Issue 2, 2014. April-May

   

ISO CERTIFICATION IS NOT THE SAME AS PERFORMANCE IMPROVEMENT

Over the past several years, Georgian companies have increasingly turned to ISO certification as a benchmark for performance and quality. While ISO certification provides many benefits for business, it does not replace performance improvement.

TBSC Consulting; Temo Khmelidze; Paul Clark; BSEng, MSEng, MBA, CPT

There are two truisms about improving performance: 1) every organization can significantly improve their performance and 2) the benefits of those improvements are large and they will directly improve financial performance.

For many directors and owners, the first thing that comes to mind when thinking about performance improvement is ISO certification. While ISO certification is certainly worthy, it is not the best way to improve performance. Rather, applying performance improvement technologies before ISO certification is probably the optimal path. The reason for this is discussed in this article.

History of ISO

In 1904, electrical experts from around the world gathered in St. Louis to standardize electrical machines so equipment made in one country could operate in other countries. This precedent to standardize product specifications became the basis of the International Organization for Standardization (ISO) based in Geneva. Over the past 110 years, ISO has established more than 15,000 product standards for everything from screw threads to sea containers.

During World War II, the general approach of standardizing product specifications spread to standardizing manufacturing processes. The basic premise was that to obtain constant product quality one must standardize not only products, but also the manufacturing processes used to create the products. This new approach was widely used in factories producing armaments for the Allies.

In the late eighties there was another paradigm shift, when ISO started to standardize more ephemeral matters, such as standardizing quality management. The first set of quality management standards, ISO 9000:1987, was published in 1987. These standards were based on the UK Standard BS 5750 and the US Mil Specs systems, and concerned quality management in manufacturing and service industries. Later versions of the standards were published in 1994, 2000 and 2008. A new version will be published in 2015.

Organizations receive and retain an ISO 9001 certificate (a standard within the ISO 9000 family) after they go through periodic external and internal audit processes to confirm that the organization complies with its own written procedures. At present, there are about one million active ISO certificates all over the world, among them about 50 in Georgia.

ISO Certification Today

In general, the ISO 9000 family of standards regulates several types of management processes such as Quality Management, Management Responsibility, Resource Management, Measurement, Analysis, Improvement and so forth. The standards give indications and sometimes requirements of what ISO views as the optimal way of doing things in an organization.

ISO certification is often taken to mean an organization has high-quality processes and high-quality products and services. While this may be true for some organizations, in practice ISO certification is better described as 1) writing and standardizing how things are done within an organization, 2) following the written procedures and 3) periodically auditing organizational conformance to procedures.

Benefits and Criticism of ISO Certification

ISO certification, properly implemented, creates consistent application of organizational processes. ISO certification may, but not always, ensure high-quality-products and services. Proponents of ISO certification claim that certification creates a more efficient and effective organization; increases customer satisfaction and retention; improves employee motivation and morale; reduces waste; increases productivity and so forth.

On the other hand, ISO certification is a heavily criticized management concept and the number of organizations that choose to not renew their certification is significant. Detractors emphasize that ISO certification creates an inordinate (and claimed unnecessary) paperwork burden, promotes unnecessary specifications and controls and creates resistance to innovations within the organization (e.g., our way or the highway). Often after the ISO implementation and certification project is complete, organizations find that sub-optimal processes are standardized (i.e., frozen) or that some new processes are simply not followed or both.

Other critics believe that ISO certification cannot create genuine performance improvement because (nearly) everyone involved in an ISO implementation and certification project (i.e., management, employees, preparatory consultants and auditors) focuses on obtaining the ISO certificate rather than obtaining dramatically improved performance.

Finally, ISO certification concentrates only on management processes, while some of key organizational challenges (e.g., eliminating waste, increasing customer service responsiveness) are only partially affected by management processes per se.

History of Performance Improvement

Performance improvement is a very broad concept that can be applied to any area, system, individual, group or organization. Performance improvement methods have been used throughout history. One of the earliest documented uses comes from Roman Military History. In particular, it was the superior organization and tactics (processes) of Roman Legions, developed through a well-documented performance improvement process, that enabled one small city-state on the Apennine Peninsula to conquer what is now the European Union, much of the Middle East and North of Africa. Tongue-in-cheek, imagine how European history would be different if Rome's historical organization and tactics had been frozen into place through by an ISO certification process.

Performance improvement technology has been significantly improved and systematized in the past 50 years. Thousands of organizations have gone through formal performance improvement projects. Methods used in many of those projects and the results of those projects have been well studied by academicians and practitioners. A significant body of scholarly and practical work has documented what does, and what does not work, for performance improvement purposes. The best performance improvement practitioners are designated by their peers as Certified Performance Technologists (CPT); there are fewer than 1,500 CPT's in the world, including one in Georgia.

Performance Improvement Today

Essentially, performance improvement means to develop and implement the optimal way of doing everything in a part of or an entire organization. The general process is to identify and prioritize performance gaps, determine the root causes of the performance gaps, develop solutions to the root causes and then implement the solutions. Performance improvement technologies can be applied to all or part of an organization.

Performance improvement efforts have one or both of two basic goals: 1) increase efficiency (i.e., achieve results with fewer resources) or increase effectiveness (i.e., achieving more or better results with existing resources). Improving efficiency might mean requiring less time to produce a product or service; smaller (i.e., right-sized) staff; less expensive mix of inputs; smaller inventory and so forth. On the other hand, improving effectiveness might mean increasing output without increasing inputs; creating more innovations; increasing customer satisfaction and so forth.

Unlike ISO certification, which has a sense of "one size fits all", performance improvement uses a wide variety of tools and approaches for each unique solutions. Performance improvement tools include methods such as process standardization or re-engineering; statistical quality control; six-sigma management methods; key performance indicators (KPIs); customer satisfaction surveys; optimized management systems; advanced planning systems; motivation systems; advanced analytical tools (e.g., financial or marketing profitability metrics) or simply bright ideas based on common sense or cultural preferences. Sometimes performance improvement solutions might be based on software or equipment implementation, but it is not a rule.

Benefits And Criticisms Of Performance Improvement

In practice, sustainable performance improvement requires a lot of very in-depth analytical work, attention to details and (probably) significant cultural change. These are all hard and expensive matters for any organization. Often outside consultants are used to either perform the detailed analytical work or to manage a performance improvement effort done by organization staff.

Another criticism of performance improvement efforts is that sometimes there is significant backsliding; staff returns to the (good) old way of doing things and benefits are not achieved. This is particularly problematic when the magnitude of changes and improvements are large. Given that this is a common problem, one can plan methods to prevent backsliding. As noted later, one way is to go through an ISO certification process after the performance improvement effort.

On the other hand, the good news is that money invested in proper performance improvement has a very high return on investment, upwards of 150 percent per year with short payback periods. For example, when public companies announce performance improvement efforts with large costs (often right-sizing staff levels) stock prices generally move up, not down as might be expected from a generally negative announcement (e.g., we must spend a lot to fix ourselves).

In addition, non-monetary improvements are also significant. For example, a large Georgian bank increased its customer satisfaction by 40 percent in a six-month period, reaching a level twice the industry average; imagine the shareholder value that this created.

Finally, if done properly, performance improvement creates a cultural shift; improving performance becomes the norm rather than an exception and onetime thing.

Performance Improvement And ISO Certification Are Complementary

Though quite different in nature, performance improvement and ISO certification can be very complementary if done in the proper order. First, performance improvement technologies should be used to determine and implement optimal processes within part or all of an organization. Second, if optimization is done organization-wide, then ISO certification can be used to freeze those optimal processes into place.

This will ensure there is little backsliding into the old way of doing things. Third, the organization should create a separate unit or process to constantly evaluate existing processes and, as situations change, design and implement new and improved processes. That is, the organization should periodically change the processes against which ISO certification is audited.

Performance improvement technologies are very useful even if an organization already has ISO certification. Improved processes, once designed in a performance improvement effort, can simply become the new processes against which ISO certification is audited. The fact that ISO certification already exists makes improvements of this type easier as the organizational culture already has in place the idea of writing down how things are to be done, and then to do that and nothing else.

About TBSC Consulting

TBSC Consulting is based in Tbilisi. We have helped clients improve their performance for more than 30 years in North America, Western Europe, Central Europe and Georgia (for 14 years). The only CPT in the Caucasus is a principal at TBSC. We have helped others; we can help you.

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