict the customer’s satisfaction
with this requirement?” Based on in-house expertise,
surveys, data from statistical studies, and controlled
experiments, the team seeks consensus as to how much
each EC affects each CR. This task is widely recognized
as highly complex and represents another critical stage
in the HoQ building process.
Technical Priorities Room
The Technical Priorities Room starts with technical
descriptors. These descriptors pertain to the ECs and
the units of measurement in each column. They add
the details necessary to bring the product definition
from the abstraction of words to the concrete reality of
product and process engineering. With technical com-
petitive assessment of the ECs (voice of the company)
in the currently marketed products, the QFD team can
view their competitors’ and their own technical per-
formance level regarding ECs directly affecting CRs. A
row indicating the level of organizational difficulty
related with realizing each EC can also be added.
Based on the information depicted in the HoQ, the
QFD team then must select the end-product character-
istics to be deployed through the remainder of the
product development and market introduction activi-
ties. ECs showing a technical importance rating above
a predetermined threshold, thus indicating a strong
relative importance in achieving the CRs, are selected
for further deployment. The same happens to ECs
related with CRs that have strong sales points or poor
competitive performance satisfaction rating.
RANKING METHODS IN QFD:
A REVIEW
The study of the available literature on various models
and frameworks for QFD suggests that most of the
methodologies suffer from one major weakness—a
lack of concrete, clear guidelines as to how one could
adequately conceptualize, integrate, and implement
its correlation triangle phase. Several methodologies
have been worked out, but their validity and applica-
bility to prioritize CRs remains inconclusive and the
implementation results and findings are scarce.
In QFD studies various CRs are always stated and
included, but interrelationship with one another is
hardly ever incorporated and, even if depicted, is
never brought into the tabulations of the CR final
importance ratings. One reason for this is the diffi-
culty in obtaining the relevant data, although it
could be expressed in a symbolic manner using
appropriate synergistic or detrimental scales.
Interrelationships among the CRs require the QFD
personnel to make a lot of pair-wise comparisons
about the degree of association and the direction to
which these CRs are interrelated. Also, there are few,
if any, acceptable methods to incorporate the interre-
lationship into the calculation of the final impor-
tance ratings of the CRs. Most of these methods,
however, adopt calculation procedures using the
weighted product of the relationship measures in the
importance rating column, sales factor, and
improvement ratio column, without considering the
magnitude, direction, and degree of association
among all CRs.
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Ranking Customer Requirements in QFD by Factoring in Their Interrelationship Values

Figure 2 Flowchart for the proposed method. an approach based on the application of possibility
theory and fuzzy arithmetic to address the vagueness
in QFD operation. Fung, Popplewell, and Xie (1998)
START
developed a hybrid system to incorporate the principles
of QFD, analytical hierarchy progress, and fuzzy set
i=1 theory for customer requirements analysis and product
attribute targets determination. Shen, Tan, and Xie
IRWi = NPRWi (2001) proposed a fuzzy procedure to examine the
sensitivity of ranking different parameters to the
j=1 defuzzification strategy and degree of fuzziness of
fuzzy numbers. Vangeas and Labib (2001) proposed a
model for deriving optimum targets of CRs and ECs
Yes through the implementation of the fuzzy weighted
If j ≠ i
average. On the similar lines, new methods for rating
No CRs and ECs in fuzzy QFD is proposed by integrating
n fuzzy weighted average method (Kao and Liu 2001)
IRWi = NPRWi + Σ [NPRWi * (1 + NPRWj) * Xij]
j=1 and the fuzzy expected value operator (Liu and Liu
2002). Karsak, Sozer, and Alptekin (2002) combined
j=j+1 the AHP and goal programming approach for deter-
mining the priority levels of CRs. Han, Kim, and Choi
(2004) suggested a linear partial ordering approach
Yes for prioritizing ECs in QFD with incomplete informa-
If j ≤ n
tion. Karsak (2004) used the fuzzy multiple objective
No programming framework for prioritization in QFD.
i=i+1 Chen, Fung, and Tang (2005) proposed a ranking
model using the weighted average method in the fuzzy
expected value operator in fuzzy QFD.
If i ≤ n

INTERRELATIONSHIP
OUTPUT: IRW VALUES INTEGRATED MATHEMATICAL
© 2007, ASQ

STOP
A few approaches have been introduced for deter-
mining CRs and ECs importance rating in the QFD
process. The noticeable ones found in the QFD litera-
ture dealing with prioritization are mentioned here:
The prioritization that is consistent with CRs impor-
tance ratings was advocated by Lyman (1990)
through the concept of deployment normalization.
Armacost et al. (1994) used the analytic hierarchical
process to prioritize CRs and ECs in an industrialized
housing application. Khoo and Ho (1996) proposed
MODEL
To overcome the aforementioned problem, a new
method for prioritizing CRs in QFD is proposed by
integrating the CR correlation triangle values with
preliminary (initial) raw weights. The proposed
method can weigh the CRs more efficiently, as not only
the relative importance ratings, sales points, and
improvement ratios of CRs are considered, but the val-
ues and their degree of association in the correlation
triangle are also factored in. Through the method
proposed in this study, the CR correlation triangle
symbols are translated into numerical values and
with this a discreet but exact solution is obtained.

56 QMJ VOL. 14, NO. 4/© 2007, ASQ

Sharma v14 i4 9/20/07 10:11 AM Page 57

Ranking Customer Requirements in QFD by Factoring in Their Interrelationship Values

The prioritization weights are then Figure 3 Customer requirements and their interrelationships.
computed by using the prelimi-
nary raw weights. To factor in the Customer Requirements PRW NPRW Rank
CR correlation triangle values— Cleanliness and purity 69 0.1076 IV
which usually are in the form of +
Safe, reliable, and efficient 72 0.1123 III
symbols — the model starts only –
–– Ease of handling and use 40 0.0624 X
after the prioritization of the CRs +
+ Cost of the product 86 0.1342 II
by rating them through their raw + –
+ + – Leakage factor (air/liquid) 59 0.0920 VII
weights. This article considers + ++ + – +
++ –– Right size/Correct volume 63 0.0983 VI
QFD done on a healthcare prod- – + ++
–– Proper visible markings 42 0.0655 IX
uct. It should be noted, however,
Precise movement 47 0.0733 VIII
that the whole QFD matrix prepa-

ration and its calculation for the
selected product are beyond the
scope of this article. The legends
used are:
• n—Number of customer requirements
• PRW—Preliminary raw weight
• SPRW—Sum of all preliminary raw weights
• NPRW—Normalized preliminary raw weight
• IRW—Intermediate raw weight
• SIRW—Sum of all intermediate raw weights
• NIRW —Normalized intermediate raw weight
• FRW—New raw weight
• Xij —Interrelationship values among CRs, that is,
between row i and column j
The interrelationship values are taken as 1.5 for
“+ +”, 1.25 for “+”, 0.5 for “–”, 0.25 for “– –” and
0.00 for “blanks.” The value conversion has been done
considering the synergistic or detrimental effect of these
relationships on various CRs under consideration. The
calculations for ith (i = 1 to n) CR is given next:
NPRWi = PRWi / SPRW
n
IRWi = NPRWi + Σ [NPRWi * (1 + NPRWj) * X ij ], for
j=1
all j ≠ i
These intermediate raw weights are then normal-
ized, and these normalized values are distributed
according to preliminary raw weights to give final
raw weights, as given next.
NIRWi = IRWi / SIRW
FRWi = NIRWi * SPRW
© 2007, ASQ
Safe convenient packaging 67 0.1045 V
++
Tamper proof (no reuse) 96 0.1498 I
The rationale behind the devised formulae is the
relative direction and the magnitude of change that
one CR causes on to the other, depicted with the help of
synergistic or detrimental symbols. If there is a syner-
gistic (or detrimental) relationship between two CRs,
the effect is positive (or negative). This causes CRs to
move in the right (or opposite) direction, the intensity
of which is decided by the nature of relationship, that
is, strong or weak. The net effect is to increase (that is,
multiplying factor > 1.00) or decrease (that is, multi-
plying factor < 1.00) the considered CR’s weight by
the related percentage value of other related CRs, thus
taking into account the assigned degree and direction
of association. A Visual Basic Code has been written
for the proposed method. A flowchart for the same is
shown in Figure 2.
AN ILLUSTRATIVE EXAMPLE
After going through all QFD steps depicted previously in
the basic building blocks for the selected healthcare
product “syringe and needle,” the calculated raw
weights for each CR are shown next. The matrix ignores
redundant steps and considers only the relevant ones,
that is, CR, interrelationship among CRs, raw weights,
normalized raw weights, and their ranks, as shown in
Figure 3. The sample calculation (of CR2) shown next
helps in deciphering how changes in the correlation
triangle value get reflected in IRW and finally in FRW,
thus affecting the resultant rankings of the CRs.

www.asq.org 57
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Ranking Customer Requirements in QFD by Factoring in Their Interrelationship Values

Table 1 CR with correlation values, preliminary and final raw weights.

(No reuse possibility)

Safe & Convenient
Ease of Handling

Correct Volume
Safe, Reliable,

Tamper Proof
No Leakages

Movements
Cleanliness

Right Size/
Cost of the

Packaging
(Air/Fluid)
& Efficient

Markings
& Purity

Product

Precise
Proper
& Use
CR PRW NPRW IRW NIRW FRW

Cleanliness
& purity – 1.25 0 0.50 0 0 0 0 1.25 1.25 69 0.1076 0.6217 0.1046 67.03

Safe, reliable,
& efficient 1.25 – 0 0.25 1.25 1.25 1.25 0 1.50 1.50 72 0.1123 1.1367 0.1912 122.54

Ease of
handling
& use 0 0 – 0 0 0 1.25 1.25 0 0 40 0.0624 0.2292 0.0386 24.71

Cost of the
product 0.50 0.25 0 – 0.50 0.50 0.50 0.25 0.50 0.25 86 0.1342 0.6128 0.1031 66.07

No leakages
(Air/Fluid) 0 1.25 0 0.50 – 1.25 0 1.25 0 0 59 0.0920 0.5221 0.0878 56.29

Right size/
Correct vol. 0 1.25 0 0.50 1.25 – 1.50 0 0 0 63 0.0983 0.5819 0.0979 62.74

Proper
markings 0 1.25 1.25 0.50 0 1.50 – 0 0 0 42 0.0655 0.3887 0.0654 41.91

Precise
movements 0 0 1.25 0.25 1.25 0 0 – 0 0 47 0.0733 0.2916 0.0490 31.44

Safe
packaging 1.25 1.50 0 0.50 0 0 0 0 – 1.50 67 0.1045 0.6632 0.1115 71.50

Tamper proof

© 2007, ASQ
(No reuse) 1.25 1.50 0 0.25 0 0 0 0 1.50 – 96 0.1498 0.8976 0.1510 96.77

SUM 641 1.000 5.9455 1.000 641.00

Considering row no. 2 (CR2: safe, reliable, and Similarly, values of IRW for all other CRs are
efficient) computed.
PRW2 = 72.00 (Old rank is 3) SIRW = 5.9455
NPRW2 = 72.00 / 641.00 = 0.1123 NIRW2 = IRW2 / SIRW = 1.1367 / 5.9455 = 0.1912
X2j = {0.00, – , 0.00, 0.25, 1.25, 1.25, 1.25, 0.00, FRW2 = NIRW2 * SPRW = 0.1912 * 641.00 = 122.5449
1.50, 1.50} (New rank is 1)
SPRW = 641.00 Similarly, values of FRW for all other CRs are
n
IRW2 = NPRW2 + { Σ [NPRW2 * (1 + NPRWj ) * X2j ]} = computed (see Table 1).
j=1
0.1123 + {0 + 0 + 0.1123 * (1 + 0.1342) *
0.25 + 0.1123 * (1 + 0.0920) * 1.25 + 0.1123 * RESULTS
(1 + 0.0983) * 1.25 + 0.1123 * (1 + 0.0655) * Results can be deciphered from the comparative
1.25 + 0 + 0.1123 * (1 + 0.1045) * 1.50 + analysis of CRs raw weights and their ranking (see
0.1123 * (1 + 0.1498) * 1.50} = 1.1367 Table 2). The old traditional method and the resulting

58 QMJ VOL. 14, NO. 4/© 2007, ASQ

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Ranking Customer Requirements in QFD by Factoring in Their Interrelationship Values

Table 2 A comparative analysis of CRs preliminary and final raw weights and rankings.
C R (Conventional Method) PRW NPRW Rank C R (Proposed Method) FRW NIRW Rank

Tamper proof (no reuse) 96 0.1498 I Safe, reliable, and efficient 122.5449 0.1912 I

Cost of the product 86 0.1342 II Tamper proof (no reuse) 96.7727 0.1510 II

Safe, reliable, and efficient 72 0.1123 III Safe & convenient packaging 71.4992 0.1115 III

Cleanliness and purity 69 0.1076 IV Cleanliness and purity 67.0252 0.1046 IV

Safe convenient packaging 67 0.1045 V Cost of the product 66.0727 0.1031 V

Right size/Correct volume 63 0.0983 VI Right size/Correct volume 62.7384 0.0979 VI

No leakages (Air/Fluid) 59 0.0920 VII No leakages (Air/Fluid) 56.2857 0.0878 VII

Precise movements 47 0.0733 VIII Proper markings 41.9110 0.0654 VIII

© 2007, ASQ
Proper markings 42 0.0655 IX Precise movements 31.4355 0.0490 IX

Ease of handling and use 40 0.0624 X Ease of handling and use 24.7148 0.0386 X

rankings leave a lot to be desired. However, this
lacuna gets solved with the computation of the final
raw weight obtained through CR correlation triangle
values. The final raw weights, their rankings, and
their order are much more precise and accurate,
leading to better and informative decision making by
product designers.
more appropriately the relationships among CRs. The
model is shown to be computationally feasible for
realistic problems and outperforms traditional
approaches on the basis of being relatively straight
forward and simplified. A systematic algorithm for
calculating the critical targets of CRs is followed. The
framework presented in this article for prioritizing
CRs extends the single objective viewpoint of maxi-

CONCLUSIONS mizing customer satisfaction by considering the com-

The prioritization and the judicious selection of CRs
from the market’s perspective is a complex task and
needs special attention. Over the past few years, there
has been an huge effort in establishing a decision
framework that quantifies the imprecise and subjective
customer information inherent in the product plan-
ning process. This research has proposed a novel QFD
approach that solves some methodological problems
encountered in the conventional QFD. While the con-
ventional approach uses only symbols to express the
strength or weakness of the relationships among CRs,
albeit only in few cases, the new approach addresses
relationships in a different and improved numerical
method.
The article shows the effectiveness and preciseness
of the proposed model. Numbers are used to represent
the imprecise nature of the judgments and to define
pany’s other market-related objectives, and thus,
precludes an unreasonable QFD planning in practice.
The proposed methodology provides product develop-
ers, designers, and engineers with an objective
method for making a judicious selection of critical
CRs satisfying the overall CRs. The illustrated exam-
ple clearly shows that the proposed approach can
produce more informative results, adding credibility
to the outcome and its analysis, for the benefit of the
product designers and developers.
REFERENCES
Akao, Y. 1990. Quality function deployment: Integrating cus-
tomer requirements into product design , Cambridge, Mass.:
Productivity Press.
Armacost, R., P. Componation, M. Mullens, and W. Swart. 1994.
AHP framework for prioritizing customer requirement in QFD: An
industrialized housing application. IIE Transactions 26, no. 4: 72-79.

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Chen Yizeng, R. Fung, and J. Tang. 2005. Rating technical attrib-
utes in fuzzy QFD by integrating fuzzy weighted average method
and fuzzy expected value operator. European Journal of
Operational Research (Production, Manufacturing and Logistics).
Fung, R. Y. K., K. Popplewell, and J. Xie. 1998. An intelligent
hybrid system for customer requirements analysis and product
attribute targets determination. International Journal of
Production Research 36, no. 1: 13-34.
Govers, C. 1996. What and how about quality function deploy-
ment (QFD). International Journal of Production Economics :
575-585.
Griffin, A., and J. Hauser. 1996. Integrating R & D and marketing:
A review and analysis of the literature. Journal of Product
Innovation Management: 191-215.
Han Chang, Kim Jae, and Choi Sang Hyun. 2004. Prioritizing
engineering characteristics in QFD with incomplete information:
A linear partial ordering approach. International Journal
Production Economics 91: 235-249.
Kao, C., and S. Liu. 2001. Fractional programming approach to
fuzzy weighted average. Fuzzy Sets and Systems 120: 435-444.
Karsak, E. 2004. Fuzzy multiple objective programming frame-
work to prioritize design requirements in QFD. Computers &
Industrial Engineering 47: 149-163.
Karsak, E., S. Sozer, and E. Alptekin. 2002. Product planning in
QFD using a combined analytic network process and goal pro-
gramming approach. Computers and Industrial Engineering 44:
171-190.
Khoo, L., and N. Ho. 1996. Framework of a fuzzy quality function
deployment system. International Journal of Production Research
34, no. 2: 299-311.
Liu, B., and K. Liu. 2002. Expected value of fuzzy variable and
fuzzy expected value models. IEEE Transactions on Fuzzy Systems
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Lyman, D. 1990. Deployment normalization. In Transactions from
the 2nd Symposium on Quality Function Deployment: 307-315.
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Sharma, J., and A. Rawani. 2006. Customer driven product
development through quality function deployment (QFD). Asia
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Management 2, no. 1: 45-51.
Sharma, J., D. Sharma, and A. Rawani. 2006. Quality driven prod-
uct development. Manufacturing Engineer (IET). (June-July): 38-41.
Shen, X., K. Tan, and M. Xie. 2001. The implementation of qual-
ity function deployment based on linguistic data. Journal of
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Vangeas, L., and A. Labib. 2001. A fuzzy quality function
deployment (FQFD) model for deriving optimum targets.
International Journal of Production Research 39, no. 1: 99-120.
BIOGRAPHIES
J. R. Sharma is assistant professor at the Institute of Management
Technology, Nagpur. Before joining this organization, he served
as senior faculty in the Department of Production and Mechanical
Engineering, Manoharbhai Patel Institute of Engineering and
Technology (MIET), Gondia, India. He is pursuing his doctoral
research at the National Institute of Technology, Raipur. His
research interests are in the areas of quality management and
product development. Sharma has more than 20 research papers
published in various national and international conferences, tech-
nical periodicals, and journals. He has the honor of reviewing
papers for several international and national journals including
Elsevier’s European Journal of Operations Research. He can be
reached by e-mail at sjiten1@gmail.com.
A. M. Rawani is professor and head of the Department of
Mechanical Engineering, National Institute of Technology, Raipur,
India. He has more than 23 years of experience in academics.
He acquired his doctorate from IIT-Delhi. He has pursued his
research in the area of strategic management. Rawani has done
commendable work in research and has more than 35 publications
in national and international journals to his credit. He has been a
nominated member of the Confederation of Indian Industry
(CII) — HR & Training Program Panel. He can be reached by
e-mail at amrawani@rediffmail.com.
Book Reviews v14 i4 9/20/07 10:11 AM Page 61
China Now: Doing Business
in the World’s Most Dynamic
Market 2007. N. Mark Lam and
John L. Graham. New York: McGraw-
Hill. 385 pages.
Globalization requires that
managers are aware of the nuances
of the business customs and char-
acteristics of major international
markets. China Now provides an
excellent primer on the emerging
Chinese business culture with a
specific focus on the techniques of
negotiating in various areas of the
country. Lam and Graham have
produced a suburb overview of the
business culture that exists in
China today and how to effectively
cope with it in negotiations.
As an illustration of how nego-
tiations work in Shanghai, the
book begins with an anecdotal tale
of the attempts of the American
automotive industry to break into
the Chinese market. It describes
why the Ford Taurus did not get
the Chinese checkered flag while
General Motors’ (GM) Buicks did.
GM’s negotiator, Shirley Young, is
said to have “not only brought a
marketing imagination to the GM
team, but she also brought great
gaunxi (connections). (p.5) She
understood that for Chinese, face-
to-face meetings and relationships
between people at all levels are the
essential elements of successful
negotiations.
Book
Reviews
Part 1, “The Necessary Back-
ground for Negotiations with
Chinese Business People,” provides
informative tidbits of information
about China, beginning with a
chapter on the history and culture
of the Chinese people. Lam and
Graham have done an excellent
job of providing salient points
from the 5,000 years of Chinese
history and enormous diversity of
its immense population. Certainly,
the 18 things they have selected as
key things one needs to know con-
cerning key people, turning points,
and prominent themes are worthy
of investigation.
The next area explored con-
cerns the economic development of
China. The authors enthusiasm for
China is found in their statement:
“There is no more important sin-
gle market than China…China’s
dual economic system, embracing
socialism along with many tenets
of capitalism, has produced an
economic boom with expanded
opportunity for foreign investment
that has resulted in annual gross
national product (GNP) averag-
ing nearly 10 percent since 1970.”
(p. 43) China is said to be “neither
an economic paradise nor an eco-
nomic wasteland. It is a relatively
poor nation going though a
painfully awkward transformation
from a socialist market system to a
hybrid socialist/free system, not yet
complete and with rules of the
game still being written.” (p. 56)
This is especially evident in the
book’s concluding chapter on
Chinese legal and business envi-
ronment. The Chinese legal system
is not as well defined as the
Western system nor is the legal
profession. In China, businesses
are driven by technically trained
individuals rather than lawyers. In
fact, today China has about
115,000 lawyers, and being a
lawyer is not a prerequisite for
serving as a judge. There is a con-
stitution, civil, and criminal code,
as well as laws and regulations
covering commerce in general and
a variety of specific business con-
cerns. Because of the developing
nature of Chinese law most dis-
putes are settled by negotiation
rather than adjudication because
the outcome is unpredictable
under the best of circumstances.
Part 2 explores what happens
when Americans meet Chinese
across the negotiation table.
Americans are characterized as
having a free-enterprise, cowboy
style of negotiations. On the other
hand, the elements of the Chinese
style of business negotiation are:
• Guanxi (personal connections)
• Mianzi (face or social capital)
• Shehui Dengji (social hierarchy)
• Renji Hexie (interpersonal
harmony)
www.asq.org 61
Book Reviews v14 i4 9/20/07 10:11 AM Page 62
Reviews
• Qundai Guanxi (nepotism)
• Zhengti Guannian (holistic
thinking)
• Chiku Nailao (endurance)
• Jiejian (thrift)
• Linghe Tanpan (zero-sum
negotiations)
• Jiao Ta Liangshi Chuan (threat-
ening to do business elsewhere)
The remaining chapters
describe the “how to” of preparing,
conducting, and following up after
negotiations. Each provides help-
ful tips on what to do and not to do
to assure success in the negotiation
process.
Every region is not the same in
China, so each of the generic point-
ers has to be modified for the specific
office in which the negotiations take
place. Part 3 illustrates each of the
general areas of China and their
respective cultural differences.
The book’s final two parts pre-
sent brief discussions of the issues of
negotiating and enforcing intellec-
tual property rights and speculating
about the future of Chinese and
American commercial relations. At
some point a quality issue will
develop that requires skillful negoti-
ating to resolve a disagreement with
a supplier, outsource producer, or
customer. The insights presented in
China Now by Lam and Graham
will provide an excellent road map
to a successful resolution of the
differences, perceived or real.
Reviewed by
Dr. James Kohnen
St. Mary’s College of California
62 QMJ VOL. 14, NO. 4/© 2007, ASQ
Made to Stick: Why Some
Ideas Survive and Others Die
2007. Chip Heath and Dan Heath.
New York: Random House. 291
pages.
Made to Stick is a wonderful
book designed to entertain, inform,
and enlighten anyone interested in
effectively communicating an idea.
Chip Heath and Dan Heath have
synthesized their perception of how
to do this for organizations, groups,
and individuals into six succinct
principles (SUCCES):
1. Simplicity
2. Unexpectedness
3. Concreteness
4. Credibility
5. Emotions
6. Stories
Each point is thoroughly pre-
sented in a chapter of the book
that is effectively explained with
supporting data, anecdotal informa-
tion, and experiential findings. The
Introduction and Epilogue provide
added material that contributes to
the book’s readability. A section
called “The Easy Reference Guide”
at the end of the book further sup-
ports the material by providing a
comprehensive outline that jogs
the reader’s memory of the topics
presented.
Stories seem to be the common
denominator for making some
ideas survive and others die,
because they provide the context in
which fact and fiction can be
weaved to illustrate a point. A good
story will be remembered long
after the specifics are lost, modified,
or completely replaced. The authors
say, “A story is powerful because it
provides the context missing from
active prose.” (p. 214)
The point of developing ideas
that incorporate the SUCCES prin-
ciples is said to be to “beat the
curse of knowledge” which inhibits
embracing new ideas. (p. 20) The
well-developed notes at the end of
the book document the research
that supports this theory, which
says it “increases as people gain
more expertise.” So the more a per-
son knows about something, the
more difficult it is for him or her to
accept a new idea that challenges
or changes what he or she knows
about a topic. (p. 260-261)
The Heath brothers present
their profound concepts of making
ideas survive in almost a playful
fashion. The solid academic
research that supports their theory
articulated as SUCCES principles is
hidden in each of the tales they
spin to make point after point to
present a creditable case for it. The
urban legends, business anecdotes,
and findings from their own inde-
pendent research provide a rich
background that draws the reader
into their world. Using the meta-
phor developed in each story they
are able to build a bond of believ-
ability with the reader, which is not
often seen in management texts.
Reading this book is truly a
delightful experience.
Because the information pre-
sented is universal, the book has a
Book Reviews v14 i4 9/20/07 10:11 AM
uniquely wide appeal to organiza-
tions of all types and to their
members at all levels. The Heath
brothers keep their word when they
say: “We can promise you this:
Regardless of you level of ‘natural
creativity,’ we will show you how a
little focused effort can make
almost any idea stickier, and a
sticky idea is an idea that is more
likely to make a difference.”
(p. 24)
Reviewed by
Dr. James Kohnen
St. Mary’s College of California
Managing Without Walls:
Maximize Success with
Virtual, Global, and Cross-
Cultural Teams Colleen Garton
and Kevin Wegryn. 2006. Lewisville,
Texas: McPress. 409 pages.
As virtual offices become more
common for quality professionals,
the concepts presented by Garton
and Wegryn in Managing Without
Walls become more and more ger-
mane. The idea of virtual offices
removes the collective place for
the value-added activity that
defines the work being done indi-
vidually or collectively by a team.
When meaningful work supporting
the common goals of an organiza-
tion can be performed anyplace, at
any time, management of the
individuals engaged in it enters
into a new dimension of time and
space.
Employees engaged in this
kind of working relationship are
not traveling when they are away
Page 63
from the center of mass of the
organization, indicated by its
business address; rather, they are
in an organization that clearly
considers their actual global loca-
tion exactly the same as if it were
located at its stated business
address. In this virtual environment
audio, visual, and printed commu-
nication is possible universally and
instantaneously regardless of the
individual’s actual location at the
given moment.
This emerging phenomenon
creates a huge paradigm shift in the
way workers and work is managed.
Organizational norms of behavior
are no longer transferred by indi-
vidual and group interaction at the
workplace. The informal commu-
nication chain takes on greater
significance when it is transmitted
through cyberspace, mainly because
it is done without body language
or other visual indicators to clarify
its total meaning.
After justifying the need for vir-
tual management, they describe
the desired virtual manager’s ideal
skill set that includes: general
management, people skills, com-
munications, technical knowl-
edge, decision making, problem
solving, team orientation, and
administration, which are also
held by traditional managers.
They emphatically state, however,
that not all traditional managers
can adapt to the virtual arena.
They cite some obvious things a
virtual manager must cope with to
develop effective virtual teams such
as time, language, and cultural
differences that must be considered
to be effective. Then they move to
an informative discussion related
to time management and the need
for team processes and procedures
that standardize the efforts of the
members of the team. The insight-
ful reviews of virtual politics,
managing conflict, and virtual
management of high-risk and cata-
strophic events are very relevant to
the management challenges found
in organizations today. The book
concludes by presenting sections
describing virtual management
and communication tools and
leadership. One of the specific lead-
ership points stressed by the
authors relates to controlling one’s
emotions. They say, “Staying calm
and unemotional are the keys to
successfully managing conflict and
highly emotional situations. When
everyone else is stressed out, angry,
and frustrated it takes just one per-
son remaining calm and being the
voice of reason to bring everyone
else back to resembling normal,
healthy human beings! Strive to
be that person.” (p. 354)
Managing Without Walls is an
excellent introduction to an emerg-
ing form of organizational structure
and behavior found in global busi-
nesses today. Garton and Wegryn
have done a commendable job
identifying the idiosyncrasies of
managing in this environment.
Reviewed by
Dr. James Kohnen
St. Mary’s College of California
www.asq.org 63
Book Reviews v14 i4 9/20/07 10:11 AM
Reviews
Project Sponsorship:
Achieving Management Com-
mitment for Project Success
Randall L. Englund and Alfonso
Bucero. 2006. San Francisco: Jossey-
Bass/Business & Management
Series. 201 pages.
Most organizations employ some
form of project management to
accomplish special tasks outside the
scope of their normal operations or
to serve the specific needs of a
unique customer base. Traditionally,
a project team led by a project
manager is assigned to the task to
assure that the elements of cost,
schedule, and quality are fulfilled
to meet the organization’s and
customer’s expectations. Englund
and Bucero make a convincing
argument for having a project
sponsor to champion the project
with the organization. Their con-
cern is that many executives are
assigned as project sponsor with-
out a full understanding of their
expected roles and responsibilities
during project life cycles.
The authors offer an intriguing
10-step model that outlines the
progress of sponsor development,
from responsibilities to knowledge
management. Bucero provides
informative experiences he has had
in the field as antidotal evidence
64 QMJ VOL. 14, NO. 4/© 2007, ASQ
Page 64
for each step. These generally begin
with the phrase “I (Bucero)” and
continue as first person accounts of
some event that he has either par-
ticipated in or witnessed during his
career.
The authors make full use of
the Project Management Body of
Knowledge published by the
Project Management Institute
(PMI) throughout the book. In
Chapter 2, “Obtaining a Project
Sponsor,” they cite the “Top 10
Attributes of a Great Project
Sponsor” presented by Lonnie
Pacelli at the 2005 PMI Global
Congress. (pp. 42-43)
• Clearly understand the problem
to be solved.
• Ensure that the solution fixes
the problem.
• Know where “good enough” is.
• Build the right team to solve
the problem.
• Hold the team accountable for
results.
• Know the big issues and what is
needed to resolve them.
• Be the advocate, coach, influ-
encer, and battering ram.
• Make the thoughtful, tough,
decisions.
• Ensure that the project finishes
strong.
• Know when to pull the plug.
In the final chapter of the book,
“Knowledge Management,” the
authors stress the importance of
reflecting periodically on the
lessons learned. Periodic project
reviews are essential for the pro-
ject sponsor to capture not only
the status of the project but also
ways to improve its execution. The
four steps in the process include:
preparing the session, conducting
the session, collecting learning,
and sharing the lessons learned.
According to the authors, the
importance of the project sponsor
sharing the outcomes of these
meetings with others cannot be
overstated in teams of benefits to
the organization.
Englund and Bucero have done
a creditable job of defining the
value of having a project sponsor
to achieve management commit-
ment for project success. The role
of the project sponsor and the
importance of formal development
programs are clearly articulated in
a very succinct method that is wor-
thy of anyone’s attention involved
in project management.
Reviewed by
Dr. James Kohnen
St. Mary’s College of California
Annual Index v14 i4 9/20/07 10:20 AM Page 1
QMJ Volume 14 Author
A G
Al-Marsumi, Mujbil, “Total Quality
Management in a Chosen Section
of the Hospitals in Amman, Jordan”
(vol. 14, no. 1): 45–57.
C H
Cheng, Jung-Lang, “Six Sigma and TQM
in Taiwan: An Empirical Study”
(vol. 14, no. 2): 7–18.
Collins, Kevin F., and Senthil K.
Muthusamy, “Applying the Toyota
Production System to a Healthcare
Organization: A Case Study on a
Rural Community Healthcare
Provider” (vol. 14, no. 4): 41–52.
Costa, Micaela Martínez, and Ángel
Rafael Martínez Lorente, “ISO
9000:2000: The Key to Quality? An
Exploratory Study” (vol. 14, no. 1):
7–18.
D Assessment” (vol. 14, no. 3): 25–35.
de Koning, Henk, and Jeroen de Mast,
“The CTQ Flowdown as a Concep-
tual Model of Project Objectives”
(vol. 14, no. 2): 19–28.
de Mast, Jeroen. See de Koning, Henk
F
Foster, S. Thomas, “Does Six Sigma
Improve Performance?” (vol. 14,
no. 4): 7–20.
Frazier, Gregory V. See Masters, Brad
Index
Guimaraes, Tor, D. Sandy Staples, and
James McKeen, “Assessing the
Impact From Information Systems
Quality” (vol. 14, no. 1): 30–44.
Hillmer, Steve, and Canan Kocabasoglu,
“Improving Quality and Productivity
via Stratification: A Call Center
Example for Forming Homoge-
neous Employee Groups” (vol. 14,
no. 1): 19–44.
L (vol. 14, no. 3): 7–14.
Lorente, Ángel Rafael Martínez. See
Costa, Micaela Martínez
M Quality From the Customer’s Per-
Masters, Brad, and Gregory V. Frazier,
“Project Quality Activities and Goal
Setting in Project Performance
McKeen, James. See Guimaraes, Tor
Muthusamy, Senthil K. See Collins,
Kevin F.
O in QFD by Factoring in Their Inter-
Ozgur, Ceyhun. See Pinar, Musa
P Staples, D. Sandy. See Guimaraes, Tor
Pasupathy, Kalyan Sunder, and
Konstantinos P. Triantis, “A Frame-
work to Evaluate Service Operations:
Dynamic Service-Profit Chain”
(vol. 14, no. 3): 36–49.
Pinar, Musa, and Ceyhun Ozgur, “The
Long-Term Impact of ISO 9000
Certification on Business Perfor-
mance: A Longitudinal Study Using
Turkish Stock Market Returns”
(vol. 14, no. 4): 21–40.
R
Rao, K. S. P. See Saravanan, R.
Rawani, A. M. See Sharma, J. R.
Roelofse, Frederick, “An Exploratory
Study into the Multidimensional
Nature of Quality in Analytical Lab-
oratories: Managerial Implications”
S
Saravanan, R., and K. S. P. Rao, “Service
spective: An Empirical Investigation”
(vol. 14, no. 3): 15–24.
Şenol, Şanslı, “Poisson Process Approach
to Determine the Occurence Degree
in Failure Mode and Effect Reliability
Analysis” (vol. 14, no. 2): 29–40.
Sharma, J. R., and A. M. Rawani,
“Ranking Customer’s Requirements
relationship Values” (vol. 14, no. 4):
53–60.
T
Triantis, Konstantinos P. See Pasupathy,
Kalyan Sunder
www.asq.org 1
Annual Index v14 i4 9/20/07 10:20 AM Page 2
QMJ Volume 14 Subject
Automobile Sector
Saravanan, R., and K. S. P. Rao, “Service
Quality From the Customer’s Per-
spective: An Empirical Investigation”
(vol. 14, no. 3): 15–24.
Critical to Quality
de Koning, Henk, and Jeroen de Mast,
“The CTQ Flowdown as a Concep-
tual Model of Project Objectives”
(vol. 14, no. 2): 19–28.
Customer Satisfaction
Pasupathy, Kalyan Sunder, and
Konstantinos P. Triantis, “A Frame-
work to Evaluate Service Operations:
Dynamic Service-Profit Chain”
(vol. 14, no. 3): 36–49.
Sharma, J. R., and A. M. Rawani,
“Ranking Customer’s Requirements
in QFD by Factoring in Their Inter-
relationship Values” (vol. 14, no. 4):
53–60.
Financial Outcomes
Foster, S. Thomas, “Does Six Sigma
Improve Performance?” (vol. 14,
no. 4): 7–20.
FMEA
Şenol, Şanslı, “Poisson Process Approach
to Determine the Occurence Degree
in Failure Mode and Effect Reliability
Analysis” (vol. 14, no. 2): 29–40.
2 QMJ VOL. 14, NO. 4/© 2007, ASQ
Index
Functional Quality
Roelofse, Frederick, “An Exploratory
Study into the Multidimensional
Nature of Quality in Analytical Lab-
oratories: Managerial Implications”
(vol. 14, no. 3): 7–14.
Healthcare
Al-Marsumi, Mujbil, “Total Quality
Management in a Chosen Section
of the Hospitals in Amman, Jordan”
(vol. 14, no. 1): 45–57.
Collins, Kevin F., and Senthil K.
Muthusamy, “Applying the Toyota
Production System to a Healthcare
Organization: A Case Study on a
Rural Community Healthcare
Provider” (vol. 14, no. 4): 41–52.
Information Systems
Guimaraes, Tor, D. Sandy Staples, and
James McKeen, “Assessing the
Impact From Information Systems
Quality” (vol. 14, no. 1): 30–44.
ISO 9000
Costa, Micaela Martínez, and Ángel
Rafael Martínez Lorente, “ISO
9000:2000: The Key to Quality? An
Exploratory Study” (vol. 14, no. 1):
7–18.
Pinar, Musa, and Ceyhun Ozgur, “The
Long-Term Impact of ISO 9000
Certification on Business Perfor-
mance: A Longitudinal Study Using
Turkish Stock Market Returns”
(vol. 14, no. 4): 21–40.
Measurement
de Koning, Henk, and Jeroen de Mast,
“The CTQ Flowdown as a Concep-
tual Model of Project Objectives”
(vol. 14, no. 2): 19–28.
Guimaraes, Tor, D. Sandy Staples, and
James McKeen, “Assessing the
Impact From Information Systems
Quality” (vol. 14, no. 1): 30–44.
Performance Assessment
Cheng, Jung-Lang, “Six Sigma and TQM
in Taiwan: An Empirical Study”
(vol. 14, no. 2): 7–18.
Masters, Brad, and Gregory V. Frazier,
“Project Quality Activities and Goal
Setting in Project Performance
Assessment” (vol. 14, no. 3): 25–35.
Performance Improvement
Foster, S. Thomas, “Does Six Sigma
Improve Performance?” (vol. 14,
no. 4): 7–20.
Hillmer, Steve, and Canan Kocabasoglu,
“Improving Quality and Productivity
via Stratification: A Call Center
Example for Forming Homoge-
neous Employee Groups” (vol. 14,
no. 1): 19–44.
Pinar, Musa, and Ceyhun Ozgur, “The
Long-Term Impact of ISO 9000
Certification on Business Perfor-
mance: A Longitudinal Study Using
Turkish Stock Market Returns”
(vol. 14, no. 4): 21–40.
Annual Index v14 i4 9/20/07 10:20 AM Page 3
Subject Index
Project Management
Masters, Brad, and Gregory V. Frazier,
“Project Quality Activities and Goal
Setting in Project Performance
Assessment” (vol. 14, no. 3): 25–35.
Quality Function Deployment
Sharma, J. R., and A. M. Rawani,
“Ranking Customer’s Requirements
in QFD by Factoring in Their Inter-
relationship Values” (vol. 14, no. 4):
53–60.
Reliability Analysis
Şenol, Şanslı, “Poisson Process Approach
to Determine the Occurence Degree
in Failure Mode and Effect Reliability
Analysis” (vol. 14, no. 2): 29–40.
Service Quality
Pasupathy, Kalyan Sunder, and
Konstantinos P. Triantis, “A Frame-
work to Evaluate Service Operations:
Dynamic Service-Profit Chain”
(vol. 14, no. 3): 36–49.
Roelofse, Frederick, “An Exploratory
Study into the Multidimensional
Nature of Quality in Analytical Lab-
oratories: Managerial Implications”
(vol. 14, no. 3): 7–14.
Saravanan, R., and K. S. P. Rao, “Service
Quality From the Customer’s Per-
spective: An Empirical Investigation”
(vol. 14, no. 3): 15–24.
Six Sigma
Cheng, Jung-Lang, “Six Sigma and TQM
in Taiwan: An Empirical Study”
(vol. 14, no. 2): 7–18.
de Koning, Henk, and Jeroen de Mast,
“The CTQ Flowdown as a Concep-
tual Model of Project Objectives”
(vol. 14, no. 2): 19–28.
Foster, S. Thomas, “Does Six Sigma
Improve Performance?” (vol. 14,
no. 4): 7–20.
Stratification
Hillmer, Steve, and Canan Kocabasoglu,
“Improving Quality and Productivity
via Stratification: A Call Center
Example for Forming Homoge-
neous Employee Groups” (vol. 14,
no. 1): 19–44.
Technical Quality
Roelofse, Frederick, “An Exploratory
Study into the Multidimensional
Nature of Quality in Analytical Lab-
oratories: Managerial Implications”
(vol. 14, no. 3): 7–14.
Total Quality Management
Al-Marsumi, Mujbil, “Total Quality
Management in a Chosen Section
of the Hospitals in Amman, Jordan”
(vol. 14, no. 1): 45–57.
Cheng, Jung-Lang, “Six Sigma and TQM
in Taiwan: An Empirical Study”
(vol. 14, no. 2): 7–18.
Costa, Micaela Martínez, and Ángel
Rafael Martínez Lorente, “ISO
9000:2000: The Key to Quality? An
Exploratory Study” (vol. 14, no. 1):
7–18.
Masters, Brad, and Gregory V. Frazier,
“Project Quality Activities and Goal
Setting in Project Performance
Assessment” (vol. 14, no. 3): 25–35.
Toyota Production System
Collins, Kevin F., and Senthil K.
Muthusamy, “Applying the Toyota
Production System to a Healthcare
Organization: A Case Study on a
Rural Community Healthcare
Provider” (vol. 14, no. 4): 41–52.
www.asq.org 3
Cover spine v14 i4 9/20/07 10:12 AM Page 2