Comparison between IT companies that are ISO certified and non-ISO certified using BSC
In this article, we will consider the differences between ISO-certified and ISO non-certified companies. We’ll focus on the main benefits of ISO certification for a software company and positive impact it has on its future and present customers. As measurement tool that allows estimating the improvement rate, we can use certain Key Performance Indicators (KPI). We’ll take a look at those of them that have changed for the better after our company successfully passed the ISO certification.
The Importance of ISO Certification for a Customer
Every business has its unique requirements, goals, and specific working process features. That’s why sometimes it is required to develop an app or system from scratch. Only in such case, you can be assured that created software will meet your requirements and provide the resources required for business improvements. But there’s a natural question that arises before every company: “What are the criteria that allow finding a reliable and experienced software development company?”
When you’re in search for a company to perform a specific amount of work, everything can be a little bit more complicated than hiring an employee. As you know, one of the main things that you should pay attention is the previous experience of the new staff member. In case of hiring a development company resolving this issue won’t be a hard task. Every self-respecting organization will be pleased to share its achievements. Companies show their portfolios and examples of successfully developed projects that help customers to make a decision. Among the other crucial aspects, there are set of skills and the educational level. They can be pretty helpful in forming the opinion on the suitability of a particular person. However, checking the suitability and educational level of each employee of a development company that you’re going to hire is an impossible task. In this case, a certification from the International Organization for Standardization (ISO) may be considered as the “diploma” that characterizes the company as a single mechanism and guarantees continuous quality improvement.
For a start, let’s take a look at the factors that can motivate a company to achieve ISO certification.
ISO Certification. Main Incentives for Business
There can be several reasons that can push a company to achieve ISO certification. Here are the most common of them:
- The intention to meet customer requirements
- The need to expand the market share
- The necessity to enhance the quality of the product or service
Thus, if a company wants to meet the needs of its customers better, improve the internal management system and achieve globalization, there’s already enough motivation for getting ISO certification.
All motivators can be divided into two main groups of incentives:
- Internal incentives include reinforcing the efficiency of the organization, enhancing the quality of the product, the intention to follow standardized procedures, etc.
- The list of external incentives consists of necessity to withstand competitive pressure and comply with modern trends, expansion of market share, and so on.
The ISO certification can have a positive impact on all the factors listed above and can improve the overall enterprise performance. The ISO 9001:2015 standard describes the main elements of which the Quality Management System (QMS) consists. QMS is a collection of business processes focused on enhancing customers satisfaction and consistently meeting their requirements. Let’s see how QMS implementation affects the company and what possible benefits its clients can get from it.
The Overall Impact of ISO Certification
QMS implies complex approach that consists of such elements as quality policy, quality objects, data management, and many others. Being implemented alongside, they’re able to affect the overall efficiency of the company pretty significantly. Here are some main benefits of ISO certifications:
- ISO increases satisfaction of the customers and provides the mechanisms required for its measuring.
- Through the improvement of the marketability of company products and services, ISO certification increases the competitive advantages and customer loyalty.
- The main goal of following the ISO 9001 requirements is the possibility to implement continual improvement of the business processes. There may be a need for additional efforts required to redefine the policy and objectives of your company. ISO 9001 helps to define the areas of continual improvements at all levels of the organization.
- Certification helps to clarify competency needs and define actions that will help to achieve the required level of competence
- Implementing the quality standards, you can save time of your company due to minimum rework
- ISO helps to define wasteful practices which elimination allows reducing costs and optimize the workflow
- The management of the company will be able to understand better the role and area of responsibility of each employee
Everything looks promising. Seems like right after getting the ISO certification your business will go uphill. But the question is how we can measure the efficiency of implemented standards. There are different performance measurement models, but the most obvious way of assessing the growth of company performance is to monitor its Key Performance Indicators.
The Importance of Key Performance Indicators for an ISO-Certified Company
As it been said, the main purpose of ISO certification is to provide the possibility of continuous improvement. To guarantee that spent efforts weren’t wasted, every company should monitor the main indicators that reflect the effectiveness of its work. The main task of the organization is to define what particular KPIs should be monitored and measured according to its field of activity. You should pay special attention to the Sales Growth. Analyzing the pace at which your company’s sales revenue is growing, you can get the important info that will help you in decision-making.
According to the ISO requirements, after you define the main indicators that should be measured, the next step is to analyze and evaluate the results that can be used later to control and improve the implemented Quality Management System. Therefore, following the ISO requirements, you’ll get all required tools that will help to improve your business on a constant basis.
One of the most widely used techniques for tracking the performance of a company is the implementation of Balanced Scorecard (BSC). This performance management tool helps to assess the consequences of particular actions made by the staff. BSC implies focusing on the following perspectives:
- Financial performance
- Customer satisfaction
- Internal business processes
- Learning and growth
These perspectives include financial and non-financial indicators that were chosen because of their interdependent nature. Improving the internal business processes, you can enhance the efficiency of work which results in higher customer satisfaction. The high level of customer satisfaction, in its turn, will guarantee the growth of the company benefits. The methodology implies that the actual measures should be compared to the target values within a concise report. It helps to adapt to dynamically changing business conditions by focusing on the strategic agenda of the company and continuous measuring of particular KPIs. After a specific business strategy is implemented, Balanced Scorecards can be used to verify chosen approach. In case of need, company management can decide to make changes required for establishing the desired level of performance.
How ISO Certification Affected the KPIs of Our Company
Since ISO 9001 is focused on helping organizations to improve the processes of planning, monitoring, and analyzing the quality of their services, we pay particular attention to the level of satisfaction of our clients. One of our main intentions is delivering services that meet the requirements of our contracts. To show you what are the main advantages for our clients we’ll take a look at the KPIs that reflect solid growth in the quality of services provided by XB Software:
- Customer Retention Rate (CRR)
- Customer Lifetime Value (CLV)
- Net Promoter Score (NPS)
- Response time for inquiries
- Delivery time
Our company shows positive dynamics across all these indicators which results in high level of customer satisfaction.
Customer Retention Rate (CRR)
CRR allows assessing the quality of your customer services. Paying due attention to this KPI, you can significantly increase the possibility to retain the overall number of your customers at a high level. Here’s the formula that allows calculating your current Customer Retention Rate:
CRR = ((CE — CN) / CS)) * 100
Where CE is the number of customers at the end of the period, CN is the number of new customers acquired during the period, and CS equals to the number of customers at the start of the period.
It may look a little bit frustrating at first sight, so let us explain how everything works in practice. For instance, your company has 100 clients at the beginning of the month. During the month you lost 25 contracts and received 30 new ones. Therefore, the overall number of customers by the end of the month is 105. Here’s what your CRR will be in such case:
((105–30) / 100)) * 100 = 75%
It means that 75% of your customers are continuing to use the services provided by your company.
“Why is CRR so important,” you may ask. For a company, acquiring a new customer is 5–7 times more expensive than retaining the old one. Thus, as a client, you can be assured that the ISO certified organization will pay sufficient attention to the customer services and the level of clients’ satisfaction will be continuously monitored.
Customer Lifetime Value (CLV)
CLV is equal to the profit made by a company from a particular client. CLV helps to understand customers better and acquire answers to the questions related to marketing, product development, customer support, and other aspects.
The most straightforward way of calculating CLV is to distract the amount of money spent on acquiring the customer from the overall revenue that you get from him. But there may be different nuances that can complicate this task.
Here’s more detailed example. Let’s assume that the cost of your product is $100. When someone makes an order, there’s a 15% chance that the purchase will be repeated. Acquiring a new customer requires spending some efforts and money. Let’s say it costs for your company $30. In such case, total expecting revenue from each client will be equal to your average order value divided by one minus the repeat purchase rate:
$100 / (1–0.15) = $117.64
To get the customer lifetime value, you have to subtract your customer acquisition cost from that:
$117.64 — $30 = $87.64
The importance of CLV is based on the fact that instead of quarterly earnings, a company focuses on strong long-term relationships with a client.
Net Promoter Score (NPS)
NPS allows measuring the performance level of an organization through the eyes of customers. This KPI reflects client’s perception of your company.
To calculate NPS, first, you have to ask your clients a simple question using a 0–10 scale: How likely is it that you would recommend our company, its products, and services to a friend or colleague? According to the answers, all clients can be divided into three groups:
- Promoters (score 9–10) are loyal clients of your company that will keep using your services. They account for larger half of referrals in most businesses. These customers fuel the growth of your company.
- Passives (score 7–8) are satisfied clients that, for some reason, stay unenthusiastic. You can’t rely on such kind of customers since they are vulnerable to competitive offerings.
- Detractors (score 0–6) are unsatisfied clients. Sometimes they can harm your business by criticisms or bad attitudes.
After you gather the data on all your customers, you can calculate the current NPS. To do so, you should subtract the percentage of Detractors from the percentage of Promoters. The actual value of Net Promoter Score will vary from -100 (when each your customer is a Detractor) to +100 (when each your customer is a Promoter). If NPS is positive, your business is doing well. The value of +50 is considered as an excellent result.
If you implement the measuring of Net Promoter System, you can ask your customers about the reasons for their ratings to get the opinion on your company in their own words. This feedback can help to address customer concerns. Moreover, you can analyze gathered data and outline the required improvements in case of need.
Response Time for Inquiries
Response time for inquiries allows defining how much time it takes for a support team member to respond to a customer’s inquiry. Analysing this metric, you can decide if there’s a necessity in reorganizing the workflow of your support department.
Response time for inquiries is one of the key aspects of company-customer relationships since it affects the client’s satisfaction. If you make clients wait too long for a response to the inquiry, they will lose trust in your company.
There are different factors that may have a negative impact on delivery time. We’ll consider some of them to help you understand the possible reasons for delays:
- The approval process was initially designed for providing the oversight over the development process. It was necessary to make sure that each step of the development life cycle is performed according to the standards. However, in big companies, the approval process is a complex procedure that can take a significant amount of time. Implementing deployment pipeline automation and continuous delivery practices you can significantly decrease possible delays.
- Manual software deployment is still practiced by a huge amount of development companies. Deployment automation can be delivered rapidly without any significant organizational changes. Automated processes are more reliable and can lead to lower lead times.
- Manual software testing is a pretty slow process which is difficult to scale across large organizations. Moreover, it increases the lead times which results in higher costs and lower client satisfaction.
In most cases, the reason for software delivery delays is the wrong approach to the project management. ISO certification implies that delivery time should constantly be measured and controlled.
For achieving ISO certification, every company must follow dozens of requirements. To maintain the continuous improvement business culture, an ISO certified organization should constantly monitor its KPIs and be ready for improvements when needed.
For a customer, the best part about such state of affairs is that those KPIs affect not just the revenue of a company, but its relationships with each client. Thus, dealing with an ISO-certified company, you can expect there’s a higher chance that all your requirements will be met, the final product will be delivered on time, and the company will be focused on long-time and healthy relationships.