THE IMPACT OF MANAGEMENT SYSTEMS INTEGRATION THROUGH THE VALUE CHAIN

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1 1 st International conference on Quality of Life June 2016 Center for Quality, Faculty of Engineering, University of Kragujevac Merce Bernardo 1) José Mª Castán Farrero 1) Martí Casadesús 2) 1) Department of Business, Universitat de Barcelona, Spain 2) Department of Business Organization and Product Design, Universitat de Girona, Spain 1. INTRODUCTION THE IMPACT OF MANAGEMENT SYSTEMS INTEGRATION THROUGH THE VALUE CHAIN Abstract: The aim of this paper is to analyze the impact that the integration of management systems has through the value chain within organizations. The analysis performed shows that the integration of management systems impacts on the support activities of the value chain because it allows improving the organization s management. In addition, the integration of management systems is an enabler of the cost leadership strategy. The measurement of this impact both direct and indirect is proposed for future research. Keywords: value chain; integration of management systems; intangible resource; costs leadership; competitive advantage 2. LITERATURE REVIEW The evolution of management systems (MSs) in recent decades, such as ISO 9001 for quality management and ISO for environmental management, is evidencing its importance for organizations worldwide [1]. Several factors are related to this phenomenon, such as the benefits of its implementation [2,3], diffusion models [4-6], and integration [7,8]. This last factor, the integration of management systems, has been widely studied because it allows managing multiple MSs as a unique and more efficient MS [9], the integrated MS (IMS). At the same time, organizations are also facing the challenge of providing added value to customers as a source of competitive advantage [10]. Quality has been defined as one of the factors contributing to it [10] but the anlaysis, as the best of authors knowledge, has not been done considering the integration of quality and other MSs as a source to create value and gain competitive advantage. Thus, the aim of this paper is to analyze, through a literature review, the impact that the integration of management systems has through the value chain. Following this section, the literature review is presented. Then the impact of integrating is analyzed and conclusions are described in last sections The literature review is covering the main topics, i.e., the integration of management systems, the value chain and their relationship. This review consists of two steps. In the first stage, both concepts have been searched separately and in the second step, combined (see also [11, 12]). All types of papers both theoretical and empirical have been considered. The results are presented below. 2.1 Integration of Management Systems The integration of management systems has been analyzed from several points, such as the process aspects and conditioning factors, as well as the relationship of the process with other managerial practices. Regarding the process, the integration of MSs considers five main aspects: integration strategy, that is, the order in which the MSs has been implemented within the organization. Three are the main strategies [13]: establishing first the quality MS and second the environmental MS; establishing first the environmental MS and second the quality MS; and third, establishing both MS simultaneously. The empirical studies show that the great majority of organizations follow the first strategy This order can condition the integration level as following the 1 st International conference on Quality of Life June

2 third strategy leads to a higher integration level [14,15]. integration methodology, that is, the model or tool used to integrate. Several proposals both from normalization bodies [16] and academia [17,18] have been presented although no consensus has been achieved. The support of information technologies in the process has also been positively highlighted [19]. integration level is the degree of integration achieved in the process, i.e., the integration level of the integrated management system (IMS). The most used are [20]: no integration (MSs are managed separately), partial integration (some elements of MSs are managed separately and some as a unique MSs) and full integration (all MSs elements are managed as a unique MS). Empirical studies show that organizations tend to implement a fully integrated MS [8, 21]. audits integration, that is, the level of integration achieved in the audit systems both internal and external. Empirical studies are showing a higher level of integration for internal audits [22, 23], although the differences between internal and external audits are been reduced for a better competence of external auditors. benefits and difficulties of the process. The former are greater than the latter. The main benefit is efficiency [24] and the main difficulty is the lack of resources [25]. Conditional factors are, mainly, the experience or maturity managing the IMS [26], the comparison among countries [27], and diffusion [28]. The integration process has been also related to other practices such as customer satisfaction [29] and innovation performance [30]. In this last study, the integration of MSs is defined as an incremental, internal and organizational innovation, specifically, incremental because organizations integrate their MSs once they have implemented the MSs and have experience in managing them, internal because the main drivers to integrate come from the organization and its impact is mainly on internal processes, and organizational because it means the implementation of a new organizational method [31]. It is also accepted that innovating is important to gain sustainable competitive advantage [32]. 2.2 Value Chain The creation of value is one of the main aims the organizations are seeking in the business world. More specifically, the value chain analysis has been one of the most diffused and implemented aspect within the strategy and processes. The value chain analysis is a tool to help managers in understanding the sources of differentiation both current and potential, costs behavior and to integrate the employees knowledge and competence. Within the existing methodologies, one of the most implemented at the strategic and process level is the value chain analysis, which provides a useful model to analyze the organization strengths allowing combining the sources of differentiation from both sides: demand and supply. Under this framework, the value chain of an organization includes a sequence of activities, processes, resources and objectives that are interconnected and are adding value to the products manufactured. According to Porter [33], this value is the amount of money the customers are willing to pay for the products and services that the organization is providing them. The value chain considers all those processes and activities that have a role within the process of transformation and value generation [33]. According to Porter [33] s value chain, these activities can be classified into two main groups: primary activities and support activities. The former are those directly involved into the manufacturing process of the organization [10], thus: inbound logistics, operations, outbound logistics, marketing and sales and service. The latter are those activities that collaborate and sustain primary activities, such as: firm infrastructure, human resource management, technology development and procurement. Accordingly, the value chain is analyzing the organization based on those activities and processes that support its vital development, from the raw materials procurement to product selling and post-selling 180 M., Bernardo, J.M., Castán Farrero, M., Casadesús

3 services. The value created comes from the value obtained in each of the activities considering the costs and thus defining the competitive advantage of the organization regarding the rivals. However, this statement should be analyzed as the ability of the organization to answer the client [34], which means that the long-term benefits are equal to the incomes of happy customers minus costs. Regarding the competitive advantage it is any characteristic of the organization that is differentiating it from others placing it in a higher position to compete [10]. Based on the value chain structure, building a competitive advantage will consider: optimization of elemental functions, interfunctional coordination and external coordination [35]. Thus, the overall performance of the chain can be improved by a simultaneous strengthening of each link and relationships among links both horizontal and vertical. Porter [33] argues that the competitive advantages are obtained through cost leadership and product differentiation. In both strategies external and internal factors should be considered [36]. To analyze the external factors, it should be considered that the market is imperfect [10, 36] and the organization needs to have the ability to detect changes (it depends on the available information of the organization) and the ability and flexibility to answer and act to those changes [10]. However, as the great majority of the competitive advantages are not at this level [10], all the internal factors that generate competitive advantage should be analyzed. In this framework, the main source of competitive advantage is obtaining and managing organization s resources both tangible and intangible through an efficient management, quality, innovation and customers satisfaction, which are aspects difficult to measure and manage within the competitive environment. To gain competitive advantage, according to the previous statement, an organization can apply two strategies. If it applies the cost leadership strategy it means that it has lower costs compared to its competitors considering a product or service similar and comparable in quality [10]. If the organization applies the differentiation strategy it means that its products or services have specific items that make them perceived as unique for its clients [10]. But regardless the strategy applied, the potential creation of value is function of the amount of value both real and perceived that the customers are giving to the products and the cost of manufacturing them. In addition, the organization is gaining higher profits than its rivals when it creates greater value for its customers and can make them paying a higher price [32]. Thus, Porter s initial strategy based on selecting only one of these strategies is no longer valid as there are evidences that a combination of strategies is also allowing gaining competitive advantage [37]. The adaptation and analysis of these factors and strategies under the value chain framework is provided by Dess & Lumpkin [38]. The aim is to identify, for each activity of the organization, its impact in the generation of additional value and differentiation opportunities that can exist in each of the value chain activities, considering also the changing environment (value system as considered in [39]). Related to this, the interrelationships within the organization among the chain links [33] is a factor that allows gaining competitive advantage mainly through [10]: optimization (cost reduction in the specific activity and in other related activities) and coordination (it allows a more efficient process). On the other side, the interrelations the organization has with suppliers and/or clients could be also a source of competitive advantage if it is beneficial for both parts [39]. The alignment of activities as well as the creation of synergies and strategies could allow the organization in increasing its efficiency and market position [39]. Determining the strategy at a global level and then its implementation in each of the value chain activities is crucial to understand all the variables defined, considering factors as the level of activities integration, outsourcing management, vertical integration and its framework. Nevertheless, both the existing literature as well as the evolution of the business world show that factors such as the information, reputation risk [40], process management design, reengineering and marketing among others, influence in the organization s value perception. 2.3 Relationship between Value Chain and Integration of Management Systems According to the existing literature, 1 st International conference on Quality of Life June

4 integrating MSs adds value to the organization by eliminating several types of waste [41]. The same authors propose a model to integrate multiple MSs as a flexible and lean tool and conclude that those organizations that integrate and continuously improve will gain competitive advantage through sustainable value [42] and similarly, considering the integration of manufacturing strategy, total quality management and performance measurement was also proposed [43]. An additional proposal is to integrate lean management practices with ISO creating value in improving the measurement processes and making the standard more sustainable [44]. The most recent proposal is a literature review analyzing the relationship between the IMS and the value creation [45]. 3. INTEGRTION OF MANAGEMENT SYSTEMS IMPACT TRHOUGH THE VALUE CHAIN The aim of this paper is to analyze the impact that the integration of management systems has through the value chain within organizations. Based on the literature review, two initial comments to analyze the impact could be posed. The first, related to the value chain, is the Porter [33] s classification of activities into primary and support. The former are productoriented, i.e., are those activities to manufacture a product, such as the logistics, operations, marketing and sales, and services. The latter are process-related, i.e., they are activities that enhance or help to improve the product manufacturing process, such as the firm infrastructure, human resource management, technology development and procurement. The second, the same author s strategies to gain competitive advantage, i.e., cost leadership and differentiation [33]. Taking into consideration the existing literature, the integration of MSs has been classified as a process innovation [30] and the main benefits obtained are related to reducing costs and improve the organization s efficiency [24]. In fact, the definition of the integration of management systems is the process of putting together different function-specific MSs to a single and more efficient MS, the IMS [13]. Thus, the Porter s strategy that could better fit if an organization is integrating its MSs is the cost leadership. The main factors considered in this advantage achievement are [10]: learning effect, economies of scale, process and product technologies, raw materials availability and company location, suppliers bargaining power, synergies with suppliers and clients, control of costs, adjustment of the production to the demand. Taking these comments into consideration, the integration of MSs would have a greater impact on the support activities of the value chain. As abovementioned, the integration of MSs is a process that improves the efficiency of the organizations by managing the multiple MSs implemented as a single MS. This practice affects the entire organization as integrating is a strategic decision. Thus, those activities related to how the organization is managed will be afected or related to the integration of MSs. Anlayzing the support activities, the decision made by the top management will be influenced by the IMS: Organization s or firm s infrastructure, i.e., those activities related to the management, planning and control the primary activites, will follow the requirements of the IMS, such as the top management commitment, available resources, responsibilities and roles, management review, etc. Human resource management, i.e., activities related to recruitment and training are also important factors for IMS. More training and better understanding of the organization s activities and objectives means a better performance of both the IMS and the products. Technology development, i.e., activities related to the improvement of products and processes. In this case, the IMS will impact in the process development and improvement, at least directly, that will contribute indirectly to the improvement of the product. Procurement, i.e., the activities related to purchasing materials. The selection of products, suppliers and how the entire process is managed will follow the requirements of the IMS. The external linkages are also important to increase the competitive advantage. Although analyzing the impact that the 182 M., Bernardo, J.M., Castán Farrero, M., Casadesús

5 integration of management systems has through the value chain considering each activity individually is difficult (as proposed in [38]), it is clear when considering the chain as a whole 4. CONCLUSION This paper aims to analyze the impact that integrating multiple MSs has on the value chain. Through a literature review relating both aspects, the following conclusions and considerations could be posed. First, it could be concluded that the integration of MSs is impacting on the support activities of the value chain, i.e., those activities oriented to improve the processes. Specifically, the activities that are considered more strategic and affect the organization s management. Second, as the integration of MSs is a process that improves the organization s efficiency, it will have a greater impact in those organizations that are implementing a cost leadership strategy. Third, the impacts mentioned could be classified as direct impacts but a better management will also impact, although indirectly, in improving the products or services that organizations are providing. Finally, the implications of this research are both for the academia and practitioners. The former because it is, to the best of authors knowledge, the first attempt to analyze how the integration of MSs is affecting the value chain. It is also a starting point for future research analyzing the strategic approach of the integration process. For managers, this research is proving them the importance of integrating its MSs into a single one, as it will help them in becoming more efficient. Future research will be focused on a qualitative research to measure this impact both direct and indirect REFERENCES: [1] ISO (2015). The ISO Survey of Certifications, International Organization for Standardization, Geneva, Switzerland. [2] Gotzamani, K. & Tsiotras, G. (2002). The true motives behind ISO 9000 certification: Their effect on the overall certification benefits and long term contribution towards TQM. International Journal of Quality & Reliability Management, 19, [3] Karapetrovic, S., Casadesús, M. & Heras, I. (2010). What happened to the ISO 9000 lustre? An eight-year study. Total Quality Management, 21, [4] Llach, J., Marimon, F. & Bernardo, M. (2011). ISO 9001 diffusion analysis according to activity sectors. Industrial Management & Data Systems, 111, [5] Marimon, F., Llach, J. & Bernardo, M. (2011). Comparative analysis of diffusion of the ISO standard by sector of activity. Journal of Cleaner Production, 19, [6] Alonso-Almeida, M.M., Marimon, F. & Bernardo, M. (2013). Diffusion of Quality Standards in the Hospitality Sector. International Journal of Operations and Production Management, 33, [7] Karapetrovic, S., Casadesús, M. & Heras, I. (2006). Dynamics and integration of standardized management systems. An empirical study. Documenta Universitaria. GITASP 1, Girona, Spain. [8] Bernardo, M., Casadesus, M., Karapetrovic, S. & Heras, I. (2009). How integrated are environmental, quality and other standardized management systems? An empirical study. Journal of Cleaner Production, 17, [9] Beckmerhagen, I., Berg, H., Karapetrovic, S. & Willborn, W. (2003). Integration of management systems: focus on safety in the nuclear industry. International Journal of Quality & Reliability Management, 20, [10] Guerras, L. & Navas, J. (2007). La Dirección estratégica de la empresa. Teoría y aplicaciones (4 ed.). Madrid, España: Editorial Thomson Civitas. [11] Heras-Saizarbitoria, I. & Boiral, O. (2013). ISO 9001 and ISO 14001: Towards a research agenda on Management System Standards. International Journal of Management Reviews, 15, [12] Bellisario, A., Apolloni, A., & Ranalli, F. (2015). Reviewing strategy matters to gain an understanding of balances scorecard s possible benefits within lean production contexts: A management control perspective. International Journal of Manufacturing Technology and Management, 29, [13] Karapetrovic, S. & Willborn, W. (1998). Integration of quality and environmental management systems. The TQM Magazine, 10, st International conference on Quality of Life June

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