This study, ‘The Effect of Certification with the ISO Quality Management Standard: A Signaling Approach’ (Terlaak, King, 2006), looks at the specific issue of purchasing in the supply chain and ISO 9000 certification as a guide to supplier performance. The report examines if ‘certification with a management standard can act as a signal of superior but unobservable attributes and thus provide a competitive benefit’.
This is expanded by the paper arguing ‘that certification with a management standard may represent an attempt to communicate about desirable organizational attributes to parties that cannot observe them directly’. It goes on to note that ‘this aspect of certified management standards is inherent in their design and may be critical to their function’.
The data for the research is taken from 19,713 American manufacturing facilities over an 11 year period from 1988 to 1998.
The results support the hypothesis ‘that certification may provide a way of communicating about unobservable firm attributes, thereby generating a growth effect for certified organizations’. It goes on to state, ‘We find that certified facilities grow faster, and that this advantage does not result from changes in quality performance, inventory management, within-firm production allocation, or pre-certification differences. We also find that certification is particularly beneficial for organizations that operate in large and advertising-intensive industries – industries where information search costs may be higher’.
Two clear, pragmatic conclusions come out. For suppliers, it suggests that they ‘should consider certification as a means of credibly communicating to buyers’. For buyers, regulators, and other institutional agents, it suggests that ‘certified management standards might provide a viable way of reducing problems of asymmetric information’.
Wisconsin School of Business, University of Wisconsin (Terlaak); Tuck School of Business, Dartmouth College (King)