EFFECT OF ISO 9001 QUALITY MANAGEMENT SYSTEM ON FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA: A SURVEY OF TOP 100 SMES IN KENYA

Abstract

Small and Medium Enterprises are increasingly under pressure to implement quality improvement initiatives to improve their competitiveness and financial performance as a result of globalization of markets. Studies that have been conducted to determine the effect of quality improvement initiatives on financial performance of organizations in different sectors of Kenyan economy are limited and their outcomes are inconclusive. This study investigated the effect of implementation of ISO 9001 quality management system on the financial performance of SMEs in Kenya. Financial performance was measured by growth in revenue, Return on Assets, Return on Investment, Profit and reduction in unit cost of production. The sample for the study were the Top 100 SMEs in Kenya in 2019 according to the survey carried out by the consulting group KPMG and Nation Media Group. Descriptive research survey was applied in this study. A census approach was adopted for data collection. The primary data was collected from each enterprise using a questionnaire which was administered online. The descriptive statistics were analyzed using Statistical Package for Social Scientist (SPSS). The study found that 30% of SMEs in Kenya have adopted ISO 9001 quality management system to improve quality of their products and services. The study also established that implementation of ISO 9001 QMS has statistically no significant effect on financial performance of SMEs in Kenya. However, implementation of ISO 9001 QMS has a potential to explain 2% of financial performance of SMEs in Kenya. From the findings of the study, it can be concluded that the financial performance of SMEs in Kenya is explained by other factors other than implementation of ISO 9001 QMS. Due to its potential to contribute to the financial performance of SMEs, the study recommends that SMEs in Kenya should implement ISO 9001 QMS in conjunction with other initiatives to improve their financial performance in the long term.