Quality Management Standards, Institutionalization and Organizational Implications: A Longitudinal Analysis

We explore longitudinally how the institutionalization of quality management standards would lead to paradoxical performance implications. Specifically, we examine the organizational consequences of ISO 9000 adoption when the standard was increasingly institutionalized in the manufacturing industry in the early years. Based on hierarchical linear modeling of panel data of manufacturing firms, we find that the sales revenues of ISO 9000 certified firms increased steadily when the standard is increasingly institutionalized. However, operational efficiency significantly deteriorates at the same time, so as the shareholder value (measured by Tobin's q). We further reveal that the institutionalization of ISO 9000 leads to higher CEO compensation, despite deteriorating operational efficiency. We argue that when process systems like ISO 9000 are institutionalized, they lead to certain negative consequences. To make management standards less susceptible to institutional forces, we believe that a fact-based, result-oriented approach in the implementation should be stressed.