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ISO 9001:2000 - a way to excellence

by Lalith Senaweera , Director (Systems Certification), Sri Lanka Standards Institution

The International Organization For Standardization (ISO) first introduced ISO 9000 series of Quality Management Systems Standards to the world in 1987. Since then all over the world, more than ninety countries adopted this standard as one of their national standards and started in implementing it within their countries. As a result of this wide acceptance, many purchasing organizations as well as reputed buyers all over the world have insisted their suppliers to have ISO 9000 certificate as a prerequisite to supply products and services. Because it is clear that customers (purchasing organizations/buyers) need confidence in the quality of products or services supplied and would require some evidence that addressed this need.

Since ISO 9000 embodies most of the important requirements customers needed to obtain an assurance of quality and any additional requirements could be put into the contract, the demand for ISO 9000 certification has also increased all over the world and to date approximately 450,000 companies have been certified against the applicable model of ISO 9000 standard around the globe. However ISO 9000 series is not a product standard and it does not contain any requirements with which a product or service can comply. Therefore it is not possible to inspect a product against the ISO 9000 standards. Because of this fact it is not possible to claim that a product or a service of an organization has been certified to applicable model of ISO 9000 or equivalent national standard.

Quality system

The ISO 9000 model of a Quality System is built upon the principle of achieving customer satisfaction by preventing nonconformity at all stages in the supply chain. Therefore ISO 9000 series is conceived to bring an improvement in product quality. It is expected that if an organization were able to demonstrate, that it is operating a Quality System as per the ISO 9000 series standard, customers would gain greater confidence in the quality of products that they purchased.

Moreover an effective Quality System will reduce fire fighting and provide a means for identifying and resolving problems and preventing their recurrence by making a room to improve the performance of processes, products or services. ISO 9000 is the application of common sense through a structured management system approach that will provide products and services that consistently satisfy customer needs.

Commitment to quality at all levels of the organization is very much important to make any quality program a success. The question arises here is how an organization should obtain the commitment of the employees. For this purpose the one of the most important an acceptable tool that an organization can use is training. Before starting any quality program it is very necessary to make all the employees of any organization aware about the benefits that the organization as well as the employees can accrue by practicing the quality program. This process will help the organization to communicate the message of the program across the board and in turn to change the attitude of employees to get their commitment.

In order to ensure that the required tool will provide the expected results for the investment of adopting it to any business, it is imperative to align the tool with the business processes of the organization. Therefore it requires the commitment, involvement and participation of Top Management for it to function effectively.

Organizations that have introduced and accepted the idea of participative management should have no difficulty in implementing quality related programs; as such organizations have a sound mechanism to communicate with their own employees.

Workers, however, expect that management will show evidence of good intentions by addressing problems related to the personal well-being of workers to the extent possible and by taking at least action on long-standing causes of quality problems, such as obsolete equipment, unrealistic specifications and lack of preventive maintenance programs etc.

Remember that people produce the products and services supplied by organizations and standards merely serve to guide these people in choosing the right things to do. It is the quality of leadership in an organization that creates an environment in which people will do the right things right without having to be told. Knowing the actual situations of organizations, ISO 9000 standards indicate that Top Management commitment is a vital and essential factor to make the ISO 9000 program a viable and results oriented one.

Badge on the wall

Believing that ISO 9000 is only about "documenting what you do" organizations set to work on responding to the requirements of the standards as a list of activities to be carried out. What many organizations failed to appreciate was that they all have a management system-a way of doing things and because the language used in ISO 9000 is not consistent with the language of their business, many people did not understand the connection between what they did already and what the standard required. Management may think of the organization as a system, but what they don't do is manage the organization as a system.

Because of these very reasons most of the organizations were not able to show an overall improvement within their companies even though they claim that they have been certified to ISO 9000 - quite simply because nothing changed, not the processes, not the people nor the culture. But the Quality Management System exists just to keep the badge on the wall.

New thinking

It is an accepted practice of the International Organization for Standardization (ISO) to review and update the standards published by them every five years to ensure that they reflect the best practice in the particular subject and has taken into account any experience that have been gained during the application of the standards. Keeping in line with this policy, ISO 9000 series of standards have been revised in the years 1994 and 2000. However the revision done in the year 1994 is a limited one and therefore the content of the standard has not been changed. The second revision was based on the comments of users and customers and therefore it incorporated the new thinking of managing organizations. This new thinking is described in the new version of ISO 9000 series as follows:

* The application of a system of processes within an organization, together with the identification and interactions of these processes, and their management, can be referred to as the "Process Approach".

* The new standard, ISO 9001: 2000 requires the adoption of this approach and therefore organizations need to define and manage the processes that comprise their business activities including their sequence and interaction.

* This approach now requires the organizations to focus on their actual business processes and to develop their Quality System to control and manage those processes and to shift the focus from 20 elements of the previous standard and the implementation of 20 procedures, which in many instances do not have any link with the actual business processes of the organization.

* The new version of ISO 9001:2000 provides and input to the organizations that what is important is to have a Quality Management System which is unique to that organization as it look after the business processes of that organization and therefore that Quality Management System will not fit into any other organization.

Background of the ISO 9001:2000

The new standard ISO 9001:2000 provides many benefits to organizations and some of them are listed here. Since the new version requires identifying the business processes of the organizations, it will help the organizations to really look at their processes and to determine the areas for improvement in order to make the processes to function efficiently. Moreover the new version is compatible with other Management System Standards such as ISO 14000 series of Environmental Management System Standards and SA 8000 - Social Accountability Standards and therefore now the organizations can integrate ISO 9001 system with other systems. The process approach directly manages the creation of value by managing horizontally across functional departments, thus reducing the quality problems that occur at department boundaries.

Structure of ISO 9001:2000

The year 2000 family of ISO 9000 standards has only four primary standards:

ISO 9000 - Quality management systems - Fundamental and vocabulary

ISO 9001 - Quality management systems - Requirements

ISO 9004 - Quality management systems - Guidelines for performance improvements

ISO 19011 - Guidelines for Auditing Management Systems

Out of these standards ISO 9001:2000 is meant for quality system development and certification purposes. In this standard there are four management layers and business processes of the organizations can be linked under each of those management layers. Those layers are, Management Responsibility, Resource Management, Product Realization and Measurement, Analysis and Improvement.

This simplified structure will definitely help the line managers to understand the standard language properly and to contribute to implement it within their organizations in a sensible manner to achieve the expected results.

Alignment with business excellence models

The new series of ISO 9000 standards is based on eight Quality Management Principles and hence the intent of the standard is more or less same as the business excellence models like NQA Award - Sri Lanka, EFQM Award - UK or MBNQA Award - USA or any other TQM models in the globe. This is because all those award criteria models are also developed in considering the same eight Quality Management Principles even though those award criteria's are incorporated additional requirements. However because of these similarities it is easy to extend the ISO 9001:2000 Quality Management Systems with little effort to meet any of the business excellence models.

Business performance

Perhaps one of the most significant differences between the 1994 and 2000 versions of ISO 9000 series is that organizations are now free to choose the documents they need to manage the business.

This simple change should signal an end to mountains of paperwork created by organizations without looking at their real business processes but to satisfy the requirements of the standard to retain the ISO 9000 certificate.

Therefore the Quality management System should no longer perceived as a set of documents but as a means to achieve the organizations objectives. The process approach is therefore a very strong model for continual improvement, with gaps between customer requirements and process performance providing and ideal starting place for improvement to achieve excellence.

Colombo Stock Exchange and ailing private sector economy in Sri Lanka

by M. A. Dharmapala Wijesinghe

With the principles of free economy being accepted in Sri Lanka, the private sector in this country had a big boost. A large number of public companies which had not been listed commenced to list themselves in the Colombo Stock Exchange there by selling their shares to the general public. The share market blew itself up and in the year 1993 shares of DFCC, HNB, Commercial Bank etc. were traded over Rs. 500. There were other companies fetching between Rs. 100-500, and shares were being briskly bought by the investors.

Competition at this stage was very high with enthusiasm growing rapidly. It was beyond imagination for any investor to purchase the number of shares applied for at the IPO. In instances where an investor applied for 1,000 shares at the Initial Public Offer, he was able to secure only 100 shares. There were others who did not have the fortune (at present misfortune) to purchase any shares, which were distributed in the form of lottery.

The companies too made good use of this opportunity and sold shares at high prices. The Rs. 10 shares had been sold for eg. Asia Capital at Rs. 30, Blue Diamond at Rs. 40, C. W. Mackie & Co. at Rs. 65, Kelani Tyres at Rs. 26, The Finance Co. Ltd at Rs. 100 to quote a few. I am aware that some investors paid high prices and purchased shares from the market expecting further sky-rocketing, and to quote a few, Kelani Tyres shares had been purchased at Rs. 76, Korea Ceylon Footwear at Rs. 240, Vanik Incorporation at Rs. 70 etc.

The fixing of the premium always had the concurrence of the Colombo Stock Exchange and the publication of relevant portions of prospectus in the daily papers had much recognition owing to the CSE concurrence. But if one took the trouble to read though the prospectus in full they would have noted that the CSE absolved itself from all their responsibilities.

With one statement, that "the CSE does not regulate the pricing of share which is decided solely by the offerer". But preceding this statement, it says "the Colombo Stock Exchange (CSE) has taken reasonable care to ensure full and fair disclosure of information in the offer for sale document. In my view the two expressions are conflicting, to one another.

And the implication of the earlier statement is you purchase shares at your own risk and we have no responsibility, whatsoever even though we have given the nod to the share price. The share price is being approved after taking into consideration and evaluating the assets of the company. The question has arisen today as to whether the CSE had made a competent assessment or evaluation of the assets, or they merely were guided by the recommendations of the Directors concerned. I have very briefly to the best of my ability and knowledge given a background about the quoted companies in the Colombo Stock Exchange, to a reader to gather some knowledge so that, one would be in a position to assimilate the rest that follows in this article. Policies

The announcement of the government that they had accepted policies of free economy, means that the public quoted companies take the lead in guiding and building the economy of the country followed by non-quoted limited public companies and the limited private companies. Therefore in the forefront or box seat of the country's economy is being occupied by the public quoted companies. The shares of public quoted companies are being traded on working days from 9.30 a.m. to 12.30 p.m. and the shares sold are being announced by electronic media, when favourable to the Government and the daily press publishes the previous day's transactions, for public knowledge.

When the market goes up the heroes from Colombo Stock Exchange make very big noise attributing various reasons, but when the market falls down they hide themselves in their SHELLS possibly feeling shy that what they told was not the actual position.

The market has to fluctuate and it cannot remain static for trading to take place. The fluctuation in the market can take place owing to different reasons. If a company functions satisfactorily making good profit as shown in the quarterly reports, the market could genuinely rise in that particular company. If investors have confidence in the management and they have been continuously paying a good dividend, certainly that company share can boost up.

There can be people who have black money, who would want to regularise such money too will arbitrarily invest. Their intentions are different. Also there are Govt. Institutions like EPF, ETF and banks, which would invest to prop up the image of the government, whatever the government, is therefore, the indications of the market cannot be considered a satisfactory factor to speak on the economy of the country. It is therefore a misnomer to conclude that the market indices reflects the economy. I will establish that point as I proceed.

As I mentioned earlier, the public quoted companies are the leaders in a private sector economy, therefore it is worthwhile to examine how they function, there are around 230 companies.

Since 1992, up to this moment what has happened in the public quoted companies needs a thorough examination. The high prices that existed in pre 1994 era completely disappeared, with the fall of the then government, so much so, that they had hit the rock bottom in 2001. From around 1995 to about 1999, a large number of companies failed to establish themselves and proved to be inefficient and incompetent, since they were showing heavy losses. But, severe criticism by a handful shareholders brought some glimpse of capability as a good number of companies overcame losses even though they did not show any profits. Again, we have found that a large number of companies are in doldrums in the year 2001. It is also pertinent to mention that a number of companies have reached bankruptcy.

To mention a few, Pugoda Textile, Magpek, Korea Ceylon Footwear, Veytex etc. The main reason why they reached bankruptcy was owing to raising heavy loans, by pledging assets to banks. The net result is the investors have been left high and dry, while the directors of companies had a glorious day enjoying everything on earth with other peoples money some of these directors are directors of several companies and many of them do not hold even one share. As for the position in the so-called rise, in the stock market, I grant the fact that heavy trading had taken place owing to fluctuations and especially prices moving up by Rs. 5-10 in certain parcels. True enough that some were benefitted. Even at present, the rise in the market is not an indication that companies are doing well.

Asia Capital from the inception up to now has failed to give any dividend to its shareholders. There are lots of other companies where chairmen or managing directors have been very prominent businessmen, but no dividends have been paid up to now, by these companies too. It is also pertinent to mention that a number of companies have been delisted from the CSE. Including Coca-Cola Beverages Ltd., thereby restricting or denying the right to make representations to SEC.

At present most of the countries are having second thoughts about this including USA, after the big scandals that had taken place, including ENRONmmm, George Bush himself has found privatisation a big problem in USA, so much so, that a leading audit firm such as Price Waterhouse Coopers had been fined millions of dollars by the SEC in USA. This is the ideal situation prevailing in Sri Lanka too. Out of the 200 odd public quoted companies, not even 25% pay a decent sum by way of taxes. The directors of most of other companies have resorted to methods of siphoning funds in different directions. Far too many bank loans have been obtained and when interest has been settled they show heavy losses.

At a seminar held at Central Bank, Auditorium of 8th August 2002, a talk was delivered by Manil Jayasinghe, partner of Ernst And Young, on the subject, 'PROBLEMS FACED BY AUDITING INDUSTRY AFTER ENRON'. From the talk it appeared that both Ernst And Young and Central Bank of Sri Lanka had taken things to be very ROSY in Sri Lanka. When the question time came, I took the opportunity to pose the problem in Sri Lanka, that had existed for a period of 3 to 4 years and questioned why the auditors and the Central Bank of Sri Lanka, had not even made a whisper of what was happening here, but that had thought it fit to make a big issue of what happened in USA, and what benefit it would accrue to us, ignoring our own problems.

However, reverting to privatisation and the private sector economy, we find that retrograde steps have been taken by the private sector thus the future of the private sector economy seems to be very bleak. If we take two interesting cases, one is of Shell gas and the other SriLankan airlines taken over by Emirates. It is not necessary to say anything about Shell gas, what service it had done people and the country than to say that Mr. Ravi Karunanayake, Minister of Trade and Consumer Affairs himself has been very vociferous against Shell gas. But it is worthwhile to investigate about SriLankan Airlines, which is in the hands of Emirates.

On the 11th August Sunday Observer carried an interesting news item, where it said that Ernst And Young auditors of SriLankan Airlines had expressed the view that it cannot be considered as a going concern.

This situation is very alarming and the government has to view this situation with all seriousness. Then on the 3rd September appeared another news item in the Daily News where Tim Clark CEO of SriLankan Airlines has replied certain matters arising out of the annual report. On the same day carried in the same page certain views expressed on Clark's view by one Sarath de Alwis and ex-employee of AirLanka, under the caption "Matters arising out of answers", and having read both I very easily came to the conclusion that the sole motive behind Emirates is to confine SriLankan Airlines to a regional airline, and ultimately to ensure a natural and timely death.

I also would wish to draw the attention to joint statement issued by Fr. Guy de Fongaland of Workers Development Society Bandarawela and Vasudeva Nanayakkara of United Estate Workers Union that appeared in the page 7 Daily News of 27th August 2002 where they had stated that in the year 1990 the Government had earned as much as Rs. 1,536.1 million from tea and Rs. 747 million from rubber totalling to Rs. 2,283.1 million in respect of these taxes.

Today these sums do not come into to the Govt. coffers, therefore these factors too have contributed to financial crisis the government is facing. On the other hand retrenchment in the estate sector has been 194,000. Therefore it is evident that expectation from the private sector have not reached the expected areas of development in the country. Some of the privatised plantation companies up to this moment have failed to pay any dividends to their respective shareholders. Thus the shareholders too have been deprived of their share.

This situation is not at all sound for further promotion of private sector economy. Before, we embark on new areas of privatisation it is appropriate to take stock of what progress had been made. The existing scenario cannot move forward in the direction of further privatisation. If we are to proceed then we have to ameliorate existing poor state of affairs in the most of private sector companies. If principles of private economy have entrenched the guidelines of the economy then the government has to view this alarming situation with all seriousness, because failure to improve conditions in the country will affect them, when they go before the people.

As every problem has a solution this too should have a solution. To my mind a wide range of changes are required in the various organisations that are expected to regulate activities of companies, changes in the scope and composition of the Colombo Stock Exchange and the SEC are imperative. You also have to infuse energy and vitalise activities of other government agencies.

The Finance Minister and the Ministry too will have to play a vital role. Constant monitoring of activities in the public quoted companies by the govt. agencies will keep them on their toes, without leaving room for complacency. It is also a matter for satisfaction that the SEC has at last felt the need to make certain changes in auditing, having felt that present accounting standards existing are inadequate to streamline these companies to meet the challenges in the twenty first century. This an area that I have been clamouring for changes against severe odds.

Incubator concept for development of small enterprises

by S. Wijesiri

A young entrepreneur, hoping to start a business venture has lot of obstacles. Land, buildings, machinery to markets, everything is not easily accessible to him. If he is born without any wealth the situation is worse. A business incubator provides initial back up the entrepreneur needed until he develops the capability of facing the competitive market for his product or service.

Business incubators emerged in the early 1980s as a result of small enterprise programmes developed a decade earlier. Incubator concept in late 1980s transformed into specialised incubators such as sector-specific incubators and technology motivation centres. The business incubator programmes are implemented in developing countries such as China as well as in developed countries like US. However the concept of incubator was not widely spread in Sri Lanka.

In recent past some initiatives have taken place to establish business incubators and there are new proposals under which it is suggested to establish incubators in each Divisional Secretary's division with a target of approximately 250 industrial incubators. First two of this series are to be proposed to locate at Nikaweratiya in Kurunegala district and Uva-Paranagama in Badulla district.

Traditional Sri Lankan society is generally production oriented and even though entrepreneur capabilities are hidden it consists of technical talents. Tendency of youth is, for looking for employment opportunities rather than becoming entrepreneurs. In most cases, transformation of this environment only with entrepreneurship development programmes is difficult. Incubator concept is one of the best to develop entrepreneurship capabilities with other talents. In an era of global competitiveness the contribution of incubator becomes more, in creation of small enterprises.

Incubator, itself is a business venture although it promotes enterprises. Viability of any business project should be pre-assessed for successful operation. Investment cost on land, building, machinery etc. will directly effect the charges for the services provided by the incubator project and finally for the viability of the enterprises promoted. Type and scale of the business enterprises are decided by the inputs such as raw materials, availability of skilled labour, and also markets. Under this situation the segments which caters to be, by the incubator has to be decided at the initial stage and rectification would be costly. As in some of the development projects unless the proper pre-feasibility studies are not carried out ultimate result will be decay or diminish of results, after some stage has been reached or passed.

If the beneficiaries of the project involve from the beginning of the project planning, the unsuccess rate would be minimal. Participation of the industrial and business association as a management partner from the planning stage will be a success strategy.

Establishment of sector-specific incubator is more complicated as compared to the ordinary incubators which provide only facilities such as space and basic infrastructure. Sector-specific incubators are more result oriented as compared to ordinary incubators. Technological package with machinery facilities is the main factor behind this. However markets and availability of resources throughout the lifespan of the incubator projects are to be assured. Reason for this is the incubator "Graduates" passed out, specialised in a certain sector, would mostly locate their projects in surrounding areas. Only those with "merit" passes who developed their capabilities highly, captured the distance markets or made access to resources somewhere else, may prefer to establish their business ventures in far away places.

Number of industrial clusters are scattered all over the country. These clusters vary from clay to mental, handicrafts to small-scale garments etc. marketing channels are active. Raw materials are available in the area or sources have opened. Sector-specific incubators associated with cluster environment give ample opportunities for the aspiring entrepreneurs to fulfil their dreams.

Infusion of latest technologies for the cluster environment through the incubator projects upgrades the quality of the products to face the competitive market. Modern marketing techniques will increase the market share. Concept of sector-specific incubator in cluster environment takes several steps ahead over the traditional background.

Incubators could play an important role in rural development programmes. Even though private investments could be expected for the establishment of incubators in certain viable sectors, especially in urban areas, the situation is different, in the case of rural development. As in other rural development programmes unless comparative disadvantages are compensated, expected results will not be achieved.

Success of the incubator project depends on how effectively supporting services including advisory services are provided. Uninterrupted services from the relevant agencies should be maintained to build up the confidence of the incubator tenant. While it well formulated the channels of supporting services, quality services are to be assured by means of responsibility of the relevant agencies or for payments. It has to be mentioned that weakness of this area has hindered most of the enterprise development programmes.

Well designed criteria of selection of entrepreneurs for the incubator programmes and correct application of it is very important for the success rate. Technical ability combined with entrepreneurial talents is essential for specialized sectors of enterprise development. In most cases, similarities exits in criteria of selection of entrepreneurs for the entrepreneur development programmes with incubator programmes. Unbiased selection is needed to avoid end-up the incubator tenants with merely as trained personnel or weak entrepreureus.

Precautions are to be taken to minimize the unnecessary influences on selections, which will adversely effect as in some other business oriented development projects.

The incubator management should be more independent to avoid the unnecessary influences. A Governing Council consists of representatives from relevant public agencies, chamber of industries, large-scale industries etc., is the most appropriate mechanism for management. In development of management strategies, although practical experience in incubator concept is less, we can share the experience from similar development projects. Unless the management of the incubator independent, tendency for selection of a weak entrepreneur is high. Period allocated for an incubator tenant may be extended unnecessarily avoiding the opportunities for others. Payment for the services provided will be delayed or may refrained from paying them. Sometimes it may become an one man's property.

If the management of the incubator project in structured as required private sector investments could be expected in certain sectors. However it has to be mentioned that in developing countries, generally, the private sector is reluctant to invest for incubators, due to variety of reasons. As a result the respective governments have incorporated the incubator programmes into their economic planning and development programmes. While the success rate increase with the independence of management, system of monitoring is to be developed to avoid the deviation from the original objectives of the incubator programme.

In the process of creation of enterprises incubator is a tool, which gives tremendous results. But from the initial stage of planning strengths and weakness are to be clearly identified. Further the incubator programmes should not be isolated with the other regional development plans for the better achievements.

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