Despite the growth of ISO14001, a lot is still unknown about the impact of the EMS on the business operational performance.
Much of the academic research focuses on the financial, market and environmental benefits.
Raymond Treasy (2018) conduct a case study on whether a business can enhance the operational efficacy through adopting the requirements of ISO14001. He evaluates performance of both certified and non-certified organisations.
ISO14001 - key concepts
ISO14001 is a process standard and its main objective is to reduce negative environmental impacts of business processes on the environment.
The results of studies on financial or stock market of performance are mixed. Some suggest that implementation has a positive effect on the financial performance and some, found exactly the opposite. However, most supporters would like to argue that the standard improves both economic and operational performance.
It takes time for a firm to absorb the ISO philosophy and implement the practices. Researches highlight that return on sale or assets are not the adequate measures for manufacturing performance.
When observing results in some organisations, researches found positive improvements in terms of waste and manufacturing cost reduction. Although it is known that managers cannot be aware of all available practices and not have the capacity or time to implement all beneficial measures.
Practices (such as ISO14001) may have a positive, negative or neutral impact on a firms performance. Some researches also argue that implementing such practices can add new insights to the organisation.
Fixed assets
Treasy ( 2018) examines the impact on fixed asset efficacy, employee productivity, manufacturing cost efficacy and return on assets.
Technically, standard is a third-party asset that can be a source of operational performance improvement. For example, it suggest preventive measures for pollution control and not control of the end of process. This insinuates, that it allows for more proactive and not reactive controls. For example, more efficient logistic schedules that control emissions. Therefore the adoption of ISO14001 pollution prevention practices enables organisations physical assets to be used more efficiently, which may result with higher fixed turnover ratio.
Human capital
Employees must undergo training on environmental practices. During the implementation, employees will absorb new knowledge on how to reduce waste and process materials. Environmental training is geared up around waste reduction and continuous improvement to the production process. Additionally, cleaner production practices may result in use of fever toxins and dangerous chemicals that could lead to more motivated and satisfied employees.
Production planning
Environmental planning plays key part of ISO14001 standard implementation. Control systems may refer to cost and quality. If business functions work together important operational benefits may emerge. ISO14001 companies may benefit from superior cost control and internal coordination practices which may lead to cost reduction and time-based efficacy.
Organisations can adopt production control plan to integrate source reduction, continual improvement and pollution prevention practices. This can lead to reduction in raw materials usage and energy savings. That would translate to the actual reduction of actual cost of production. This is achieved through removal of excess materials or waste and more efficient use of energy.
On overall, businesses can adopt transferable practices to be utilised on a daily basis. Once the organisation embeds the practices it becomes a potential source of improvement. However a culture of waste reduction, energy efficacy and cost reduction should be established.
Products may pass through various production stages and with each stage working together on waste reduction, sharing improvement practices, time to manufacture the products from raw materials to packaging, should also be reduced. Lead times should be shorter as products spent less time in inventory and non-value added activities are eliminated.
As the manufacturing process should be subject to continual improvement it should lead to decrease the product defects and use of harmful materials and chemicals.
Organisational resources
Researches argue that firms cannot achieve competitive advantage from the replicable practices but they can still benefit from profitability. This can be reduced through minimising operational cost, improving productivity and eliminating unnecessary waste from the production process.
Treasy (2018) examines ones firm performance before and after the ISO14001 implementation. It compares the performance of certified and non-certified organisations.
Very few firms, however, can quantify the performance benefits of ISO14001 adoption. ISO generally takes 6-18 months of implementation prior to certification.
Fixed assets
The study found, that there is a positive relationship between ISO14001 and fixed asset turnover. This is visible in the first year of implementation (before certification) and the year after the certification. Therefore, it can be suggested that ISO14001 adoption improves fixed asset efficacy post-certification when compared to non-adopters.
Human capital
The research also shown that the cumulative productivity levels improved immediately in period before certification ( 6-18 months) of approx. 24.4%. Furthermore the productivity enhancement steadily increased post-certification. By year 3, productivity increased of over 53.3% for non-certified and 67% for certified organisations.
Manufacturing costs
Study suggests that it was a decline in manufacturing cost on the 6-18 months pre-certification of 1.95%.But this positive change disappeared immediately after the certification as manufacturing costs increased. However, in the cumulative year post-certification the manufacturing costs reduction was at approx. 1.71% to 2.6%.
Conclusions
The studies suggest, that adoption of ISO14001 lead to significant increases in operating performance in terms of employee productivity, operating cycle and return on assets. The researchers suggest that the practices prescribed by ISO14001 standard increase fixed assets efficacy, improve employee productivity and enhance cost control and operational speed.
Additionally, over time, the organisational performance gets stronger. They do take time to be fully embedded and may need to be implemented into daily practice to be fully effective in a long-run.
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