Pereira P. Six Sigma and Quality Management 2024

Chapter 1
Total Quality Management of

Research Articles in Electrical
Engineering
Monika Verma, Mini Sreejeth and Madhusudan Singh
Abstract
Recently, the quality management of research articles (RA) has cherished an era
of remarkable growth and conglomeration. It is because the qualitative approach
has become an established and valued approach among varietal areas and contexts.
The quality of RA is precisely based on the clarity of the illustration of the aims.
Previously, the categorical analysis of RA has been restricted to the format of
writing the article following Introduction-Process-Testing-Conclusion (IPTC) or
Introduction-Methodology-Result-Discussion (IMRD) standards. But the wholesome
strategy of Total Quality Management (TQM) of RA has not been demonstrated from
the core in the discipline of Electrical Engineering (EE). The research question,
sample, control of staggering variables, research designs, criteria measures, data
analysis, ethics, discussions, references are the critical collectibles (CCs) on what
matters to the readers of RA. The macrostructures of EE-RA, features of each
sector of EE RA, section headlines, extension of description and prominent aspects
were analyzed for hundred RA from fifteen journals of EE. These features are
compared with respect to all the CCs. This chapter helps to recognize the necessary
inputs for TQM implementation with different proactive journals of EE to improve
the quality of RA.
Keywords: electrical engineering, critical collectibles, research articles, total quality

management, survey
1. Introduction
The research articles (RA) may have excellent process of analysis management and
tools to ensure strength of the study. However, analysis management alone cannot
ensure the readers’ satisfaction. Total Quality Management (TQM) is an approach to
not only ensure high quality of an experimental and developmental research but to
accomplish the higher levels of readers’ satisfaction.
To keep up the relevant level of quality of any research, all the features and tasks
of RA are needed to be monitored. The strategy of TQM involves the target of achiev-
ing pre-defined benchmark standards of quality through the formulation of policy,
planning, assurance and control of quality advancement.
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Six Sigma and Quality Management
The macrostructure of RA in science stream has been described by Harmon in [1].

The Introduction-Methodology-Result-Discussion (IMRD) standard had been set for
describing the experimental kind of research. However, this standard was found to
be incompetent for engineering stream [2]. Harmon also categorized engineering RA
into theoretical and developmental standards. The overall TQM implementation in
developmental or theoretical RA of engineering stream seem to receive slight attention,
even though articles related to engineering stream typically contributes towards the
development or advancement of novel solution to a particular problem [3]. A different
macrostructure standard named as, Introduction-Process-Testing-Conclusion (IPTC),
has been recently claimed to the prototypical standard for RA related to EE [4].
The subfields or sectors of EE are related to fields of computer engineering, power
engineering, signal processing, photovoltaic cells, system engineering, telecom-
munications, radio-frequency engineering, instrumentation, optics, electronics and
photonics. Most of these fields observes the overlapping with other engineering sec-
tors. There are thousands of RA pertaining explicitly to EE subfields. From the point
of view of themes of EE, the topics are categorized into electromagnetism, physical
laws, control engineering, electronics, power engineering, electric vehicles, signal
processing, instrumentation and telecommunication.
This chapter analyzes hundred RA in fifteen journals of EE to acknowledge their
quality check with respect to CC measures of TQM. The distinctive aspects about the
different approaches addressed for implementation of TQM are also described. The
chapter is organized in the form of sections, given as follows. The ‘literature survey’
section presents that the RA from all fields of EE in almost all the journals are peer-
reviewed. The ‘research methodology’ section presents the complexity of analyzing
the representative corpus of articles in EE and the techniques used in this work. The
‘analysis results and remarks’ section shows that although the quality management is
executed through very transparent approach while analyzing an article but from the
point of view of reviewers and readers of articles in EE, this task is somewhat subjec-
tive. It also represents that how the quality assessment approach has evolved over the
years and the discussion of pedagogical implications respectively, followed up by a
comprehensive conclusion.
2. Literature survey
There are various genres that are perceived within the field of engineering [5].
However, this research concentrates on the full length RA in one or two step peer-
reviewed journal. A significant amount of work has been reported in literature related
to the framework of genre analysis.
The New Rhetoric variant of genre analysis is a kind of inter-disciplinary field
technique used for introducing broad way of argumentation of classical canons of
rhetoric, which are structure of content (arrangement), language (style), background
(memory), what to say (invention) and delivery (presentation).
The Systematic Functional Linguistic (SFL), originally designed by M. Halliday,
uses the idea of developing analytical categories of language. According to SFL, lan-
guage is the means of social parole system. SFL provides a convenient tool to analyze
RA by emphasizing the functional base of structure of language.
Another variant of genre analysis is English for Specific Purpose (ESP) [6]. Generally,
it refers to the subset of the language learning in accordance to the enhancement of
vocabulary or the skills of the author of the articles.
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The above mentioned variants of genre analysis are few important measures used
for carrying out the review process of an article. The articles following the ESP cus-
tom are first reviewed in this section. Through the survey, it is demonstrated that the
earlier RA are first examined on the basis of macrostructure. Then, it is researched
that the field of electrical engineering is considered as that of applied science, due to
which the wholesome strategy of TQM implementation may have prevented.
Using the analysis done by Harmon, through diversity in engineering RA, it was
found out that the articles are mostly ‘experimental’ exhibiting a certain confined
structure. Such structures include heading (i.e., title and/or subtitle), abstract,
introduction, methodology, experimental specifics, results, explanation, conclusion,
acknowledgements and references. The quality check of the articles used to be done
on the basis of research work done and the explanation of the basic theory associated
to the work. However, it is found that only macrostructure cannot be always enough
for maintaining the quality management of the RA.
In applied linguistic [7–8], the secondary RA commonly consist of non-standard
headings of the subsections. Such headings or titles of the sections in an article can
be one of the distinguishing features in different fields. The RA, following IMRD
structure, consists of deductive or hypothetical procedures of science. Whereas,
those articles, which follow the IPTC structure, demonstrate the problem solving
techniques of science [9]. In the field of information systems or computer science, the
RA are structured in the form of one add-on section or replacement of the ‘methodol-
ogy’ section by a new heading called ‘algorithm’ or ‘application’ or ‘implementation
process, system or program’ [10].
In [11], by examining RA related to thirty-nine disciplines, Lin et al. discovered
seven variants of IMRD macrostructure for each discipline of engineering dis-
ciplines. The modeling of ESP scholars’ adopting the canonical IMRD structure,
results in rise of the limitations of the related analyses [11] which degrades quality
of corresponding RA. Lin et al. defined the RA which contain “empirical design”,
“research and data design”, “experimental” or “the study” types of variants in
Heading method are called experimental papers. However, few from such papers fit
the description of adoption of such macrostructure. It is because the data results of
few RA establish actual variability. This is justified by distinguishing ‘experimental’
RA from ‘review’ and ‘theoretical’ RA. So, the quality of macrostructure needs to
be subdivided into separate categories depending upon the quality of content rather
than their headings in RA.
The discipline of engineering is spoken of as a lone field while the researchers
divide science into multiple fields. For instance, the British Academic Written English
(BAWE) corpus exhibit different branches of science but at university level, it lacks
in distinguishing various fields of engineering [12]. The field of engineering is stated
as a lone field by Kanoksilapatham, with subfields of biomedical, software and
civil [13]. The fields of biochemistry and microbiology are distinguished as distinct
fields. In this chapter, the typical specialties belonging to a particular academic field
are treated as ‘sub fields’ within a field. Due to the presumption that the engineer-
ing is one gigantic field, the researchers are led to assume that all RA are similar in
quality. Maswana et al. has stated that engineering appears to be an undivided field
concerned with the production of profitable artifacts obtained by applying scientific
principles [14]. However, there is a diversity in the features of engineering RA. They
consist of wide range of articles containing mathematical simulations, prototypical
experiments, review experiments and observational experiments as revealed from the
diverse representation of the results.
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3. Restriction of TQM studies to RA
The level of significance of total quality management (TQM) has grown with
rapid pace lately. The concept of TQM is seen as a phenomenon essential to attain
competitiveness. The researchers correlate the TQM concept with success of
an industry [15–17]. Few researchers claim that TQM is just a fad of management
by pointing out the failure stories of implementation of TQM [18–20]. There are
many inter-related reasons of having different outlooks of TQM. For example,
disagreements among founders of TQM, similarities of the concept with other
management tools, unclear interpretations and hypothetical definitions of TQM.
Therefore, the problems associated to TQM are needed to be addressed. The
relevant techniques, tools and values as a wholesome management system are
also described.
A. Disagreements among founder
Deming, one of the renowned quality founders, has considered the term TQM to
be just a lingo and meaningless word [21]. In [22], William L. et al. stated the concept
of quality to be the consequence of a process rather than being a process itself. Juran
has been critic of the fact that the term TQM is being tumbling down without defin-
ing it properly. The actions included in TQM are actually listed in criteria associated
to the reputed Baldrige Award [23]. This reluctance to accept the term TQM seems
confusing to the researchers.
B. Unclear interpretations and hypothetical definitions of TQM
The definitions of TQM has been unclear or misinterpreted in literature. The

f ormulations can be seen like “culture of..”, “philosophy of..”, “approach for..”, and
“business strategy of..” etc. The respective descriptions of hypothetical defini-
tions is found in literature [24–27]. The definition presented in ISO 8402; ‘quality
management and assurance’ has also been found to be vague [28]. It says, “TQM
is centered on quality, and it is a management technique of an organization. It
involves participation of all members of organization and aims towards long-run
success path through consumer’s satisfaction. In this way, it is advantageous to all
members as well as to the society.” The development and perception of the term
TQM over the years from philosophy to culture has been one of the reasons for
confusions and the usage of various terms in its definitions. The term philosophy
is base of the concept and culture is the required state. This desired state can be
attained only when the clear description of philosophy is realized. The explana-
tion of strategy used to realize the philosophy is given in [29]. Another reason
of unclear interpretation can be that most of the literature has been penned by
consultants and the academia has not been much interested in knowing about what
‘TQM’ actually is.
C. Similarities of TQM with other management tools
There exists some consensus about what TQM actually means. There has been
various similar terms in literature, for instance, total quality control (TQC) [30–31],
company-wise quality control [32], total quality improvement [33], and strategic
quality improvement [34].
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4. Methodology
The articles published from 1 January, 2021 to 31 December, 2021 are studied
through cross-sectional survey. The survey comprised of all articles, consisting of
self-administered problems, as their dominant methodology and has been published
in any of the fifteen journals related to EE, given in Table 1.
It is important that the implementation of TQM needs to be peered as a system.
The techniques and associated tools support the core values of the articles. The pro-
cess management technique establishes process orientation. Here, by ‘cross sectional
survey’, it is meant that the data of RA has been collected one time and not repeatedly
over a time period. The top publishers are considered for necessary population based
categorization. And the satisfaction score (in %), based on the Transparency and
Openness Promotion (TOP) guidelines, has been used as the associated statistical
technique to present the survey in tabular form as per the quality assessment.
First seven journals were listed as the top EE practice journals, using InCites
Journal Citation Report (JCR) published by Clarivate Plc for the year 2021, on the
basis of the recent impact factor. Furthermore, the remaining journals are selected
based on their representations of significant EE subfields like PD, VLSI etc. and/or
organizations like IET, Elsevier etc. The leaflets of each issue of the journal published
within this study has been searched manually by two independent investigators for
identifying RA satisfying the criteria.
A COMPENDEX search has been conducted to confirm the screening of all rel-
evant RA published in the corresponding journals. The elimination criteria included
RA using participant-observation kind interview techniques, market survey, addi-
tional qualitative investigation techniques, analysis using combined quantitative/
Acronym Journal title Publisher
EC *Energy Conversion IEEE
IE *Industrial Electronics IEEE
CAD-ICS *Computer-Aided Design of Integrated Circuits and Systems IEEE
SG *Smart Grid IEEE
MTT *Microwave Theory and Techniques IEEE
C *Communications IEEE
PA-MI *Pattern Recognition and Machine Intelligence IEEE
CC Computer Communications Elsevier
ESA Expert Systems with Applications Elsevier
PD *Power Delivery IEEE
EPSR Electric Power Systems Research Elsevier
MAP IET Microwaves, Antennas and Propagation IET
VLSI *Very Large Scale Integration Systems IEEE
JSSC *Journal of Solid State Circuits IEEE
PR Pattern Recognition Elsevier

*IEEE Transactions on….
Table 1.
EE journals and corresponding acronyms used in this study.
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qualitative techniques, RA unavailable in complete text or RA in languages other

than English.
The evaluation of each RA has been carried out using preceding publication, a
checklist tool developed by RA experts. This checklist consists of 8 transportable
standards from Transparency and Openness Promotion (TOP) guidelines, that are:
(1) data transparency, (2) citation standards, (3) material transparency, (4) analytical
approach transparency, (5) analysis plan preregistration, (6) study preregistration,
(7) design & analysis transparency and (8) replication. Four investigators partici-
pated in an initial test of the prescribed checklist by examining four pre-determined
articles that were involved in final survey. The checklist standards were either
removed or modified on the basis of consensus. The standards were removed because
of the lower chances of its application to EE articles. The standard removed from the
checklist was ‘study preregistration’. So, the list consisting of remaining standards is
referred as the final checklist. Each item in the checklist is weighted as 1 point, as seen
in Table 2.
Checklist Description Satisfaction score, n (in %)

Standards
1 Data transparency
• Background statistical details provided 100 (100%)
• Sample frame and population of survey provided 90 (90%)
• Financial inducement provided 28 (28%)
• Techniques to handle absent data provided 8 (8%)
2 Citation standards
• Mode of communication provided 89 (89%)
• Illustration of who addressed inherent participant 25 (25%)
3 Material transparency
• Research tool explained 90 (90%)
• Pre-testing techniques reported 41 (41%)
• Psychometric characteristics reported 7 (7%)
4 Analytical approach transparency

• Purpose of study is explicitly reported 96 (96%)
5 Analysis plan preregistration

• Background particulars reported 100 (100%)
• Problem formulation provided 45 (45%)
6 Design & analysis transparency

• Reliability and validity provided 31 (31%)
• Objectives are addressed through results 99 (99%)
• Techniques for data analysis explained 8 (8%)
7 Replication
• All responses and respondents are reported 59 (59%)
• Originality and strengths of research explained 16 (16%)
Table 2.
Satisfaction score of checklist standards in all-inclusive RA (100).
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Figure 1.
Implementation of TQM process for quality check of RA.
The following critical collectibles (CCs) has been observed in various articles;
research problem, specimen or sample, design technique, control of variables, methodol-
ogy, analysis process, discussions, ethics and references. The quality management of RA
is controlled by a process followed by the corresponding journal. The TQM implementa-
tion is directly associated with the concept of the peer review process of a journal, as
represented in Figure 1. The implementation of TQM for quality check of RA occurs
in six levels. Level 1 is administered by the author who is submitting the draft of RA to
a journal. The scope of the journal is identified and corresponding macrostructure is
followed. Level 2 to Level 5 are administered by the editors/technical editors and field
experts of the journal. If quality test of Level 2, that involves eligibility test and plagia-
rism test, is passed, the field experts are anonymously communicated for examination of
the article’s quality and possible improvement in the product (RA) (Level 3 to Level 5).
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As per the assessment of reviewers’ comments, Level 6 of TQM is addressed. If the

quality test of article at Level 5 fails, draft acceptance is denied. Otherwise, the qual-
ity improvement is carried out ensuring the maintenance of core values of the journal
reputation. The dissemination of dominant discoveries is carried out by authors of RA
using data analysis tools. Then the process repeats from Level 3 onwards till the final
decision of quality test is not communicated.
5. Results
A total of 192 articles were tested for eligibility assessment, out of which 100
articles (52%) utilized quality research as fundamental technique. Out of remain-
ing hundred RA, 62 (62%) used the IMRD format and 38 (38%) used IPTC as the
prime representation, including 13 RA from IE, 9 RA from ESA & VLSI each, 11 RA
from EPSR, 12 RA from PD, 10 RA from EC, 8 RA from CAD-ICS, 7 RA from MTT,
5 RA from SG & MAP each, 4 RA from JSSC, 3 RA from C, 2 RA from PA-MI and 1
RA from CC & PR each. The primary reasons for exclusion of RA are lack of quality
research methodology as the fundamental technique. The critical points denoting the
exclusion of RA are represented in Figure 2.
The computation of average outline score, out of 7, was performed for RA pub-
lished in EE literature, by assigning 1 point for each checklist standard. The overall
average outline score was 4 ± 2 (2–6). As stated from Table 2, the proportion of
satisfaction score is obtained by each article as per the checklist standards. The most
concurrence areas covered almost 70%, including: statistical details regarding back-
ground of research; sample frame & population of survey; mode of communication;
research tool; pre-testing techniques; purpose of study; background particulars;
formulation of problem; reliability & validity; objectives are addressed through
results; reporting of all response and respondents. The RA that reported at the most
30% of checklist standards included: techniques to handle absent data; illustration of
who addressed inherent participant; psychometric characteristics; techniques for data
analysis; originality and strength of research. The average outline score of journal are
Figure 2.
Screening test and exclusion test of RA.
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Journal Outline score Journal Outline score
EC (10) 4.9 ESA (9) 4.2
IE (13) 3.2 PD (12) 3.5
CAD-ICS (8) 5.4 EPSR (11) 2.9
SG (5) 2.8 MAP (5) 2.8
MTT (7) 3.6 VLSI (9) 4.8
C (3) 3.1 JSSC (4) 5.8
PA-MI (2) 4.6 PR (1) 2.7
CC (1) 5.2
Table 3.
Outline score of EE journal.
Figure 3.
Score with respect to type of RA publication; F-RA = full research article; SC-RA = short communication research
article; LE = letter to editor.
provided in Table 3. The highest score has been 5.8 out of 7 for JSSC, 5.4 for CAD-ICS,
5.2 for CC. The outline score with respect to the type of RA is shown in Figure 3.
The outline score of 5.6 is obtained by full research article, while short commu-
nication type RA had 4.5 and letter to editor had 2.5. Figure 4 presents the average
outline score of RA based on the type of the author. The articles authored by research
scholars and graduates of EE has the highest outline score of 5.5 and 4.9 (out of 7)
respectively. Whereas EE faculty and Scientists secures almost similar score of ~3.7.
the lowest score of 2.7 is obtained by Non-EE category of authors of RA.
6. Discussion on findings and limitations of study
The quality assessment of RA in this chapter established that the research

ublished in leading EE-journals scored reasonably on a recognized platform designed
p
for sequential estimation of quality research outline. The obtained results were
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Figure 4.
Score with respect to type of author of corresponding RA.
found to be equivalent across various journals, and author types, when observed
excluding the LE type.
This chapter also reveals the different areas that seemed to be associated with
lesser scores on recognized platform. On the contrary to the field experts’ recom-
mendations, the full problem formulation should not be included in appendix section
of RA. Due to this, the reader’s satisfaction stage of the TQM gets affected and the
end users of the articles become unable to re-use the information about the question-
naire to notify their intrinsic research work. The absence of psychometric properties
and validity also arises the credibility or reliability questions of the research work.
This chapter recognized certain opportunities for quality improvement with respect
to reporting analysis results, that involves risk assessment for undemonstrative
error and differentiation between non-responders and responders, and in addition,
description of handling absent data and partial reactions.
This study provides the key finding provided the rate of response, on an average,
was extremely varying among various EE journals. This may be due to the diverse
nature of population which refers to a particular RA in corresponding journal. For
instance, an EE research scholar, the most educated population in EC, is more suitable
for responding to stimulus as compared to Non-EE population. The areas that report
durability included techniques of data analysis, transparency of research limitations,
and clarity in report presentation.
This study reflects an equivalent study that was conducted to compute the sample
of journals in medical field [35], predominantly for ensuring transparency. This prior
study found fundamental areas for possible improvement and reported a recognized
platform for former testing and governing reliability and validity. This study provides
moderately high performance in former aspect and moderately low performance in
latter aspect among EE journals. It is suggested that researchers, who gets engaged
in writing RA in EE field for the first time, should cautiously assess Bennett’s tool
before planning their research study and writing article for publication. This may be
advantageous for EE journals to integrate such tools into peer-review instructions to
the author, for elevating the quality of RA published in EE journals.
The assessment done by independent investigators for quality management of
each RA utilized the standard evaluation platform and systematic techniques for
identifying relevant articles. However, there have been certain limitations to our
study. For example, with the data collected for only one recent full year, the inclusion
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of RA may have missed all RA to different categories of RA. Also, various checklist
standards such as identification of who addressed possible field experts, techniques
for handling absent data etc. may be of subjective nature. The buildup of score sheets
of such standards required the maintenance of consensus between investigators.
The opportunity, to inspect for rating the reliability due to going through a vigorous
agreement process before going for survey of RA in EE, has been missing. Few article
types (like LE), journals (like SG, PR) and types of author (like EE graduates, EE
scholars, residents) were not representable. Due to this, the analysis results may not
be in generalized form included in the corresponding category. Also, since only first
author was categorized, this may represent the absence of the impact of remaining
authors’ team with respect to the reporting exercise.
7. Conclusion
The RA published in EE literature scored reasonably on a recognized platform

consisting of publishing instruments for appraisal of articles in systematic way. The
results were found to be homogeneous, in general, across various author types and
journal types. The limited form of representation in specific categorization gives
rise to limitations to the study. The areas in which the quality of RA can be improved
included providing data about psychometric characteristics of existing research tools,
validity and reliability of new research tools, possibility for non-responsive errors,
differentiation between defendants and non-defendants, and delivering the handling
techniques of RA in case the data and responses are missing from RA.
Acknowledgements
This research was supported by Project and Research Laboratory of Electrical

Engineering Department in Delhi Technological University, New Delhi, India.
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Chapter 2
A Renewed Perspective on Lean

Six Sigma in Healthcare – People
and Performance
Relinde J. de Koeijer, Jaap Paauwe, Mathilde M.H. Strating
and Robbert Huijsman
Abstract
The Lean Six Sigma (LSS) approach has taken a central role in healthcare
quality management, and many studies report positive effects of the method on
performance of healthcare organizations. However, LSS in healthcare is also
unbalanced because the human side of the method is undervalued. A more balanced
application of LSS in healthcare includes an interrelated approach of both “soft” and
“hard” LSS practices, broad perspective on employee well-being, “soft” HR approach
related to LSS, and “soft” climate for LSS. This leads to a renewed perspective on LSS
in healthcare that considers both people and performance and where the interplay
between “hard” and “soft” factors is addressed.
Keywords: lean, six sigma, healthcare, performance, employee well-being, HRM,

climate
1. Introduction
In the past 20 years, since the Institute of Medicine [1] defined the concept of
quality of care, it has become increasingly clear that healthcare is a clashing vessel of
values. Values such as good quality of care and safe and accessible care are important.
But also, effective and efficient care because healthcare must also remain affordable.
The Covid-19 pandemic has highlighted the struggle with bringing the different values
together within healthcare systems across the globe [2]. Changed circumstances lead
to different value trade-offs. For example, during the coronavirus crisis we started to
look differently at lean approaches to organizing care, using as few supplies as possible
(also called just-in-time management) [3]. Other existing issues were put on edge by
the crisis. For example, Covid-19 did not create the healthcare staffing shortage, but
the impact is worsened because of it, visible in current high levels of burnout among
healthcare professionals [4]. In addition, consider the challenges of access to healthcare
services and of enhancing the quality of care and patient safety while reducing costs
[5]. These existing challenges, amplified during the Covid-19 pandemic, emphasize
15
the importance of operations management for healthcare for years to come. Moreover,
it demands a renewed perspective on commonly applied operations management
methodologies in healthcare, such as Lean Six Sigma (LSS), which integrates values
regarding people and performance. In this chapter, in which we, among other things,
use PhD work done before [6], we will start with a short history of LSS in healthcare,
followed by identifying gaps in the application of this method based on current litera-
ture, leading to proposed renewed perspective on LSS, the scientific and managerial
relevance of this perspective, and a research agenda for the upcoming years.
2. A brief history of lean six sigma in healthcare
The LSS approach has taken a central role in healthcare quality management. LSS
follows a long history of system management and quality improvement, starting at the
beginning of the twentieth century through mass production affected by among others,
Henry Ford, followed by the Toyota Production System (TPS) in the Japanese automo-
tive industry and adopted as Lean Management (LM) in the Western world since 1980
[7]. Around the same time that LM was embraced, many large companies, including
Motorola and General Electric, implemented Six Sigma (SS) with a focus on reducing
errors and minimizing variability [8]. LSS as a combination of Lean Management and
Six Sigma is seen as the most effective process improvement that it is widely imple-
mented in the top performing organizations [9], also in healthcare settings [2, 10].
Although the integration of Lean Management and Six Sigma is still relatively rare in
healthcare [11], more and more studies report positive effect of LSS on outcomes. For
example, Bhat et al. [12] explore the successful deployment of LSS in the Indian health-
care sector and found improvements in patient registration cycle time and reductions in
average waiting time, queue length, and staff utilization. Antony et al. [13] report the use
of LSS in reducing medication errors in the Norwegian public healthcare context. The
Mayo Clinic Rochester in the USA increased their process efficiency and financial perfor-
mance by applying LSS [14]. A recent study by De Koeijer et al. [15] shows strong posi-
tive effects of LSS on internal process and financial performance in university hospitals
in the Netherlands. These studies illustrate that in healthcare, LSS is commonly applied
with the aim to improve process efficiency, thereby improving quality and reducing costs
[7]. Given these positive reports of LSS and given the ever-increasing costs in healthcare,
it is very likely that the application of LSS will grow rapidly in healthcare. However, the
Covid-19 pandemic has taught us that a narrow focus on specific values of care, such as
safety and efficiency, can lead to neglect of other crucial values of care, such as humanity
and taking care of healthcare personnel. And this risk is also apparent for LSS. In the
next paragraph, we will discuss why LSS, in its current form, is likely to be insufficiently
equipped to tackle the multifaceted challenges that healthcare systems are facing, includ-
ing rising costs, growing expectations from patients, demographic changes, and growing
burn-out rates among healthcare professionals.
3. Lean six sigma in healthcare: unbalanced?
From the beginning, criticism has been part of LSS in healthcare. Some research-
ers and practitioners object to the notion of industrialized healthcare delivery. They
argue that tensions may arise between the need to demonstrate efficiency and achieve
performance targets (derived from governmental financial pressure) and the need
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to invest time and resources in continuous improvement. Moreover, some state that
with these increasing administrative burdens and productivity targets, the intrinsic
motivation of healthcare employees is suffering [16]. LSS is controversial from
the perspective of employees. Proponents argue that healthcare organizations that
embrace LSS to improve performance can simultaneously foster employee well-being.
Opponents, however, say that LSS leads to higher performance yet lower employee
well-being. LSS is not a neutral and value-free activity, and the debate about relation-
ship between LSS and employee well-being is crucial in the light of the workforce
shortage in healthcare combined with current high levels of burn-out among health-
care professionals. One of the explanations for this ongoing debate could be that LSS,
in its current form, is unbalanced in several ways.
First, the application of LSS in healthcare is accompanied with a heavy focus on
tools and techniques at the expense of the human side [17]. The LSS toolbox that
healthcare organizations deploy tends to be filled with “hard” LSS practices focusing
on process improvements. Henrique and Filho [18] state in their systematic review
that the most common techniques used in healthcare are VSM, Standardization of
Work, and Visual Management. Also, LSS practices such as “focus on metrics” (the
use of quantitative metrics to measure quality and process performance and to set
improvement goals) and “process management” (e.g., statistical process control and
error-proof process design) illustrate the dominant “hard” focus of LSS practices.
Due to this single-minded focus on process improvement, LSS initiatives risk being
perceived as cost-cutting efforts at odds with the values of healthcare and therefore
risk the withdrawal of staff and potential resistance. Moreover, the outcomes of
healthcare organizations depend, on the one hand, on routine and standardized
processes and, on the other hand, on employees with the right customer mindset and
ability to anticipate changing demands from their customers [15]. “Hard” and “soft”
LSS practices should thus go hand in hand: a singular focus on a “hard” approach to
optimizing processes neglects the human factor, while a one-dimensional focus on
a “soft” approach complicates the attainment of performance outcomes. Therefore,
this chapter contains a balanced interrelated approach of LSS practices in healthcare
(see Table 1) that consists of both “hard” practices, which are focused on practices for
improving processes (quality information, process management, structured improve-
ment procedure, focus on metrics) and “soft” practices aimed at employees and
relationships (top management support, customer relationship, and supplier relation-
ship). This interrelated approach of LSS makes it possible to empirically examining
the effects of multiple dimensions on outcomes.
Second, although many healthcare organizations state that both efficiency and
employee goals are drivers for applying LSS, the conceptualization of employee goals
is very limited compared with efficiency and quality targets [7, 19, 20]. Where recent
research in healthcare agrees on two core performance dimensions of LSS: internal
process and financial, employee well-being is poorly defined. For example, a study by
Niemeijer et al. [21] of almost 300 LSS projects in Dutch hospitals describes concrete
aims of LSS initiatives regarding reducing costs, improving safety, and increasing rev-
enue; however, employees’ outcomes are not characterized. And when employee goals
are mentioned in studies on LSS, this is mostly done in terms of workers satisfaction
[22, 23]. It is important to create a more balanced perspective of employee well-being,
since there is no agreement on the effect—positive, negative, or nonexistent—of LSS
on employee well-being [24]. For example, studies by Graban [25], Stamatis [26], and
Collar et al. [27] mention improved levels of commitment and satisfaction related
to LSS initiatives. However, a large study by the Saskatchewan Union of Nurses [28]
3
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LSS practices that are part Description Special aspects in a

of the systems approach healthcare setting
Top management support Top management accepts responsibility for Managers and physicians
quality, creates and communicates a vision together form top
focused on quality and encourages and management.
participates in quality improvement efforts.
Customer relationship Customer needs and expectations are regularly Customers are not only
surveyed. Customer satisfaction is measured. patients, but also family
There is a close contact with key customers. members, caregivers,
decision-makers and insurers.
Quality information Timely collected quality data are available to Delivering care is a complex
managers and employees, and must be used for process. Collecting accurate
improvement. and reliable information is a
challenge.
Focus on metrics Quantitative metrics are used to measure process
performance and quality performance, and set
improvement goals. Business-level performance
measures and customer expectations are integrated
with process-level performance measures.
Process management Statistical process control and preventive Safety and hygiene
maintenance are applied. Managers and are crucial in a patient
employees make efforts to maintain clean shop environment. A clean
floors and meet schedules. There is an emphasis working environment and
on mistake-proof process design. well maintained devices are
a requirement.
Structured improvement There is an emphasis on following a Professionals are trained
procedure standardized procedure in planning and to act with autonomy.
conducting improvement initiatives. Teams Too much emphasis on
apply the appropriate quality management tools standardization could
and techniques. evoke resistance.
Supplier relationship A small number of suppliers are selected on There are many areas of
the basis of quality and involved in product knowledge and practice.
development and quality improvement. The In general, each specialty
organization provides suppliers with training has preference for certain
and technical assistance. suppliers and assortments.
Table 1.
LSS interrelated systems approach of both “hard” and “soft” practices.
Well-being Description Special aspects in a healthcare

components setting
Health The physical or health dimension encompasses Healthcare professionals perceive

indicators related to employee health, such as increased demands and expectations
workload, job strain and need for recovery. from customers.
Happiness The psychological or happiness dimension refers Professionals highly value

to subjective experiences of employees, i.e. performing rewarding work.
their psychological well-being, for example job
satisfaction and unit commitment.
Trusting The relationship dimension of employee well-being The hierarchical structure impacts
relationships focuses on the quality of trusting relationships the relations between employees and
between employees and their employer and colleagues. their employer and colleagues.
Table 2.
Employee well-being.
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showed that LSS had an overall negative effect on worker satisfaction, and studies
by Angelis et al. [29] and White et al. [30] discuss negative effects of LSS on worker
commitment. Reviews of studies that focus on trusting relationships and health
effects of LSS report mainly negative effects [31]. Since most healthcare organizations
claim that employee goals are part of the LSS approach, it is wise to define these goals
to determine the effect—positive, negative, or nonexistent—of LSS on employee
well-being. A broad perspective on employee well-being supports healthcare organi-
zations in monitoring these goals, and based on recent literature [15, 32], this chapter
contains the following balanced conceptualization of employee well-being, related to
LSS, which includes three components: happiness (satisfaction and commitment),
trust, and health (workload and need for recovery) (see Table 2).
4. The human side of lean six sigma in healthcare – HRM and climate
Although employees’ issues related to LSS are substantial, since LSS in healthcare
commonly focuses on organizational challenges that have to do with work (re)design
in a complex and dynamic environment, the attention for management of employees is
limited. LSS initiatives are a result of collective efforts and require engaging a multi-
tude of actors (e.g., clinicians, nurses, and administrators) and LSS project members
operate as “liaison officers” between professional groups, between organizational “lay-
ers,” and between the internal and external worlds of the healthcare organization. To
fulfill their role successfully, LSS project members need specific abilities, motivation,
and opportunities. Also, given potential conflicts of interest between different stake-
holders, management decisions are needed to shape employment relationships that are
aimed at achieving specific (LSS) goals. The employees’ issues as described above show
the importance of strategic Human Resource Management (HRM) related to LSS;
however, especially in healthcare HRM is still considered as a more operational or tac-
tical concept within the larger framework of LSS [33]. For example, Antony et al. [34],
and Honda et al. [35] state that training is crucial when implementing LSS. Buestan
et al. [36] and Ahmed et al. [37] argue that successful implementation of LSS depends
on the participation of healthcare staff. While these separate HR practices are indeed
relevant, there is a need for a more coherent, and strategic perspective on HRM that is
in sync with LSS. For example, cross-functional teams could help to generate ideas for
science-based, systematic quality initiatives [38]. Performance appraisal and rewards
could also function as morale boosters and encourage employee engagement [9, 39,
40]. In addition, training and development are crucial to getting skilled and moti-
vated people to work on LSS projects [41, 42]. Employee participation and engage-
ment in decision-making and problem-solving can also help inspire commitment to
organizational excellence [43]. If LSS can be imagined as a dance within healthcare
organizations, then HRM is its matching dance partner and together they make sure
that the dance is balanced on “hard” and “soft” issues. Therefore, this chapter pro-
vides a more balanced union between LSS and HRM by including a separate strategic
HRM approach (see Table 3). By constructing LSS and HRM separately, it provides
an approach that does justice to both perspectives [15], and it supports investigating
effects and relationships of these two approaches combined and separately.
In addition, the narrow focus on the “hard” side of LSS has led healthcare to
neglect activities that encourage employees to develop shared perceptions of LSS.
These shared perceptions are important for the internalization of LSS interven-
tions [44]. For the effects of LSS to become visible and measurable, a process of
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HR practices that are part Description Special aspects in a healthcare

of the systems approach setting
Participation and job Employees are involved in quality Professionals are trained to act with
design decisions and have the opportunity autonomy. They are, together with
to take responsibility for their own their colleagues, responsible for
tasks. delivering quality of care.
Training and development Both managers and employees receive Professionals are highly trained
training on quality management. individuals with a specific expertise.
There are opportunities to develop Performing tasks or development
new skills and knowledge. outside their area of expertise is
unusual.
Performance appraisal and Employees receive feedback on Quality of care is highly appreciated
rewards quality performance of their and rewarded in healthcare
team and are rewarded for quality organizations.
improvement.
Team working and Teams are formed to solve problems. Health care is usually provided
autonomy Teams are encouraged to try to solve by multidisciplinary teams of
their problems as much as possible. professionals and support services.
Employment security Employees have an employment Increasing expenditures create

contract that offers job security. pressure on organizations.
Work-life balance Employees have the possibility to Consumers are increasingly putting
work flexible hours and arrange their higher demands and expectations on
work schedule. healthcare professionals. Therefore,
it is challenging to balance the needs
of work and life for professionals.
Table 3.
HRM systems approach.
routinization must take place in which professionals adopt these new work practices
and adapt their existing organizational routines accordingly. However, there is a
dearth of research investigating the organizational patterns (routines) that LSS
implementation may enable [13]. Adopting LSS in such a way that it becomes a
permanent part of the organization’s daily routine can be described as internaliza-
tion [45]. New routines cannot be sustained in a setting that does not support and
enable their performance, however. For example, unless the LSS climate reflects
employees’ belief in the real value of LSS for their organization, there is a signifi-
cant risk that LSS will never be internalized [46]. This risk is particularly acute
in healthcare because healthcare professionals fear that adopting LSS will lead to
over-standardization [47] and that LSS redirects clinical practice away from patient
care toward more administrative and management tasks [48]. Shared perceptions
support employees in their drive to sustain quality improvement initiatives [49] and
in their commitment to accomplishing organizational excellence [43, 50]. Creating
a climate for LSS that reflects positive shared perceptions of employees about LSS
practices and their commitment to them is therefore crucial to the internaliza-
tion of LSS [45]. Climate is consistently conceptualized as employees’ shared
perceptions about the nature of their organization in terms of events, policies,
practices, and procedures [51, 52]. Internally, climate is often considered action-
able, i.e., management can try to shape climate to pursue organizational goals and
influence performance [53, 54]. Many scholars of operations management have
attempted to define a climate for LSS, most of them by drawing on the experience
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of organizations that have implemented LSS successfully [55]. Bhat et al. [2] argue
that an integrated LSS strategy ensures a climate of continual improvement in the
healthcare setting. Goodridge et al. [56] state that LSS seeks to create an environ-
ment in which mistakes are opportunities for learning, with consistent application
of no-blame approaches to mistakes and errors. Ambekar and Hudnurkar [57] claim
that people with a positive attitude and critical-thinking capability innovate and
ideate solutions. While researchers agree that a successful LSS implementation will
aim to achieve climate change and succeed, they fail to agree on the specific char-
acteristics of such a climate for LSS. This chapter highlights a “soft” climate for LSS
that reflects employees’ perceptions regarding the extent to which the organization
emphasizes specific LSS values, goals, expected behaviors, and contributions at
work, related to quality, innovation, and efficiency [15, 58].
5. A
renewed perspective on lean six sigma in healthcare: people and
performance
In the above paragraphs, we discussed different lines of thought on supporting

a more balanced application of LSS in healthcare: by embracing an interrelated
approach of both “soft” and “hard” LSS practices, by adopting a broad perspective
on employee well-being and by developing the human side of LSS in healthcare by
constructing a “soft” HR approach related to LSS, and by adapting a “soft” climate for
LSS. This brings us a renewed perspective on LSS in healthcare that considers both
people and performance and where the interplay between “hard” and “soft” factors is
addressed, contrary to earlier research [59].
When focusing on the interplay between “soft” and “hard” factors, there are a
few relationships that need to be considered. For example, it is important not to pick
and choose from the LSS toolbox [60, 61], healthcare organizations may benefit the
most from LSS, when applied as a systems approach of LSS practices. Also, the rela-
tionship between LSS, performance, and employee well-being is worth discussing.
Healthcare organizations that adopt LSS to improve organizational performance may
assume based on the more classical view (see Figure 1a) that LSS will also benefit or
at least not harm employees. However, recent research [6] shows that the situation
might be more complex and that LSS is suitable for improving performance and
Figure 1.
a: Classic view on LSS in healthcare. b: Renewed perspective on LSS in healthcare: People and performance.
21
unsuitable for increasing employee well-being. In fact, they show that performance
and well-being are at odds with each other: when well-being increases, performance
decreases and vice versa. This may lead to a new perspective on the ongoing discus-
sion whether LSS positively or negatively impacts employees. In this chapter, we
argue that LSS is simply not designed to improve employee well-being. Although this
may seem obvious, systematic reviews by D’Andreamatteo et al. [23] and Moraros
et al. [22] mention both efficiency and employee goals as drivers for applying LSS in
healthcare organizations. However, the driver for improving employee well-being is
not visible in the way LSS is designed: especially in healthcare LSS is often applied as
a set of “hard” practices, concerning tools and techniques for improving processes.
Therefore, our renewed perspective on LSS in healthcare reserved a special place for
HRM (see Figure 1b). Not only does research show that HRM is essential to improve
employee well-being [15, 62], previous studies have confirmed that HRM plays a
vital role in shaping climate and thereby internalizing LSS [63]. HRM is crucial for
creating shared perceptions among employees and, consequently, a climate for LSS
[6]. In this context, HRM can be seen as a signaling system that constantly sends
messages to employees stressing the attitudes and behaviors desired within the orga-
nization. For example, hospital management can use HR practices to create a desired
climate where LSS initiatives take root by communicating to employees that quality
improvement is important, that improvement initiatives and innovative behavior are
expected and rewarded, and that attaining organizational excellence is encouraged
[43, 50]. Where LSS practices are more generic, HR practices are developed specifi-
cally for employees. For example, quality management training can be tailored to
specific employee groups and their educational backgrounds. Following this line of
thinking, it can be said that HRM boosts employee engagement and involvement
in continuous quality improvement [43, 64]. Finally, by adapting a climate for LSS,
employee well-being is improved [15]. Given the ambition of hospitals to maintain
higher standards of both organizational performance and employee well-being,
it is crucial that hospitals that adopt LSS should also foster a climate for LSS by
combining LSS and HRM, thereby internalizing LSS. Employees interpret manage-
ment activities as indicative of organizational support and care and reciprocate
accordingly with commitment, satisfaction, and trust [65]. In that sense, healthcare
employees may experience HRM as a form of recognition and concern, creating a
climate for LSS and affecting their well-being.
Summarizing, with the renewed and balanced perspective on LSS in healthcare
that encompassed people and performance (see Figure 1b), healthcare organizations
can create mutual gains and sustainable outcomes for both the organization and
employees. With this renewed perspective, healthcare organizations can face multi-
faceted challenges related to both performance (for example rising costs and growing
expectations from patients) and people (for example retaining highly dedicated and
competent employees and growing burn-out rates among healthcare professionals).
6. Managerial and practical implications
Many healthcare organizations that struggle with both challenging efficiency

targets as well as increasing personnel shortages have tried to find one cure for all their
problems by embracing LSS. However, despite promising (sales) stories about LSS, for
example, that it leads to happy employees who have more time for the work they are
passionate about, this chapter shows that LSS in healthcare is unbalanced. The heavy
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focus on tools and techniques at the expense of the human side, the poorly concep-
tualization of employee goals, the limited attention for management of employees,
and a climate for LSS may lead to suboptimal results, which will not be conducive to
establishing a fully-fledged quality philosophy [43]. One could argue that LSS should
be used for those processes where the financial pressure is high. But the danger is that
LSS will become a concept that is not that attractive for healthcare professionals, since
performance will not be at the core of their profession. How can a healthcare organi-
zation stay financially sustainable and deliver good quality without happy, healthy,
and trusting employees? The systematic review by Hall et al. [66], for example,
shows that low levels of well-being of healthcare workers are correlated with poorer
patient safety. Fortunately, from a management perspective, we see that adopting a
balanced approach of both “soft” and “hard” LSS and HR practices allows healthcare
organizations to capitalize on their synergies for internalizing LSS, performance, and
employee well-being. Management can use HRM to shape a climate for LSS conducive
to the pursuit of organizational goals and the well-being of employees. Therefore,
healthcare organizations should involve their HR departments right from the start
when introducing LSS programs to ensure that a HRM systems approach is in place.
In many healthcare organizations, HRM—unlike LSS—is a consistent component,
covering all employees. There is a fundamental different pace of HRM and LSS. Where
LSS in healthcare is focused on improving short-term efficiency through short-cycle
improvement projects [67, 68], HRM is present constantly. HR practices are practical
and can be tailored to specific employee groups and their educational backgrounds.
For example, HR practices such as teamwork, participation, and training involve
employees at different levels in continuous quality improvement. Management can use
these HRM practices to create a desired climate in which LSS initiatives can take root.
It is important that managers are consistent in communicating to employees what is
valued and considered important in the organization and the kind of behaviors and
attitudes that are expected and rewarded [69, 70]. For example, they should emphasize
the importance of continuous improvement and of achieving quality outcomes and
discuss with employees how they can contribute in practical terms.
It is vital for healthcare executives to acknowledge the fundamental dichotomy
between the process-oriented tasks required to provide health services and human
factors [71]. Where most literature on LSS so far has argued for the inclusion of HR
practices in an LSS systems approach, this chapter enlightens that LSS and HRM
should be viewed as two different things. Separating LSS and HRM could be an
opportunity for healthcare organizations, since a critical challenge that faces LSS
implementation is a lack of belief that it will work [14]. Employees might perceive LSS
as something new and be hesitant to embrace the method [72], also due to the increas-
ing internal and external pressure to work more efficiently. When the resistance
to apply LSS is growing, healthcare organizations can be flexible in reframing the
method, while at the same time can be tenacious in applying HRM systems approach.
This conclusion also has impact on the positioning of LSS in healthcare organizations.
As LSS is meant to continuously improve performance and not employee well-being,
it makes much more sense to make LSS part of the quality and safety department.
HRM departments have a separate and equal important task to continuously foster
the health, happiness, and trusting relationships of the employees of their healthcare
organizations. Still, LSS and HRM require constant alignment and should be man-
aged integrally. In practice, this could mean that when healthcare executives share
the “why” of LSS within the organization, they should emphasize both performance
improvements and higher levels of employee well-being. Another recommendation
9
23
is to monitor progress in LSS integrally by focusing not only on the number of LSS
initiatives and their progress but also on the happiness, health, and trusting relation-
ships of employees, and by explicitly including performance indicators in the “LSS
dashboard.” In addition, since direct supervisors play a prominent role in transmitting
values and climate [73], they should actively support their employees with a balanced
approach that incorporates both “hard” and “soft” factors into the improvement
process [74]. For example, appraisal interviews should not only focus on “hard” key
performance indicators, but also on improvement efforts and more narrative input.
This may also mean that employee productivity would temporarily decline to allow
time for improvement projects or quality training.
Concluding, in recent years, a great deal has been invested in LSS in healthcare:
belts have been trained, improvement teams have been formed, and LSS improvement
approaches have been widely embraced. This chapter demonstrates an optimistic view
about LSS in healthcare, if applied balanced and with a focus on people and perfor-
mance (see Figure 1b). With this renewed perspective, where HRM is strategically
aligned with the goals of LSS, healthcare organizations can create mutual gains and
sustainable outcomes for both the organization and employees.
7. Agenda for future research
To acquire a deeper understanding of the causal relationships in our renewed

perspective on LSS, future research should apply a longitudinal and intervention
design (including control settings). Such research could, for example, examine a
potential spiraling positive or negative effect, i.e., that the more LSS in combination
with HRM is adopted, the more LSS is internalized and the more performance and
employee well-being improve, and vice versa. Longitudinal research could also verify
whether the relationships as discussed in this chapter, for example, between LSS and
performance, HRM, climate, and well-being, are cause-and-effect relationships.
In addition, it is interesting to investigate whether the renewed perspective on LSS
is generic for different types of healthcare organizations (e.g., hospitals, elderly, and
disabled care) or that a specification for each subsector is needed. Also, the current in-
patient and specialty-oriented view of healthcare professionals will develop into more
disease path- and care chain focused ways of working, in (regional) teams with com-
mon integral responsibility for each other’s functioning [75]. Therefore, it is interesting
to conduct future research into multidisciplinary teams, consisting of healthcare pro-
fessionals from different healthcare institutions that work together on LSS initiatives.
Finally, we need a broader definition of performance in relation to LSS, as well as
a more comprehensive set of performance measures. The definition of performance
related to LSS, namely “value for customers while optimizing resources” [76] could
benefit from a more contemporary and healthcare-specific clarification. Recent
debates have focused on how performance in healthcare should be defined and
measured [77]. For example, is performance about costs, efficiency (e.g., shorter
waiting times, improved utilization), customer satisfaction, quality, health-related
outcomes, or all of the foregoing [78, 79]? In light of these recent debates, we argue
that the definition of performance in relation to LSS should be updated and clarified
specifically in the context of healthcare. In addition to this chapter setting out a wide
range of perceived improvements (e.g., internal processes, customer satisfaction, and
financial results), we propose incorporating objective outcome measures into any
future research.
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8. Conclusion
The LSS approach has taken a central role in healthcare quality management, and
many studies report positive effects of the method on performance of healthcare
organizations. However, LSS in healthcare is also unbalanced in several ways. First,
the application of LSS in healthcare is accompanied with a heavy focus on tools and
techniques at the expense of the human side. Second, although many healthcare
organizations state that both efficiency and employee goals are drivers for applying
LSS, the conceptualization of employee goals is very limited compared with efficiency
and quality targets. In this chapter we discuss different lines of thought on support-
ing a more balanced application of LSS in healthcare: by embracing an interrelated
approach of both “soft” and “hard” LSS practices, by adopting a broad perspective
on employee well-being and by developing the human side of LSS in healthcare by
constructing a “soft” HR approach related to LSS, and by adapting a “soft” climate for
LSS. This brings us a renewed perspective on LSS in healthcare that considers both
people and performance and where the interplay between “hard” and “soft” factors is
addressed, contrary to earlier research [59]. With the renewed and balanced perspec-
tive on LSS in healthcare that encompassed people and performance (see Figure 1b),
healthcare organizations can create mutual gains and sustainable outcomes for both
the organization and employees.
25
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Chapter 3
Integrated Lean Safety Model to

Develop Organizational Safety
Culture
Pal Pandi Ammavasi, Kallarpiran Arumugam and
Anbu Meenakshi Sundram
Abstract
The basic purpose of any business organization is to operate it with minimum risks
and accidents. These contexts maintain safety culture in the organization in order to
improve performance. The integration of Lean and Six Sigma along with existing
safety practice may build a more effective safety culture, which may engage the entire
workforce proactively seeking a healthy and hassle-free work environment consider-
ably and notably reducing risks and accidents and mitigate the stress of workforce.
This prompted the present authors to develop an integrated Lean Safety Management
model (ILSM) for improving safety in workplaces. ILSM is an integration of Lean
Thinking, Six-Sigma (DMAIC) and Behaviour Based Safety Management. The pur-
pose of this chapter is to bring out the salient features of ILSM through SMILE
approach and its credibility in meeting out the needs of the stakeholders regarding
industrial safety and occupational health aspect.
Keywords: safety culture, behavioral based safety, lean six sigma, ILSM model,
SMILE Approach
1. Introduction
Though, the concept of industrial safety is widely practiced in Western and few
other developed countries, its predominant presence in India is yet to be seen except
the manufacturing industries having foreign collaborations and some large
manufacturing industries having well defined inclusive infrastructure. The chemical
and cement industries are very much vulnerable to the risks of accidents. The health
of employees is at risk as they are exposed to dangerous chemical activities and
exhumation of dusts. This prone to severe health hazards in employees at long run.
Therefore, safety is inclusively concerned with the employees as well as the work-
place. The malfunctioning of machineries in the workplace may cause accidents. The
leakages of chemicals or oil, in case of chemical and oil industries have direct adverse
impact on employee’s safety. It could be seen that few big Indian construction indus-
tries have taken the advantages of the safety concept in their workplace but not in full
fledged manner. “Safety has been defined as a condition where nothing goes wrong or
32
a condition where the number of occurrence of accident, risk of injury, loss and
danger to persons, property and environment is acceptably small” [1]. Rene [2] has
pointed out that technical breakdown and human errors cause unsafe situation. The
safety is considered to be very important in the sense that reducing risk of accidents
and avoiding careless handling of machineries may pay a good dividend in terms of
performance excellence and financial benefits to the organization. Besides, it helps
boost the morale and activate the positive motivation among the employees. Safety is
very much concerned with employees’ health and incepts care on their family in all
welfare aspects. Further, it is very essential that creating and maintaining a safe
working environment ensures high health levels among the workers, protecting the
workers from the risk of accidents, illness or discomfort in the workplace and increase
the efficiency of wok processes, improves employee perceptions of their working
environment and leads to higher recruitment attractiveness [3]. The above context
clearly emphasizes the safety concept in manufacturing and services organizations give
more importance to the employees than the machineries. In the context of importance
given to employees, their behavior and attitude form base in implementing safety
culture in organization. To keep the safety culture permanent and perennial in organi-
zation, it is very important to induct the safety culture among the employees by
transforming their behavior and attitude. This thought of imbibing the importance and
benefit of safety among employees lead to the concept of “Behavioral Based Safety
(BBS)” management for maintaining safe work environment in organization. The both
lean thinking and BBS concept helps proliferate safety in organization by eliminating
the unwanted and non value added activities and streamlining the processes in all
aspects. Lean Thinking and Six Sigma (DMAIC Methodology) are viewed as formida-
ble strategic weapons to succeed in performance excellence. Therefore, the authors felt
the need of an appropriate comprehensive integrated lean safety model (ILSM) to
ensure safety practices and enrich safety and health performance in the industry by
reducing the risk of accidents. Since, ILSM is a practice of accident prevention system;
the authors suggest that the top management must initiate holistic implementation of
ILSM to attain safety culture sustainability in the organizations.
1.1 Objectives
Following are few important objectives for this study
1. To understand the importance of Safety Concept in different types of

organizations.
2. To evaluate how safety culture could be infiltrate among employees.
3. To understand the role of human components as a base to carry out safety

activities in organization and its importance to keep organization accidents free
and hazard free.
4. In the context stated in the third objective, to study how far (the) Behavioral
Based Safety management system could be aligned with Lean and Six Sigma.
5. To integrate Lean and Six Sigma with BBS (and) to develop a new conceptual
model.
2
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Integrated Lean Safety Model to Develop Organizational Safety Culture
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2. Review of literature
The Review of Literature has been presented in eight major sections. The first
section would bring out the studies related to safety, the second section has been
marked to review studies on culture, in the third section, the authors try to highlight
the studies on safety culture, the fourth one detail about BBS, the fifth and the sixth
describe factors attributing to workplace accidents and benefits of BBS respectively.
The Seventh and the eighth sections highlight the linkage of Lean and Six-Sigma
with BBS.
• Safety
“Safety has been defined as a condition where nothing goes wrong or a condition
where the number of occurrence of accident, risk of injury, loss and danger to per-
sons, property and environment is acceptably small” [1]. Rene [2] has pointed out that
technical breakdown and human errors cause unsafe situation.
• Culture
Culture is the product of the interaction between human psychological, work

behavioral, and organization situational [4]. According to Reason [5], culture is the
‘engine’ that drives the organization towards the goal of sustaining the maximum
resistance towards hazards. Organizational cultures are rooted within community
expectations and intersect with national cultures [6].
• Safety Culture
Safety culture in the organizational set up includes the ‘health’ as an important

one. Therefore, in most of the literature it has been referred as ‘Health and Safety’
(H&S) culture. Accordingly, based on Hale and Hovden [7] who in their study
classified H&S in three ages, Hudson [8] has suggested following three stages in the
evolution of H&S culture. In the first stage, Technology was given importance (tech-
nical age), then in second stage, more emphasize has been given on H&S management
systems (human factors’ age) and in the third the H&S is seen through cultural aspect
(safety culture age). Reason [5] suggests that ‘an abiding concern for failure’ would be
the key component of a good safety culture. Therefore, organizations having good
safety culture are sensitive and responsive to signals of danger.
Before going into detail discussion, understanding the definitions of SC is more
important. The cultural drivers of Health and Safety comprises of social forces within
organizations that shape organizational members’ assumptions, beliefs, values and
actions [9]. Few of the identified important factors of SC are; management [10],
individual and behavioral [4], Worker’s knowledge on safety. In this regard, the
stakeholder role in safety culture and safety performance has been discussed by
Althaqafi and Abunar [11]. A broad thinking is that the social forces are the main
cultural drivers which shape organizational members’ assumptions, beliefs, values and
actions [9]. In line with the social phenomenon, Richter and Koch [12] define safety
culture as the shared and learned meanings, experiences and interpretations of work
and safety-expressed particularly symbolically – which guide peoples’ actions towards
risk, accidents and prevention.
34
• Levels of SC
Hudson [8] has identified five levels in SC namely, Pathological-unless we experi-

enced we will not think and cares about safety; Reactive-safety is important in the sense
that when we do a lot every time we have to meet an accident; calculative-there is
system in place to manage all hazards; Proactive-trying to anticipate safety problems
before they arise and generative-health and safety show how the business is going on.
According to theory of SC, following four levels have been identified that are; physical
culture, institutional culture, behavior culture and spiritual culture. Further it has been
defined as “the sharing of safety values, attitudes, ethics and code of conduct” (State
Administration of Work Safety, 2009 a & b).
SC being an important part of organization management system, it improves the
quality and operation mode of safety management level which could prevent
major accidents, reduce accident rates and improve safety performance.
• Behavioral Based Safety (BBS) Management
Employee awareness of safety plays crucial role in maintaining safety standards in

organizations. Poor awareness of safety indicates a poor safety climate which
decreases the health and safety of employees. Behavioral Based Safety (BBS) is a
process within which employees of organizations have been enveloped to follow the
safety procedures in their work situation where by to learn more on safe and unsafe
activities towards transformation of their behavior and attitude to avoid unsafe work
environment, loss of life, get injured and loss of time and financial remuneration.
Therefore, BBS focuses on what people do, analyses why they do it and then applies a
research supported interventional strategy to improve what people to do. It is an
approach based on human behavior used to prevent workplace injuries. BBS is one of
the approaches to make employees to aware safety in workplace to improve safety
performance and decrease the number of accident cases at the workplace and incor-
porated with safety management system towards safety and health performances and
improvements [13] and is not a program, but an integrated management “process”
[14]. The important role of human components in organizations accelerates the risk of
accidents wherein, the attitude and behavior of workers have to be carefully consid-
ered at the workplace to avoid the untoward incidents. In this exercise, the organiza-
tion has the compelling responsibility and the duty to make the worker to understand
to work safe in the safe environment. Therefore, it is the behavior and the attitude of
the worker to follow the norms of the safety in workplace. So, organization should
come forward to instill among workers the positive behavior towards safety and has
the responsibility to activate and motivate the worker to abide to the strategic plans
and related training programs of organization. This is otherwise called as the behavior
based safety management. The sustenance of the safety systems management is pos-
sible only when the BBS has been transformed to be a culture of the organization,
since it wholly relied on human resources.
• Factors Attributing to Workplace Accidents
Cox has defined BBS as the intervention that focused on people and Connor
suggested to develop a list of human factors that influence workplace safety. The
workplace accidents are caused by unsafe behavior [15] and unsafe act [16], unsafe
working conditions and false acts, inadequate safety performance, improper
4
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housekeeping, low tool maintenance, supervisory fault [17] and unsafe act or unsafe
conditions. Any act that deviates from generally recognized safe procedure laid down
to do the job may be considered as unsafe act [18]. In spite of organizations having
well managed safety management with good safety policy, significant accidents occur
[19] and this may be due to unsafe or careless employees which can easily be resolved
by closely monitoring and changing the behaviors of workers [20].
• Lean Thinking Aligning with Safety Management System
Lean Manufacturing (LM) is a business concept; its goal is to minimize processing

time, resources and other activities in the manufacturing process and by eliminating
wastages to achieve performance excellence and sustainability. The 5S process (Sort,
Set in order, Sweep, Standardize, and Sustain) is the basis for an effective lean
implementation. The 5S process is a structured program to systematically achieve total
organization, neatness, cleanliness, standardization and discipline in the workplace
[21]. LM process gives importance to the worker safety by informing, empowering the
workers to be active with knowledge, skills and create opportunity to act safely in the
workplace in order to eliminate or reduce hazards or risk of accidents.
Anvari et al. [22] have attempted to evaluate an approach aligning Lean
Manufacturing with Safety Management Systems and tried to establish relationship
between them. In compliance with the above, the above authors have talked about the
6th S that is Safety along with the existing 5S of Lean Manufacturing since safety
strategies are considered crucial to world-class competitiveness. Because, the 6S pro-
cess simplifies the work environment, reduces waste and non-value activities while
improving quality of efficiency and safety [22]. The 5S were drawn from Toyota
Management System (TMS) and the 6th S has been added by Universal Coordinated
Time to emphasize safety in the workplace [23]. The 6th gets prominence since; it is
the first method the companies often implement before implementation of Lean
process because it serves as the foundation of future continual improvement effort
[24]. When safety (6S) is aligned with the Five Ss it creates a culture of continual
improvement and employee engagement that is essential for successful implementa-
tion of Lean. The 6S helps other lean methods such as cellular manufacturing, one-
piece flow and JIT production for easy implementation. In the context stated above,
6S that is Safety can strongly be considered as one of the tools of LM. It strongly
enables for employees and enables people to be free of aggravations that hinder their
work and it acts as a positive way to involve people in improving their own work
settings [25]. Health and Safety hazards in organization are created due to employees
de-motivation, lack of or unclearly defined working procedure and tasks, lack of
control, lack of instruction or appropriate training, unsafe worker behavior, low
management commitment to safety, no consensus on what Safety Management Sys-
tem (SMS) exactly is and on corresponding scope [26] all those could be controlled by
LM process. The errors of total productive maintenance (one of the LM component)
contribute to accidents in complex systems [27]. Sourin et al. (have) found the rela-
tionship between the Lean tool Poka-Yoke and SMS. Fernandez et al. and Bottani
et al., [28] have suggested that creation of all types of hazards controlled in LM
environments. It could be concluded that there is a perfect correlation and relation-
ship between all the SMS policies and practices and the LM/6S. It could be concluded
that all the dimensions of safety culture are used in LM [29]. Increasing diffusion
between organizations in respect of Safety Management Systems have been felt by
Bottani et al. [28] this is because of the major shortcoming in most of the safety
5
36
culture models due to lack of integration [15]. Therefore, Fernandez-Muniz et al. [30]
suggest that safety must be integrated into all the organization‘s decisions and actions,
and the prevention must be more organizational and strategic than material, since
human component plays an important role in the causal chain of workplace accidents.
When two or more systems are integrated into one model, the level of compatibility
increases resulting potential tangible and intangible gains with added value to the
organization [31]. Several authors for example, Karapetrovic and Jonker, [32];
Beckmerhagen et al. [33]; Jergensen et al. [34] and Rebelo et al. [35] have extensively
studied the integration of Safety with other management systems (like various quality
and environmental management systems) for efficient management and excellent
performance of organizations.
Following the efforts taken by the above mentioned authors, the present authors
have developed a new conceptual model like ILSM and established SMILE approach in
behavior based safety system.
• Six Sigma Aligning with Safety Management System
Rehman and Ateekh-ur-Rehman [36] have evolved the possibility of managing

safety through Sig Sigma approach and found that the DMAIC approach was effective
in reducing the safety hazards. Kehinde et al. [37] have conducted a study in a food
processing industry on managing safety using Six Sigma Technique. The Sigma level
of safety was estimated using DMAIC method. Further, Failure Mode Effect Analysis
(FMEA) was used and the Risk Priority Number (RPN) for various departments was
also calculated. This study helped to contain safety hazards at present and in future.
Stricoff and Seymour [38], Bahadir and Ivan [39], and Ng et al. [40] have endorsed
the above findings.
2.1 Gap
Safety Management System (SMS) is familiar with all types of industries in coun-
tries abroad. BBS is one of the safety concepts in SMS. The Indian scenario is seemed
to be different, particularly, in Southern most part of India that is Tamil Nadu, the
Safety practice industries still yet to be taken off. It was observed from field visit that
few big industries of various types around Chennai, the capital of Tamil Nadu follow
few elements of SMS but not in full. Particularly, the lean oriented BBS concept in
most of the industries in India, particularly in Tamil Nadu is still to be practiced. The
reason being, the negligence of organizations to adapt lean oriented BBS concept and
the less interest of employees to understand the salient features of the system and
failed to understand that despite giving benefits to the organization, it forms basis for
the health and welfare of the workers. Further, very few literatures are available on
industries with regard to implementation of BBS in associate with Lean Six Sigma.
2.2 Reasons and need
The industries are looking forward to achieve financial benefits through increasing
performance. This could be achieved by the relentless contribution of workers.
Therefore, workers should be given a healthy and accident free work environment.
This warrants change of behavior and attitude. Thus the organizations must keep
workers more informative of the work environment and to make them aware of their
responsibility in discharging the task in a prescribed way of operation. The holistic
6
37
ITexLi.107002
implementation of BBS may help organizations to successfully face challenges from

similar organizations and the national and international market volatilization.
2.3 The main focus of the study
This study may help to maintain safe work conditions through principled practice
of discipline through BBS practice among employers and employees. This cultivates
the safety culture in order to reap benefits like, reduction of cost of product in all
aspects, eliminate cost of worker’s compensation claims and to reduce costs related to
employee medical leave and absenteeism.
3. The proposed model
On extensive deliberations about the integration of Lean, Six Sigma (DMAIC) and
BBS, the authors have developed the following SMILE approach in working environ-
ment and new conceptual model to be implemented in organizations for attaining
safety culture. The robust implementation of lean oriented BBS (SMILE approach)
and integrated lean safety model in an organization may definitely help harvest good
benefits in terms of accidents free organization, performance excellence and huge
financial benefits (Figure 1) (Table 1).
Figure 1.
A conceptual model of safety culture environment.
38
S – Select • Initially BBS coach is selected to conduct the observation regarding employees’ work
practice in the industry environment.
• The BBS coach after observation selects the safe and unsafe behavioral practices of the
employees within the workplace / plant as per framed checklist.
M – Mentor • If unsafe behavior is carried out, immediately corrective actions are suggested by the
coach in an appropriate manner.
• If the employee rectify at risk behavior (unsafe) practice while performing the
operations, he will be appreciated by the coach.
• Further the observer (BBS coach) offers constructive feedback to the employees for
their consistent performance.
I – Implement • Brainstorming sessions are carried out to emphasis the need of safe practices and are to
be implemented in all aspects without any hesitation.
L – Lean • Observer initiating Lean Six Sigma Based BBS approach. Lean Thinking means
eliminating the wastes (unnecessary activities) by streamline the process in a
structured way of practicing working behaviors consciously during productive hours as
per safety act & rule.
• The project team (Six-Sigma team) must be formed to solve the safety related problems
in the industry through DMAIC approach.
E - Evaluate • The improved safe practices are evaluated as per safety act & rule.
• The scope of existing improved behavior is discussed with steering committee
members for continuous improvement of working environments (Zero injuries /
Accidents to be achieved) i.e. maintaining safety culture.
Table 1.
SMILE approach - lean oriented behavior based safety system.
4. Findings and discussion
Various past studies have brought out the importance of implementing Safety
Management System in manufacturing, construction and related organizations. The
studies have also underlined several benefits like, keeping and improving employee’s
health and welfare, changing behavior and attitude of employees towards positive and
safe work environment and thus motivating them to work in risk and accident free
environment. Therefore, the organizations could reap financial benefits by reducing
compensation paid to employees due to accidents, improve quality and production
due to increased performance excellence, and could stand out as unbeatable compet-
itor in the market. The Six Sigma technique also reduces the process output variation
to six standard deviation which lies between the mean and the nearest specification
limit to 3.4 defections per million opportunities. Peter et al. [41] have stressed the
need of Six Sigma for continuous improvement in the workplace.
The integration of various managements systems with SMS further fillip to the
Safety processes in organizations. The basic and the main concept of Lean is the
reduction of space, time, manufacturing processes and other non-value added activi-
ties, resources and the various types of wastes. The 5S tool of Lean has been structured
to systematically achieve total organization, neatness, cleanliness, standardization and
discipline in the workplace [21] which result the reduction of risk of accidents through
safer and more efficient productive operation. Stricoff and Seymour [38] have
suggested that Six Sigma could be applied for the purpose of organizational safety.
Staryarsky and Whitfield [42] have identified few constraints in applying Six Sigma in
manufacturing organization towards “World Class” safety performance. In spite of
the constraints, several authors have studied the utilization of Six Sigma in various
39
ITexLi.107002
types of organizations, for example, ship Management and safety [39]; to explore
injury rate of an international waste disposals firm [41] and reduce hazards among
cargo handlers working in cargo container [40].
5. Conclusion
Especially manufacturing and construction industry have become an important

sectors in promoting economic growth. However, the accident cases in the
manufacturing sector and construction industries are always higher than other sec-
tors. In order to reduce the accident cases, safety culture is the long term solution that
creates consistent patterns of safety behaviors, beliefs and values in the organization
by practice of effective leadership support, management commitment (Management
must be sensitive towards safety issues and committed to challenge unsafe behaviors
without fail) and effective safety management system. Safety has a significant role in
industrial organizations. Lean is built on the central idea of reducing or eliminating
wastes from the system. Since accidents are fundamentally a waste, lean inherently
includes safety concerns within its scope.
The conclusion arrived here at is purely a hypothetical based on a number of
related studies by various authors and according to their findings. Anvai et al. [22]
have found the perfect relationship between lean management and safety manage-
ment system and most of the attributes of lean management positively and signifi-
cantly correlated with the SMS process. Several authors have stressed the employee
awareness of safety has been considered to be an important in quality outcome in the
organizations [43] because poor awareness would result in poor safety climate which
would be detrimental to the employee as well as organization. The safety concept is
mainly and wholly related to human component. Therefore, it is very important a
change in the behavior and attitude of worker to be instituted for a complete trans-
formation in the safety concept to be followed in organization. Therefore, the safety
culture should be given equal attention like other important elements such as quality
and productivity. Safety Culture could be attained through effective implementation
of SMILE approach and integrated lean safety model in industry. The authors suggest
that top management (safety monitoring authority committee) must initiate practice
of ILSM with support of ‘SMILE’ approach to reduce the occurrences of accidents in
all aspects of the company by sustainable safety culture.
5.1 Implementation
Though, different approaches in implementation of BBS process could be observed

from various studies, those were mainly based on case study approach. Faridha et al.
[19] after reviewing various studies by Killimett [44], Wirth et al., [45], Geller [46],
DePasquale and Geller [47] and Smith, have seen a common and consistent approach
which has been included in the following four steps as suggested by Dejoy [20] and
Krause et al. [48]. Step 1 Identify critical safety behavior that contributes to injuries
and losses; Step 2 Observation over sometime period of identified behavior; Step 3
Reinforcement is applied to increase desired behavior and Step 4 Findings and Feed-
back on the performance is presented for continuous improvement. The White Paper
published by SoBran-Bio Science suggests the following four steps for implementa-
tion. Those are; establish a need for change, create a plan of action, plan for imple-
mentation and put energy into implementation and sustainability. The robust
9
40
implementation of Lean oriented BBS (SMILE approach) and Integrated Lean Safety
Model in an organization may definitely help harvest good benefits in terms of acci-
dents free organization, performance excellence and huge financial benefits.
6. Implications
Implications can be classified into two. One is theoretically impacted and another
one is practically experienced. The paucity of studies on lean six sigma oriented
behavior based safety management under Indian environment could be fulfilled with
this endeavor. In practical, this paper may feed some useful information on the impor-
tance of safety aspects in various types of industries which are very much prone to all
types of risks. The present model may be an eye opener to those industries which are
still in early stage of implementing safety procedure and for the industries still not yet
been implemented. Those types of industries vulnerable to different types of risks,
accidents and social ill-health may recoup their industries process with risks and acci-
dents free with the help of this model and thus could achieve performance excellence.
6.1 Limitations and scope for future studies
This study is purely a theoretical one based on the findings of various research
studies done by different authors in different environment and different types of
industries. The present conceptual model developed based on new approach called
‘SMILE’. This new model needs empirical validation to confirm its authenticity. This
paper has been developed having taken in mind the Indian industrial environment.
However, universal applications of this approach may give greater dividend to all
types of industries that are prone to risks, accidents, since the nucleus of this study
centered on ‘Safety Culture’ which is an universal entity.
41
ITexLi.107002
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44
Chapter 4
The Lean Approach in Waste

Management – A Case Study
Roberta Pinna and Giovanni Senes
Abstract
This work presents a manufacturing case study focused on reducing waste in a

corrugated paperboard packaging company located in Italy. Corrugated paperboard
is the primary material used in transporting, distributing, and storing many
products, particularly food productions. The project started in September 2020 with
the aim of identifying the causes of some waste along the production process and the
conse-quent planning of actions to reduce them. This project was implemented
following the logic of lean manufacturing through the use of the PDCA (Plan-Do-
Check-Act) methodology. The quality control tools for continuous improvement of
the manu-facturing process are used. The results achieved by the plant are significant
in terms of economic and environmental sustainability. From an economic point of
view,
the measures implemented have allowed the plant to achieve, in the period between
September 2020 and March 2021, a decrease from 10% to 9% of the percentage of
the waste with a cost reduction approximately of € 17,000 for each of the first three
months of 2021. From an environmental point of view, waste reduction is one of the
objectives underlying the sustainability strategy adopted by the company, which has
long been committed to the responsible management of its production processes to
reduce its environmental impact.
Keywords: lean production, PDCA, waste reduction, continuous improvement tools,

sustainability
1. Introduction
Four years after the adoption of the 2030 Agenda by the 193 member countries of
the United Nations, including Italy, there is a growing awareness worldwide of the
need for an integrated approach to address complex economic, social, and environ-
mental challenges in order to shift to a sustainable development model. The sustain-
ability approach, a set of principles, tools, and practices oriented toward sustainable
development, is progressively establishing as a new paradigm in the activities and
processes management of all organizations [1]. In particular, among the factors that
more than others have given a strong impetus in the direction of a profound change in
the management models and tools adopted, the joint search for efficiency, effective-
ness, and sustainability represents the most significant. In fact, organizations that
45
develop sustainable strategies may have a competitive advantage in terms of higher

productivity, better products, and considerable cost savings [2]. In literature, there is
a consensus that sustainable development involves improvements in different aspects,
such as energy consumption, reduction of emissions to air, water, and soil, environ-
mental impacts of the products, reduction of waste and better efficiency in the use of
rawmaterial, health and worker safety [3–5], and the implementation of lean or Six
Sigma approach in the business organizations can improve productivity and environ-
mental sustainability.
In the manufacturing sector, as well as in the cardboard packaging production sec-
tor, the management of waste and the efficiency in the use of raw materials represent
one of the most critical situations that companies have to manage. The corrugated
cardboard production sector, with almost 7 billion m2 of produced area, 150 thousand
employees, and almost 500 plants in Europe, has become over the last decades the
most requested material in the production of eco-friendly and robust packaging to
contain, protect and transport. Thanks to its recyclability and biodegradability, it
has fostered the birth of green packaging industry, whose main prerogative is the
reduction of environmental impact. In Italy, the sector is worth about 4 billion euros
and counts on a supply chain that employs 15 thousand people for an annual produc-
tion that in 2018 exceeded 7 billion m2 (an increase of 3.62% compared to 2017).
According to the Italian Corrugated Cardboard Manufacturers Group (GIFCO), this
is a sector that records continuous growth thanks also to the push of e-commerce.
Italy is the second European producer of corrugated cardboard used in packaging
after Germany, followed by France and Great Britain. In the last decade, corrugated
paperboard companies are under pressure in order to improve productivity and
quality while reducing costs. In addition, the need to promote the long-term sustain-
ability of the natural resource, such as wood fiber, which is the single largest input to
the manufacturing of paper products, become strategic the efficient use of renewable
natural resources, thus reducing waste and improving the circularity of the manu-
facturing processes. Today, corrugated boxes are made from a high percentage of
recycled paper, such as corrugated boxes, cartons, or newspapers. The re-use of such
items means corrugated offers a number of environmental benefits. In other words,
the adoption of a sustainable strategy allows more efficient use of resources, better
cost results, and reduces adverse impacts on people and the environment. There are
several methods that facilitate sustainable practices, one of these is lean production
[6–10]. It is a methodology that aims at maximum efficiency through eliminating all
those activities with no added value and that are a source of waste and costs.
The objective of the present study carried out in a corrugated cardboard industrial
company, was to implement a lean production system based on the PDCA (Plan-Do-
Check-Act) method to identify and reduce wastes in the production process of the
firm. The orientation toward sustainability has become one of the cardinal principles
of company policy, for this, it is important to become more efficient in the use of
resources through a reduction of the waste in the production process; thus, enabling
the increase of economic benefits. This has led the company to make a strong commit-
ment to improve the environmental impact of all its plants and promote the sustain-
ability of the company for the benefit of future generations. For this reason, since
2020 the management of the company has implemented a lean production approach,
with the aim to reduce waste by 0.75% in 2021. To achieve the proposed objectives, a
methodology based on the PDCA cycle was implemented.
46
The Lean Approach in Waste Management – A Case Study ITexLi.106744
2. Lean production and waste management in manufacturing
The term Lean production was coined by researchers in the International Motor
Vehicle Program at the Massachusetts Institute of Technology to describe the way in
which production operations were organized at the Toyota Motor Company in Japan
during the 1980s. The goal of lean production is doing the same number of outputs by
reducing the number of inputs, through the elimination of waste in order to give cus-
tomers what they want and satisfying their expectations. In other words, this manage-
ment approach allows for improving the operational efficiency, quality, and flexibility
through the elimination of waste [7, 10]. The elimination of waste is the primary goal of
any lean system. The term waste or muda is anything that consumes resources without
creating value for the customer. Studies conducted in the manufacturing sector [11–13]
have confirmed the existence of seven types of waste (Table 1) and how they negatively
impact time, cost, and product quality. In particular, with specific reference to defects,
some research [14, 15] has shown that these represent the main cause of damage or bad
quality of products. In this case, bad quality or defects do not only result in customer
dissatisfaction, but also in waste due to additional costs and time to repair the defect,
resulting in a slowdown in production and increasing lead time. In the manufacturing
sector, as well as in the cardboard packaging manufacturing sector, the presence of
defects in raw materials are one of the most critical situations that companies in this
sector must manage. Waiting time is another particularly important type of waste. For
example, employees are not doing their work, as they are unproductively waiting for the
elimination of the defect and restarting the machine.
Over the years the lean production model has been refined, taking on other
designations as well, such as lean organization, lean manufacturing, lean service, lean
office, lean enterprise, and even lean thinking, indicating its nature as an industrial
“philosophy” that inspires essentially all methods and techniques. Numerous studies
[16–20] have demonstrated the effectiveness of this approach in terms of cost reduc-
tion, improved quality, and flexibility through the elimination of all non-value-added
activities and waste.
2.1 Continuous improvement and PDCA cycle
Implementation of lean production may be facilitated by the use of quality tools,

among which the Plan-Do-Check-Act (PDCA) method can be applied to the imple-
mentation of waste reduction programs and sustainable management strategies. This
methodology initially was developed in 1930 by Walter A. Shewhart. However, it was
William Edward Deming who developed this method with the purpose of providing
a tool for product quality control [2, 21]. It quickly became an industry, a useful tool
that can support the development of process improvements at the organizational
level [22]. This cycle is a sequence of actions necessary not only for pursuing the
goal of continuous improvement but also for solving quality-related problems and
implementing new solutions. Some authors [23] show that continuous improve-
ment tools, such as PDCA, are often used in change management processes, in the
implementation phases of new solutions, or when a new process has to be designed.
Thanks to its versatility, this tool can be used successfully in any company and in any
sector of activity, such as health and education sectors. The Deming cycle is divided
into four phases:
47
Waste Definition Some causes

Overproduction Producing more than what is • volume incentives (sales, pay, purchasing)
needed or producing faster than
• high-capacity equipment
what is needed.
• line imbalance; poor scheduling/shiftingpoor
production planning
Process wastes Non-value-added man/machine Organizational inefficiencies Low machine
processing. performanceInadequate equipment or tools
Transport Unnecessary material/tools Poor route planning
movement.
• complex material flows
• poor layout
• disorganized workplace
Waiting All waiting times that are “not Unsynchronized processes;
strictly necessary” to the product
• inflexible workforce
manufacturing cycle.
• unscheduled machine downtime
• long set-up
• material shortage or delay
Inventory Excessive process inventories Over-production
excessive raw material
• long lead times
inventories
• local optimization
• large minimum order quantities
• high rework rate
• lack of material requisition and issuance standards
Motion Unnecessary movement and poor layout and housekeeping
motions of worker.
• disorganized workplace and storage locations
• unclear, non-standardized work instructions
• unclear process and materials flow
Defects Processing due to the production • unclear customer specifications
of defects
• incapable processes
processing due to rework or
repair of defects • lack of process control
materials used due to defect and • unskilled personnel
rework
• departmental rather than total quality
• incapable suppliers
Table 1.
Seven types of waste.
• PLAN: The purpose of this phase is the analysis of the current situation in order
to understand the nature of the problem and the development of actions for
solving the problem.
• DO: In this phase, the action plan was implemented.
• CHECK: After the application of the action plan, the results of the actions are
analyzed. In this phase, it is important to compare the new situation to the old,
verifying if there were improvements.
4
48
• ACT: At this phase, the new actions will be standardized, and identify other
opportunities for improvement.
Numerous studies conducted in different industrial contexts [24–27] show that

different applications of PDCA methodology have been implemented with positive
results in terms of reduction of waste and costs, as well as improving the quality of
processes and products. Some authors [28] investigated how to reduce defects that
minimize the rework rate through the PDCA methodology. In another work [29] the
PDCA cycle was used for continuous quality improvement in a dairy laboratory. The
results showed a significant reduction from the initial 368 to 85 samples of contami-
nated UHT milk. This reduction resulted in an increase in efficiency from 68.02%
to 74.06% and ineffectiveness from 88.95% to 96.85%. So, the PDCA methodology
allowed a reduction in the incidence of errors, making the processes more efficient.
The effective implementation of PDCA requires the use of appropriate techniques
and tools that can support each of the phases of the cycle, especially in the problem
analysis and in the definition of the actions that must be implemented. The seven
basic tools are flowcharts, control charts, histograms, Pareto analysis, Fishbone
diagram, check sheet, and scatter diagram. Through the synergistic use of these tools
and techniques, it is possible to identify the problems that are at the origin of the
waste, select the main one, show the relationships between different variables, search
for all potential causes, and then get to select the real ones. Numerous researches
[30–35] have confirmed the effectiveness of quality tools in continuous improvement
projects. In addition to the seven basic quality tools, some authors [2, 15, 36] also
mention the following main ones: Six sigma, the 5S method, A3, failure mode analysis
and effects (FMEA), quality function deployment (QFD), single-minute exchange of
die (SMED).
3. The case study
This study was conducted in a large multinational company producers of fiber-

based packaging and pulp. In Italy, this organization has four plants responsible for
the production of corrugated boxes, offering customized packaging solutions for fruit
and vegetables, poultry, and industrial segments. The research was carried out in an
Italian plant responsible for the production of corrugated packaging solutions for
agricultural, consumer goods, and industrial applications. This plant occupies an area
of 30,000 m2 and employs about 170 people, with an annual production capacity of
150 million m2 of cardboard. The flow of materials goes through the following unit:
1. Raw materials warehouse where the paper reels, after quality control, are stored
in two separate warehouses.
2. Corrugator unit: the first step is to create sheets of corrugated cardboard; this takes
place in the corrugator department. With an area of about 2500 m2, it employs a
line equipped with machines that perform different functions during the process,
such as preheating the paper, corrugating it, gluing the various layers of the final
sheet of cardboard, dehumidifying it, cutting the continuous strips of cardboard,
etc. In this department is also considered the pulping department in which there is
a machine that macerates the waste paper to be then sold in order to make a mini-
mum profit from the production waste.
49
3. Wip unit: it represents the intermediate unit between the corrugator and the
cardboard box machine. In this unit with the sheets of cardboard are sorted in
the seven lines of the box factory unit.
4. Box factory unit: it is an area of about 6500 m2 with seven production lines, dedi-
cated to the production of cardboard boxes.
3.1 Methodology
Since 2020 the management of the company has implemented a lean production
approach, with the aim to reduce waste by 0.75% in 2021. To achieve the proposed
objectives, a methodology based on the PDCA cycle was implemented. In the first
phase, data collections were carried out weekly in order to quantify the forms of
waste. At the same time, the flow diagrams of the various processes under analysis
were created with the aim of highlighting those that have occurred in a higher amount
[37]. Based on these data, through Pareto chart and Fishbone diagram, it was pos-
sible to identify the main causes of waste. In this way, opportunities for improvement
were identified [15, 28]. In the second phase, based on the analysis carried out in the
previous step, improvement opportunities were implemented. Subsequently, during
the third phase, the results of each action implemented were evaluated. Finally, in the
fourth phase, on the basis of the evaluation carried out previously, the new measures
were standardized.
3.2 Results and discussions
3.2.1 Results of phase PLAN
In this phase, the current situation of the waste in the different production unit
was identified through the manageable waste KPI (MW KPI). In order to identify all
forms of waste, it was necessary to analyze the overall production process, from the
paper reels arrived at the plant, until they were shipped to the final customer. To do
this, a flowchart of each department was developed. At this stage, it was important
to engage the employees in order to understand exactly where, when and under
what conditions the problem occurred. In addition, direct observation of the tools
and machinery used in the production process it was important in order to identify
problems and defects. During the various meetings with improvement groups, it was
decided to focus on the corrugator cardboard manufacturing line where the largest
amount of waste was generated. A corrugator cardboard machine is a set of machines
designed to bring together three, five, or seven sheets of paper to form single, double,
or triple wall board in a continuous process. In order to identify the most frequent
causes of waste, the Pareto diagram was used (Figure 1).
Pareto diagram highlighted that the most important causes of waste in the cor-
rugator cardboard manufacturing line were the downtime, peel, and paper residual
around the core of the roll. The analysis of MW KPI pointed out that the high number
of defective cardboard boxes was due to the frequent downtime of the corrugator,
which had suffered a productivity decrease in recent years. This important type of
waste was caused by defects and blocks recurring in the corrugator machine. The
results in Figure 2 show that the main causes of downtime of the machine were paper
breaking and blocks.
50
Figure 1.
Pareto diagram—causes of waste.
Figure 2.
Pareto diagram—causes of downtime.
To analyze the causes of this phenomenon, the Ishikawa diagram was used. This
tool is a result of brainstorming of the working team of the corrugator department,
consisting of employees of the Ondulator Department, manufacturing manager, and
process improvement manager. As a result, of brainstorming, it emerged that break-
ing paper was mainly due to mistakes made by employees during the creation of the
couplings. Indeed, the breaking paper was caused by wrong operations, wrongs in
paper reel peels, paper reel wrong, uncontrolled paper reel, and damaged paper reel.
The same analysis has been made for the block machine. The team identified three
main groups of causes: method, machine, and people (see Figure 3). In the “machine”
group, the main cause was the incorrect adjustment of belts, causing their premature
wear.
The next group of causes “Method” and “People” specified causes, such as lack of
right scheduling interventions, failure reporting, incorrect frequency of lubrication
activities, and wrong procedure
After identifying the causes which might have affected the problems, the improve-
ment continuous team, through continuous interaction with the employees of the corru-
gator unit, identified potential solutions, based on the cost-effectiveness of the solution,
its effectiveness, reliability, and technical complexity. With reference to each solution,
the person responsible for the action itself, the deadline, and goals were then identified.
51
Figure 3.
Ishikawa diagram.
3.2.2 Results of phase DO
The aim of this phase is to implement the action plan in order to make changes and
eliminate the causes of problems in the production process. Among the implemented
improvements were the following:
• Root cause analysis, with the aim to obtain a large amount of data in order to
understand what happened, how, and why. In this way, it has been possible to
show which section of the machine deteriorated most frequently, and how often
were these problems occurring.
• Implementation of new breakdown reporting.
• Improvement of maintenance activity end and its planning.
• Employees empowerment through sharing of key indicators related to the

number of wrong couplings and downtime of the line.
• Training meetings.
3.2.3 Results of phase check
At this phase, the results of the implementation of actions for each type of prob-
lem are analyzed. It is necessary to ask whether the problems identified in phase 1
have disappeared, or at least diminished. This activity, with a view to continuous
improvement, was very important because it is possible to highlight any deviations
from the planned objective, and it is possible to identify other opportunities for
improvement.
Regarding the breaking paper, Figure 4 shows a decrease in downtime after the
implementation of the actions planned.
3.2.4 Results of phase act
Based on the findings of the check analysis and verified the sustainability and
effectiveness of the implemented actions, it was necessary to proceed with standard-
ization of improvement. Standardization is a key element in the lean approach, as
52
Figure 4.
Downtime for breaking paper after the implementation of the action plan.
standards define best practices for process implementation. What was tried within a
single team, what was tried in a single process, the change that was made in a single
machine, all of this must be extended to become the new standard to be followed
and becomes the basis for subsequent further improvements. Since the purpose of
the standard is to enable activities to be carried out without error and waste, it must
contain a precise description of the sequence of activities and how these activities
should be carried out correctly in order not to generate waste.
4. Conclusion
Lean management is nowadays one of the most dominating management

approach, both in industrial and service environments. One of the reasons for such
success is its simplicity. The whole concept is based on a common-sense idea of so-
called “waste.” Removing it is the very essence of Lean Management. The measures
implemented in the Italian plant in the period between September 2020 and March
2021 have allowed sto significantly reduce waste and costs. The waste associated with
breaking paper and blocks were reduced from 10% to 9%, with a cost reduction of
17.000 euros. This is an important achievement considering that the company’s com-
petitive position depends on many factors, including price, cost, product, and service
quality. In addition, the implementation of the lean methodology has enabled the
company to make the overall corrugated cardboard production process more efficient
through better organization of the work. This means that in order to improve the pro-
cess and reduce waste, it is necessary to encourage employees to analyze the problems
and identify the opportunities for improvement. The plant’s achievements are also
particularly important in terms of sustainability. In fact, waste reduction is one of the
goals underlying the sustainability strategy adopted by the company, which has long
been committed to the responsible management of its production processes in order
to reduce their environmental impact. Environmental protection and responsible
production practices are two fundamental aspects of the company’s way of operating.
53
For this reason, the efficient use of paper in the corrugated board production process
and the consequent reduction of wastes represent important goals for the company
and which are, therefore, continuously monitored.
54
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57
Chapter 5
Internal Audit
Aijaz Panhwar, Ateeq Rehman Memon, Azhar Naeem,
Aftab Kandhro, Syed Zainulibad, Sofia Qaisar
and Awais Panhwar
Abstract
The internal audit is an efficient, free, and documented procedure for gathering
audit evidence and objectively evaluating it to ascertain the extent to which the audit
criteria are fulfilled. The internal audit is very effective tool not only to judge the
level meeting the needed requirements but also to improve the Quality Management
System of the organization and great impact for the improvement of the performance
of testing laboratories, inspection, certification agencies, and can play vital role
for the strengthening of any organization. Internal Audit is a major way out to read
through to gain guarantee that the organization is actually doing what it says is doing.
During the internal audits in accordance with any of the required check, an auditor
makes sure that the actions taken to meet the quality objectives of the organization
are appropriate, and management system is in compliance with the relevant standard/
check. Nowadays, quality is important in business and industrial world as it is actually
the value addition. The organization must have a quality system in place to guarantee
that the product or service being offered is of a high enough calibers to satisfy the
needs of the clients.
Keywords: audit, certification, effectiveness, horizontal audit, inspection,

internal audit, improvement, testing laboratories, vertical audit
1. Introduction
Internal audit is a very important step in quality management as well as an aspect

for effective improvement tool. ISO 19011 [1] is a standard that details the audit-
ing process for management systems. This is the manual by which the auditors are
instructed and expected to be in agreement, but it also serves as a useful manual for
conducting internal audits of management systems. According to this standard, an
internal audit is one that is carried out by or on behalf of the business to evaluate
its management system. In essence, it means that you have a choice between hiring
someone from outside and using your own staff to conduct an internal audit. Internal
audit has a great impact for improvement of the performance of testing laboratories,
inspection, certification agencies, and metrology organization Hamza [2]. Different
ISO/IEC standards cover almost all aspects of inspection, certification, and labora-
tory management. A laboratory certification boosts an organization’s performance
through improved laboratory procedure control, which in turn raises its potential
58
owing to higher customer satisfaction. Internal auditing is done to evaluate both the
organization’s overall performance and the effectiveness of its quality management
system. The internal audits show adherence to the planned arrangements, such as the
implementation and upkeep of the QMS and associated processes. A management
system auditor’s job is to obtain unbiased proof of performance and conformance
in order to assess how well the management system and its processes are operating.
Internal audits serve as a method to guarantee that the quality management system is
functioning properly by assessing process compliance, evaluating performance, and
identifying processes that need improvement. System is still fully operational and
ready for external audits. Internal audits, often known as “first-party audits,” are car-
ried out by the company in order to assess compliance with a set of requirements that
may be derived from standards. Seven key categories should be included on the audit
checklist, such as assessing the company’s compliance with organizational context,
leadership, planning, support, operation, performance evaluation, and improvement.
Every 3 years, certification audits are usually carried out. Following certification, the
registrar will conduct surveillance audits at regular intervals to make sure the auditee
is still adhering to the QMS and ISO requirements. In an internal audit conducted
in accordance with ISO 9001, an appointed auditor evaluates the organization’s
procedures and quality management system in accordance with the criteria set out by
the most recent version of the standard. The insufficient use of quality control and
control systems inside the organizations are the major reasons that lead to an inac-
curate/misleading result.
1.1 Internal audit
To review the compliance of the system or to analyze/find the gaps in the system,
to overcome the weaknesses before external audit, or to compare the achievements of
the defined objectives.
1.2 Purpose of internal audit
The purpose of internal audit is to confirm that the practical implementation

complies with the accrediting standard, the management system requirements, and
other requirements such as local, state, federal, and international laws, etc. The
primary goal of the audit is to generate a judgment about the data in the report as
a whole, not to find every possible inconsistency. This translates to the fact that,
despite the fact that auditors keep an eye out for any indications of potential mate-
rial fraud, it is impossible to guarantee that frauds will be found [3].
1.3 Objectives of internal audit
The objective of an auditor during an audit is to verify compliance, control-

ling all organizational activities strictly is one of an internal audit’s key objectives.
Management is responsible for ensuring the accuracy of the company’s financial
records and the effectiveness of its operations. To ascertain both, conduct an internal
audit. Controlling all organizational activities strictly is one of an internal audit’s key
objectives. Management is responsible for ensuring the accuracy of the company’s
financial records and the effectiveness of its operations. An internal audit helps
to determine both. The internal audit function works from within and serves as a
guardian of the integrity and accountability of the organization, examining financial
2
59
Internal Audit
ITexLi.107220
reporting, protecting against fraud, error and risk, and providing objective assurance
that the company is complying with the regulations and standards it should. The
objective of an internal audit is to advance and improve an organization’s operational
processes. An organization’s current Quality Management System (QMS) is evaluated
by a quality management system audit to determine whether it complies with organi-
zation policies, contractual obligations, and legal requirements.
1.4 External audit
The most frequent third-party audit is the certification audit carried out by the
certifying organizations. The external audit is an audit carried out by a second party
or third party on his own behalf or on behalf of another company. The difference
between internal and external audit can also be understood in the following way:
the findings of an internal audit will only be used within your organization, whereas
those of an external audit, or third-party audit, can be used publicly as well. For
instance, if an organization chooses to undergo a certification audit and receives a
certificate, this certificate is a public document, meaning it will frequently be shown
to others.
1.5 Difference between internal audit and external audit
Internal audit evaluates risks and issues connected to business procedures,

whereas external audit focuses on the all activities’ records and provides an opinion
on the organization’s improvement statements. While external auditors typically do a
single annual audit, internal auditors conduct audits throughout the year.
1.6 The importance of an audit
The audit is an important as it provides credibility to a set of statements and

gives the stakeholders confidence that the system reports are true and fair. It can
also help to improve an organization’s internal controls and systems. Internal Audit
would pay close attention to any organizational changes that might have an influence
on risk management. Organizational ethics, managerial reorganizations, financial
requirements, resource limitations, technology/internet/E-business, consolidations/
alliances, and legislative/regulatory imperatives are just a few examples of these
adjustments that may occur. Internal audits are necessary if you want assurance that
your business is accomplishing its primary objectives. Internal audits will help you get
there if you want to save your company time and money and keep everything running
smoothly. Internal audits are essential if you want to defend your business against
fraud and stop fraudulent behavior.
1.7 Internal audit focus
A company’s risk appetite, risk detection and mitigation techniques, and risk
communication and monitoring protocols are all examined through internal audit.
One of the primary functions is to guarantee that risks have been adequately defined
and evaluated. Internal audit is tasked with independently attesting to the effective-
ness of a company’s risk management, governance, and internal control systems. The
objective of an internal audit is to advance and improve an organization’s operational
processes. Evaluation of the effectiveness of the organization’s quality management
3
60
system and overall performance are the objectives of the internal ISO 9001 audit.
An organization’s present quality management system (QMS) is evaluated to see if it
conforms to corporate standards, contractual responsibilities, and legal requirements.
1.8 Types of internal audit
• Financial/controls audits
• Compliance audits
• Operational audits
• Construction audits
• Integrated audits
• Information systems audits
• Special investigations
• Follow-up audits and validation testing
1.9 Scope of internal audit
The scope of internal audit within an organization is wide and can include many
issues such as operational efficiency, Quality Management System compliance,
financial reporting reliability, fraud prevention and investigation, asset protection,
and regulatory compliance.
1.10 Stages of internal audit
Internal audit performs a warranty audit in a five-step process that includes
• Selection
• Plan
• Perform fieldwork
• Report results
• Follow-up of corrective action plans
1.11 Benefits of internal audit
Audits are used to obtain factual information for management system, unbiased
management information, to improve communication and motivation. These audits
are further used to identify the areas of risk, opportunities, and need of trainings.
This supports to assess performance and equipment status. Internal audits offer man-
agement and the board of directors a further benefit by allowing process weaknesses
to be found and fixed before external audits. Internal audits have the responsibility
4
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Internal Audit
ITexLi.107220
of independently confirming the efficiency of an organization’s risk management,

governance, and internal control systems.
1.12 Risk assessment
There is very important role of internal audit in development or progress of any orga-
nization. Risk is the likelihood that a circumstance or course of action will have a nega-
tive impact on the entity or activity that is the subject of the audit. The organization can
use a risk assessment to prioritize audit projects according to the level of potential risk,
determine the nature, timing, and scope of internal audit procedures in direct relation to
the level of risk, and develop a plan for carrying out internal audit projects in a risk-based
manner. Prior audit findings, the entity’s strategic plan, and its financial statements are
reviewed as part of the risk assessment process. Department heads and process owners
are also interviewed with an emphasis on “what may go wrong” scenarios.
1.13 Role of internal audit
Internal audits will outline the steps you need to take and how to conduct them if
you want to lower risks to your business’ operations, finances, cyber security, and other
areas of concern. You need routine internal audits if you want to be sure your organiza-
tion is abiding by the rules, regulations, and standards that are relevant to it and if you
also want to save money and time when external auditors check your compliance. After
defining management’s responsibility for internal controls and how internal audit might
contribute to management fulfilling this obligation, let us examine some specific benefits
that an internal audit function might provide to an organization and its management.
Internal audit provides “reports” to management or the board directly rather than
through an outside agency or adversarial body; it also improves the “control environ-
ment” of the organization. It increases responsibility within the organization by spotting
redundancy in operational and control procedures and making suggestions to boost the
efficacy and efficiency of procedures. It serves as an Early Warning System, allowing
flaws to be discovered and corrected promptly. As a result, management would have a
support system, risk manager, controls specialist, efficiency expert, partner for problem-
solving, and safety net. There are so many advantages for businesses that we could write
a book about effective internal audits. It suffices to remark that, aside from the expense
of hiring an auditor, these highly skilled, accredited specialists are not cheap; there are
not really any drawbacks. Additionally, automating allows you to cut expenditures.
2. Methodology
2.1 Audit techniques
2.1.1 Horizontal audit
It is a normal audit from start to end, e.g., clause-by-clause audit; it is also called
systematic audit. Mostly audit conducted is horizontal. It also can be said the detailed
examination of a specific element in the quality system. In this system auditor can
assess that does the quality system meet the requirements in the required standards
or as per other requirement documents. It is also compliance between written proce-
dures and praxis [4].
5
62
2.1.2 Vertical audit
A vertical audit is a check of implementation of the quality system. Audit in depth

considered in any one clause. In this type an auditor starts with a report (inspection,
testing, certification, and calibration) and traces all registration related to this item
all the way back to the contract with the customer. It means top to bottom approach.
Start with a contract and follow all registration related to the inspection all the way to
the inspection report, bottom to top. The vertical audit gives a good overview of the
implementation of the management system. Evaluation of the work flow and many
requirement elements in the standards/required document at the same time. Vertical
audit often reveals systematic weaknesses [4].
2.2 Methods during audit
a. Horizontal approach
b. Vertical approach
c. Review of documentation and records
d.Interview and discussions
e. Observation of inspections
2.3 Important steps in planning of the internal audit
Planning the Audit Schedule; Planning the Process Audit; Conducting the Audit;
Reporting on the Audit; and Follow-up on Issues or Improvements Found. Auditing
is a science with increasing importance in the last years [5]. Internal auditing is
performed by a professional with specific scientific and professional background
for technical and non-technical organizations, who is an employee of the audited
company [6]. A managerial control activity is important for the evaluation of perfor-
mance, nonconformities elimination, and ISO standards compliance is the important
feature of the audit [7, 8]. As per data most organizations are not interested to be ben-
eficiary from the internal audit process, to improve the system [9]. Alic and Rusjan
[7]; Panhwar et al. [4] have discussed that internal audits are an improvement tool.
2.4 Effects of internal audit
The effects of internal audit help management to keep proper control of the assets,
activities, and responsibilities. Internal audit gives confidence to management on the
working of its system. There is biggest impact of internal audit on testing, calibration,
and medical laboratories. As we know that testing laboratories are very important
as per nature of work, these are directly relevant with our life. The huge investment
on these laboratories is another aspect. To maintain the temperature is essential
requirement, and ambient temperature is basic requirement (23 + −2°C) because
temperature for the concerned test in laboratories is very important. Almost comfort
environment is considered 25 + −5°C, if temperature is not mentioned in related
method. In textile testing laboratories to maintain relative humidity is important; in
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other words, to maintain the temperature, relative humidity, to qualify in Proficiency

Testing (PT), are effects of internal audit. Another benefit of proficiency testing is to
validation methods, using in the laboratory.
2.5 Internal audit as an improvement
Additionally, internal audit reviews to lower product flaws and enhance quality
controls are also included. Customers will be less likely to complain, productivity
will increase, costs will drop, and profitability will rise. Internal auditors help busi-
nesses discover important risk issues. This enables the business to recognize present
shortcomings and anticipate potential future issues. It also enables a business to
pinpoint ineffective procedures and controls and presents a chance for improve-
ment, aids in asset protection and lowers the risk of fraud, increases operational
efficiency, and boosts financial stability and integrity, ensuring adherence to
legislative requirements and the law. Compliance hazards are a simply type of risk
that internal audit analyzes to assess how well the company’s risk management
procedures are working. Compliance needs to be audited as a management func-
tion, usually via internal audit. Internal audit examines recent occurrences, whereas
compliance must be involved prior to the creation of a new product, service, or
agreement. Internal audit is in charge of the company’s overall risk management,
whereas compliance is in charge of the three major risks of reputational, regulatory,
and legal nature.
3. Strengths of internal auditor
Characteristics leading internal auditors possess
• Great communication skills
• Unyielding curiosity
• Technological savvy
• Ability to work independently and on a team
• Drive to be life-long learners
• Integrity and courage
3.1 Levels of quality
The levels of quality that the authors talk about are:
• Acceptable quality
• Appropriate quality
• Aspirational quality
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3.2 Skills and characteristics of an auditor
It is wish of majority of the people to be an auditor but not everyone can be a good
auditor. Auditor should hold good communication and interpersonal skills, intelli-
gent, good listener, good analytical skills with ability to assess the data and determine
how it is related to the audit criteria, command over standards, regulations, audit
techniques, as well as management skills. Auditor should check the compliance as
per objective evidence, audit should be documented if found any irregularity. Audit
in depth in any one clause, this audit type is necessary to find out the system errors.
Auditor should be open-minded and mature, to communicate well, good listener,
possess sound judgment with analytical skills; to understand the knowledge of con-
ducting assessment, be updated regarding the latest relevant polices, have the skill to
complete the tasks within time limits. Must be able to distinguish crucial and essential
points, be able to perceive situation and can understand the role of individuals within
organizations.
3.3 Principals for a good auditor
i. Honesty
ii. Integrity
iii. Impartiality
iv. Good listener
v. No talkative
vi. No leading questions
vii. Positive
viii. Open-minded
ix. Punctual
3.4 Responsibility of lead auditor
The Lead auditor has to lead the team members, be able to support and guide the
technical experts, can conduct introductory/opening as well as final/closing meet-
ing. Have command on assessment process, planning, and preparing the audit and
reports. It is prime responsibility of the lead auditor to assess the management system
against required standards, have competence to review technical activities being
evaluated by the team. The decision regarding the grading of the non-conformities,
decision on time frame for corrective actions, and finally recommendations for grant
of Certification lies with the lead auditor. The Lead auditor be able to make learn to
his team about to conduct audit within time and manners, to collect the required/nec-
essary information by effective ways, e.g., interview, listening, observation, review
of the documents and records. Overall Lead Auditor should be firm in his opinion
despite pressure to change the objective evidences and loyal to the policies/rules/
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regulations. There is another prime responsibly of the auditor is to provide comfort

environment to his team members as well as auditee during the audit.
3.5 Auditor should avoid
The internal auditors should not take audit as a hunting of non-conformities, no act
the role as police, and no criticize on system or individuals. No sharing of experience
and examples of other bodies. The auditor should not show himself as a champion of
the expertise or Jack of all trades. Auditor must not pretend that he has understood
something that he does not. Auditor should remain neutral, positive, and avoid the
dropping out at eleventh hour. During the audit the role of an auditor should be coop-
erative, never place the examples of auditor’s own organization, job, or environment.
3.6 Code of conduct for auditor
3.6.1 Impartiality
Evaluate impartiality toward the conformity/inspection/certification, to be

assessed, and inform the organization on which behalf audit is being conducted.
3.6.2 Confidentiality
Keep information about assessed organization strictly confidential.
3.6.3 Loyalty
Auditor must remain loyal to the organization utilizing the services and must
avoid about any consultancy to the auditee.
3.6.4 Positive
Auditor must keep positive and professional attitude during the audit.
3.7 Questions in internal audit
The internal auditor should use/ask easy questions but must have control over the
question (limit/number of questions). The auditor must avoid questions based on Yes
or No, Leading questions on assumption basis, multiple questions, means question
upon question without complete listening of first reply, provocative question, and any
question without any meaning or meaningless questions. An auditor can ask questions
with the help of seven best words such as what, why, When, When, How, Where, and
Who, and the last/seventh word is SHOW ME. An auditor should start with general
questions, continue into details if necessary. Distinguish between essential and unes-
sential elements. Control the interview so that can collect the needed information.
Planned aspects be assessed and auditor be polite and flexible for new solutions, and
never think that (auditor) knows the best.
The following questions may be raised during the audit:
• What do you do with…?
• Why do you…?
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• How often do you,,,?
• How did you make…?
• Where do you keep…?
• Where do you find information about…?
• Who has the responsibility for…?
• Can you tell me about…?
• When do you see…?
3.8 Questioning techniques: types of questions
The internal Auditor may use some or all of the following questioning
techniques.
Hypothetical
Let us suppose that…
I do not understand
Can you explain it again please…
Systematic
OK, you have done this, this and this, what is next …?
Silent
Many people find silence uncomfortable, and will offer information.
Obvious
Ask the obvious question and hear a pin drop!
Unasked
Analyze the evidence out load, the auditee will interrupt with more information.
Inverse
Good for “resentful” auditee; e.g. do you have all the cooperation you need to do
your job? Breaks the barriers.
Composition
OK. So the instruction says a, but you do b…..
3.9 Internal audit procedure
The inspection/certification/conformity assessment bodies shall have a procedure

to ensure that the organizations have structure, time table, responsibilities, auditor’s
qualification, training of personal and technical requirements for utilization of an
internal auditor for the audit. The auditor must be aware of independence of the audi-
tor, reporting requirements and information of the outcome and follow-up activities.
3.10 Training and approval of the auditors
The selection of internal auditors is also an important aspect of the audit. Before
selection and approval of the auditors, it is necessary to evaluate the auditor in terms
of education, external and internal trainings especially during recent years. The
knowledge and command of the standard include relevant audit techniques. The
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auditors can be selected following the rule “Right person, Right Job, on Right time”
from the organization, sister organization, part-time auditor, combination of above;
but an auditor should be dedicated, committed, and having command over related
standard.
3.11 Internal audit plan
The proper plan of internal audit is mandatory and according to the requirement
of the standard all areas must be included. The plan of internal audit be given as
planned activity well in time.
3.12 Internal audit’s structure
Following are the parts of the structure of internal audit. Such as Agenda of the
internal audit, opening meeting, check lists, closing meeting, report writing (activity
audited, findings, nonconformance, and recommendations for improvements), and
follow-up audits.
3.13 Systematic approach plan
PDCA: Plan, Do, Check, Act.
3.14 Why audit reports
To find facts during audit of the organization, an informative report should and
must be written clear and there must be no ambiguity in findings of internal audit.
The raw data sheet is an essential document to report the facts found during the audit
and be attached as evidence. Every sentence of the internal audit report should be no
ambiguity and use 3 Cs: Clean, Concise, Complete.
3.15 ISO-19011 audit principles
ISO 19011 [1] is defined as a standard that provides guidelines for auditing man-
agement systems. This standard provides guidance on managing the audit program,
audit principles, and the evaluation of the person responsible for managing the
audit program. There are seven principles that need to be incorporated into an audit
program to make auditing an effective tool for your organization and to make the
collected data accurate and useful. These principles help you draw relevant, consis-
tent, and useful audit conclusions. All audit members are expected to follow these
principles during the audit process.
Integrity: The integrity of inner auditors establishes belief and affords the premise
for reliability at the judgment. Auditors want to be ethical, honest, and responsible.
If you aren’t able to audit a procedure, because of a loss of understanding, then you
definitely want to stop. Audits want to be completed impartially to cause them to
truthful and unbiased. Remember, you are auditing to affirm conformity you are not
digging for errors.
Fair presentation: Audit findings, audit conclusions, and audit reviews must rep-
licate truthfully, objective, timely, clear, entire, and as it should be the audit sports
performed. The audit wishes to file the truth, as it should be and objectively. Any audit
statements want to be primarily based totally on verifiable data and now no longer
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at the opinion of the auditor. Audit reporting wishes to be timely, clear, and entire in
order that the data may be acted upon if necessary. If there’s a trouble in a procedure,
this wishes to be said virtually all through the audit procedure, now no longer not
noted all through the audit and simplest pronounced within side the audit file.
Professional approach: Auditors have to exercise due care according with the
significance of the mission they carry out and feature the self-assurance for the audit
consumer and different involved parties. Making affordable judgments primarily
based totally at the significance of the mission is essential. If you are auditing a crucial
function, searching deeper and taking extra samples is a great manner of making sure
which you test thoroughly.
Confidentiality: Internal auditors appreciate the fee and possession of statistics
they obtain and do now no longer divulge statistics without suitable authority except
there’s a criminal or expert responsibility to do so.
Impartial/Independence: Auditors must be unbiased of the hobby being audited
anywhere practicable and must in all instances act in a way this is loose from bias and
war of interest.
Evidence primarily based totally approach: Internal auditors observe knowledge,
skills, and revel in had to gather the proof and have to have basic evidenced
primarily based totally approach. Similar to truthful presentation, the auditor
wishes to have verifiable data to lower back up their audit findings and conclu-
sions. These data basically come from facts of the procedure; however, they also
can be statements of truth through informed employees or observations of sports.
If there’s no proof of non-conformity, then non-conformity must now no longer
be raised.
Risk primarily based totally approach: Considering dangers and possibilities within
side the audit is critical to make sure which you recognition on extensive matters.
Remember the two sorts of dangers that want to be addressed the dangers that the
audit targets will now no longer be met, and the threat that the audit will adversely
have an effect on the procedure being audited.
Culturally sensitive: Respect for the lifestyle of the auditee is vital for an auditor to
efficaciously discover the statistics they want to decide if the deliberate preparations
for the procedure are met.
Collaborative: Even though audits are completed independently, the general audit
is frequently completed as a team, and the auditor will want to collaborate with that
team, and the auditee’s employees, to get the activity completed.
3.16 Types of non-conformances
It is responsibility of the assessor’s in consultation with the technical asses-

sors (if relevant). International guideline is available [10] on grading of non-
conformances exist. The non-conformity may write after completely investigation/
digging of clause.
Observation: If there is a minor gap in compliance as per requirement and there is a
single instance that does not lead to destruction is given as “Observation” in result of
audit.
Very Serious (Major): Systematic and/or extensive problem that may or
definitely threaten the results and hence threaten the credibility of Conformity
Assessment/Certification is considered as “very Serious” Non-Conformance.
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Very serious non-conformance must be corrected as soon as possible without

wastage of time.
Essential (Minor): An essential non-acceptable single incident or a continuous
problem (systematic) that must be addressed and corrected in a timely manner but
does not have a destruction threat to the system.
Non-Conformities: Despite above grading of non-conformities, following are also
considered non-conformity, if no follow-up of Management Review Committee
(MRC) and violation of own procedures.
Note: If assessors are assessing as a team, then many single event non-conformities
raised by different assessors/auditors can be combined to a systematic non-confor-
mity. Avoid those non-conformances regarding direct to analyst of do not write name
of any analyst in nonconformity. Nonconformity may write after completely investi-
gation/digging of the clause.
3.17 Difference between evaluation, audit, and assessment
There is no much difference in the evaluation, audit, and assessment activities, but
there is a difference between names of performing audit and auditee.
3.17.1 Evaluation
It is process to evaluation (audit) of an Accreditation body of the member country,

the evaluators are nominated/Selected by International Laboratory Accreditation
Council (ILAC) from different member countries. Evaluators can evaluate only
accreditation bodies. Almost there is one accreditation body in one country, in some
cases more than bodies are working simultaneously.
3.17.2 Audit
It is same process, but name is different called auditor. Auditor can audit only
certification and inspection bodies.
3.17.3 Assessment
This term is used for assessment (audit) of conformity assessment bodies (CAB)
such as testing and calibration laboratories.
4. Discussion and conclusion
Audit/Assessment is important in monitoring the effectiveness of the implementa-

tion of the standard or some specific requirements in the organization/laboratory/
inspection/certification body/quality management system. Both external and internal
audits yield useful information; however, internal audit is the major and detailed
activity having a complete overview of all activities with ample time. Audits are used
to identify problems in the organization, in order to improve processes and proce-
dures. An outcome of audit/assessment is lead toward the improvement by finding
root causes of problems and taking corrective actions. Internal audits be conducted
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on regular basis as per plan that will definitely provide information for continual
improvement. Findings of the internal audits may become opportunities for improve-
ment if taken positively. Internal audit is a mandatory activity for all ISO standards.
Internal audit is a well-thought-out, world-class format for planning and performing
process audits. It can help to ensure that the process implemented is consistent and
effective for the required outcome.
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References
[1] ISO 19011:2018. Guidelines for [9] Devadasan SR, Rajendran M. Quality
Auditing Management System audits: Their status, prowess and future
focus. Managerial Auditing Journal.
[2] Hamza LK. Impact of implementing 2005;20(4):364-382
ISO/IEC 17025 and its role in improving
performance of laboratories of sudanese [10] ILAC-G20:2002. Guidelines-on-
standards and metrology organization Grading-of-Non-Conformities
[M.Sc Thesis in Total Quality
Management and Excellence]. Sudan
University of Science and Technology;
2015. Available from: http://repository.
sustech.edu
[3] Dahlgaard JJ, Kristensen K,

Kanji GK. Fundamentals of Total
Quality Management: Process Analysis
and Improvement. Illustrated ed.
Cheltenham: Nelson Thornes Limited;
2002
[4] Panhwar A, Memon AR,

Naeem A, Ibad SZ u, Kandhro A,
Jalbani N, et al. Responsibilities and
qualities of an assessor/auditor as per
ISO/IEC standards. International
Journal of Current Research.
2020;12(02):10223-10226
[5] KPMG. Transforming Internal Audit

from its Compliance Role into a Strategic
Organizational Tool. London: KPMG;
1999
[6] Negakis C, Tachinakis P. Modern

Auditing and Internal Auditing. Athens:
Duplication; 2013
[7] Alic M, Rusjan B. Contribution of

the ISO 9001 internal audit to business
performance. International Journal of
Quality and Reliability Management.
2010;27(8):916-937
[8] Karapetrovic S, Willborn W.

Audit and self-assessment in quality
management: Comparison and
compatibility. Managerial Audit Journal.
2001;16(6):366-377
72
Chapter 6
Problems of Improving the Quality

Management System of a
University in the Era of Big Data
(Experience of Professional
Training of Railway Engineers)
Zhanna Maslova and Ilona Khitarova
Abstract
The application of the analytical approach to quality management in higher

education bodies is particularly relevant. The problems of formation,
implementation, and practical use of quality management system in higher education
have not yet been sufficiently reflected in the studies of foreign and domestic
specialists, although there are a large number of publications on the formation and
implementation of quality management systems in industrial production conditions.
The publication intends to consider the main triad of education quality components:
conditions, process, and result of educational activity. The quality of education is
presented as a system functionally related to all parameters and a measurable
characteristic of the function-ing of an educational organization. The quality of such
functioning is represented as a degree of implementation of the main goal, which
consists of achieving a given (normative) level of students’ preparedness and
providing the basis for sustainable development. As an illustration to the theoretical
provisions, the experience of imple-mentation and certification of quality
management system in the leading technical university of Russia is considered,
recommendations on the development of strategic and operational management
documents in the implementation and practical use of quality management system in
the university are given.
Keywords: quality management system, higher education, strategic management,

operational management, quality objectives, model, education market, Big data,
statistics, data sets
1. Introduction
Global processes taking place in the society are inevitably reflected in the state of
education. Economic, social, and environmental challenges in modern society, the
73
formation of innovative orientation of the economy, integration into the world set new
priorities and tasks for the system of higher education, among which the most urgent
is the task of ensuring the quality of training specialists. At present, education is in the
first place among the factors of human development. The importance of knowledge in
the economic development of the countries of the world is increasing rapidly, ahead of
the importance of the means of production and natural resources. When calculating the
rating of countries according to the Human Capital Index, an important factor is invest-
ment in people through quality health care, education, skills, and jobs. The health and
education components included in the Index are used in combination, which, judging
by the data of empirical studies conducted at the microeconomic level, reflects their
contribution to the level of productivity and accumulation of public goods. The quality
of education plays a key role. The report states that “the governments of many states allo-
cate a significant share of their budgets to education and health, but often public services
fail to form human capital because of their poor quality, as the bureaucratic apparatus
proves unable or not motivated to convert sound policies into effective programs” [1].
Thus, to a large extent, the economic success of the state is determined by its
educational system and the education of its citizens. This circumstance has led to an
awareness in developed countries of the role of education in society, the need for its
priority development, and the development of new methods and tools for quality
management.
The publication deals with quality management in higher education in the era of
Big Data. Big Data is not just a large amount of information. We are talking about
unstructured data. It is a huge and chaotic flow of information from different sources,
which raises the problem of processing and ordering information. Thanks to data
analysis, it is possible to predict the behavior of large groups of people. Big data allows
not only to know in advance what representatives of a particular audience will choose,
but also to predict how this choice will change over time. Big Data is, on the one hand,
a set of technologies, tools, methods, and approaches designed to solve the problem
of processing large volumes of data, and on the other hand, it is a volume of data that
cannot be processed conventionally, that is, by traditional methods. The strongest
factor in expanding the range of applications of Big Data is the Internet.
The usual field of application of Big Data is marketing. By analyzing the data,
companies study what principles guide the consumer’s choice of product or service.
As a result, marketers model the behavior of the potential consumer and launch an
appropriate advertising campaign. For education, an important feature of Big Data is
the ability to analyze different parameters and modeling.
“Big data has been a popular research problem across different academic disciplines.
Although this problem has been treated mainly for advancing and innovating tech-
nological development [2], organizations and business communities are continuously
exploring different aspects, perspectives and contextual specifics to find or explore
benefits and value adding for improving practices” [3]. According to s tatistics, the
introduction and use of analytics and work with big data are not just effective, its use
can decide the outcome of competition in the market. In September 2014, Accenture
published the results of a major study called “Big Success from Big Data” [4].
Correspondents surveyed 1,000 company directors from seven different industries.
Ninety-two percent of respondents expressed satisfaction with the end results of Big
Data implementation and its impact on their business, 89% called activity analytics a
very important component in setting up business processes. A GE (General Electric)
study titled “Industrial Internet Insights Report” [5] was conducted by the company in
2015. Ninety percent of respondents from various industries assured: Big Data is in the
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Problems of Improving the Quality Management System of a University…
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top 3 leading areas for their businesses. Eighty-four percent of respondents believe the
use of analytics has the potential to displace competing businesses from the market-
place within 1–3 years. According to Proficient Market Insights, “the global Industrial
Internet of Things (IIoT) market size is projected to reach US$ 78400 million by 2028,
from US$ 57040 million in 2021, at a CAGR of 4.2% during 2022-2028” [6].
Sources of Big Data in education are, first of all, message streams from social
communities, statistics sites. Application of Big Data in higher education is possible
primarily in the analysis of documents and modeling of educational processes. Big
Data technologies imply working with huge arrays of information. There is no univer-
sal method of Big Data processing, but there is a possibility of using various methods,
so it is important to use specific tools for specific strategic decisions.
According to the provisions of ISO 9000 standards, the quality management
system (QMS) must be thoroughly documented. Documentation makes the system
“visible” not only to its developers, but also to users and reviewers. It is only possible
to prove that the QMS complies with the established requirements when the system is
presented in a documented form. Otherwise, it can be argued that there is no qual-
ity system. ISO 9001 establishes the criteria for a quality management system and is
the only standard in its series that can be certified to (although it is not a mandatory
requirement). It can be used by any organization, regardless of its size and field of
activity. Accordingly, this research is based on the analysis of documentation and
the method of modeling. In the quality management system the main features of the
engineering component of the methodology of organizational design are well traced,
in particular, its concepts of the system environment, management, and organiza-
tional changes. At industrial enterprises, the introduction and implementation of
the process approach are seen as a way to improve the effectiveness of the quality
management system.
The problem to be solved in improving the quality management system in the
educational organization is the partial elaboration of documents. Part of the QMS
documents is stipulated in the standard, another part is implied. Therefore, the struc-
ture of the quality management system has a “constant” component defined by the
standard and a “variable” component, which depends on the specific organization.
2. QMS in the system of higher education in Russia
In modern education system, quality is understood as compliance with the stan-

dards. The requirements and recommendations of international ISO 9000 Series of
Quality Standards are widely used as a basis for the formation and implementation of
quality management systems (QMS). The international standards of ISO 9000 series
include requirements and recommendations that provide methods for monitoring,
measuring, analyzing, and improving all QMS processes. The implementation and
subsequent continuous improvement of the QMS require not only understanding and
vision of its development prospects, but also the use of objective methods of measure-
ment (including statistical) to assess the effectiveness and efficiency of both the QMS
of the university as a whole and its individual processes. The potential stakeholders
in the ISO standards are consumers, society, suppliers, owners (shareholders), and
personnel of the organization, which corresponds to the quality management prin-
ciples formulated in the ISO 9000 Standards.
Problems of formation, implementation, certification, and practical use of QMS,
its subsystems and mechanisms in universities, have not yet found a sufficiently
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75
complete reflection in the studies of foreign and domestic experts. Most publica-
tions are devoted to the problems of quality in the QMS of industrial production
organizations.
Ph. Crosby, one of the well-known experts in the field of quality, studying the
issues of value assessment of quality, expressed the famous aphorism: “Quality is still
free” [7]. It follows that the manufacturer does not have to pay for quality, but for its
presence, which must be the subject of constant monitoring and analysis. E. Deming
wrote: “The consumer is the most important link in the production line. Quality must
be aimed at satisfying his needs, present and future” [8]. Eventually transformed into
the process of satisfying the needs of existing and potential customers, at the current
stage of business development quality is naturally formalized in the principles of
Total Quality Management – TQM and acts in its new understanding as a measure of
balancing the expectations of all stakeholders. There is a difficulty in direct applica-
tion of TQM principles in the formation of QMS of higher education institution.
Currently, educational organizations use the following basic principles of the well-
known system of total quality management (TQM) [9]:
• active quality management by the administration of the educational organization;
• organization of the activities based on the requests of employers and reactions of

society;
• selection of strategies and policies in the field of quality, aimed at continuous

improvement and achievement of results, providing stable operation of the
educational organization;
• creation of quality systems, taking into account the recommendations of interna-

tional ISO 9000 Series of Quality Standards, supplemented by the experience of
the best educational organizations;
• continuous professional development of the staff and its involvement in the

work to improve the quality of educational services provided;
• provision of necessary resources with minimal stocks and rational use of them;
• information and analytical support of the work in the field of quality;
• effective management of all processes taking place in the university;
• implementing of certification of educational services and quality systems, track-

ing and compliance with current legislation in the field of quality.
The participation of university units in the implementation of macro processes of

quality management system is as follows (Figure 1):
The university receives information, capital, human resources, and materials
from the environment. These components are called inputs. In the transformation
process, the educational institution processes these inputs, converting them into
products or services, which are outputs of the organization that it brings out into the
environment.
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Figure 1.
Macro processes of quality management system at the university.
In Russian higher education, the participation of management in the development

of quality management system should be emphasized. The rector of the university
decides on the expediency of the preparation, implementation, and subsequent
certification of the quality management system. The rector appoints a quality man-
agement representative, who will be the project manager of the quality management
system preparation for certification. The quality management representative, top
management, and consultants jointly determine the list of subdivisions involved in
the work, and by the Rector’s order, form the Quality Council, which includes (ex
officio) the heads of administration all departments involved in the preparation of the
quality management system departments involved in preparing the quality manage-
ment system for certification. The Quality Council is chaired by the Rector.
3. The problem of assessing the quality of education
One of the main tasks of higher education is to ensure the quality of specialists.
The problem of the quality of education has always existed. Now it has become
extremely acute not only in Russia, but all over the world. At the same time, there are
no clear criteria for the concept of “quality of education.”
The education system in the Russian Federation is considered as a service that
meets the educational needs of the population. In accordance with the Russian
Federation Law “On Education” (Article 2), “education is a single purposeful process
of education and training, which is a socially important benefit and is implemented
in the interests of the individual, family, society and the state, as well as the totality of
the acquired knowledge, abilities, skills, values, activity experience and competence
of a certain volume and complexity for the purposes of the intellectual, spiritual,
moral, creative, physical and/or professional development of an individual, meet-
ing his educational needs, and, as a result, the quality of education” [10]. In Russian
higher education, the quality of specialists training is connected mainly with the
implementation of State Educational Standards of higher professional education,
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state regulation of higher education institutions. An educational standard is a set of

mandatory requirements for higher education.
Educational programs of a particular cycle of subjects determine the content
of education of the corresponding level and orientation and are divided into two
major groups by their intended purpose: general education and professional. Basic
educational programs are designed to ensure the achievement of such a level, which
corresponds to the state educational standard. State Educational Standards of higher
professional education determine the educational minimum content of the main edu-
cational programs, the maximum educational load of students, the requirements for
the level of training of graduates. These standards are established by the state authori-
ties (management) and act as a basis for objective assessment of the level of education
and qualification of graduates, regardless of the form of education. Orientation of
some universities only on State Educational Standards of higher professional educa-
tion as a guarantee of quality assurance has two drawbacks: the false idea that qual-
ity can be achieved by inspection; neglecting the needs of the educational market
(standards do not keep pace with changes in employers’ requirements).
In the State Educational Standards, the model of training specialists is personally
oriented. The quality of the result of training programs is determined by two blocks
of parameters that characterize the knowledge accumulated in a particular academic
area and acquired competencies, including the personal development of students
(critical thinking, general development).
The education system objectively operates on the following markets: the segment
of the market of educational services, providing satisfaction of the needs of citizens
in education and training; the segment of the labor market, providing satisfaction
of the needs of employers and professionals; the segment of the market of intel-
lectual goods, providing satisfaction of consumers (customers) in new knowledge,
technologies, and knowledge-intensive products. The results of the activity of higher
education institutions are manifested in several types, namely: services of educational
character; scientific and technical products; integrated products based on scientific
and technical products and educational services; educational and methodological
developments.
3.1 Approaches to assessing the quality of educational services
There are two approaches to assessing the quality of educational services.

Assessment of consumer properties of services (quality as value) is determined by
active involvement of all stakeholders (students, faculty, corporate partners, etc.)
in quality assurance processes at all levels of its management (the USA, Germany,
Taiwan, Philippines). At the same time, quality control and assessment are either the
priority of state structures or government-funded structures (Germany, the United
Kingdom), or are based on internal process of control and self-regulation and exter-
nal, expert quality assessment (the USA, Taiwan, the Philippines) [11].
The second approach is characterized by a wide range of powers of the state in
ensuring the quality of educational services. The composition and quality of educa-
tional programs are determined and regulated by the state. The control and evalua-
tion of education quality are centralized (France, Russia, Kazakhstan). In accordance
with this, the quality of education in the context of the quality of the result of the
educational process is considered as “compliance of the level of knowledge of students
and graduates to the standards,” on the one hand, and the needs of the market, on the
other hand. The parity of state and market interests in the field of quality is provided
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by the state standards through the system of elective courses, the composition and
content of which are determined by the university independently.
The system of higher education in Russia has a more developed external quality
assessment, focused on standards and performance indicators. The main elements
of this system are standardization and procedures for licensing, attestation, and
accreditation, as well as a comprehensive assessment of educational institutions as a
whole and individual specialties based on the rating system. All of these procedures
involve an internal review. One of the undesirable consequences of external control in
education is the tendency to block information that lowers the grade. This leads to the
loss of credibility of the entire system of management information.
The starting point of quality management system formation is to build a “model”
of a university graduate as a set of certain personal professional qualities, the devel-
opment of which should be aimed at the educational process: its content, teaching
methods, forms of organization, methods of monitoring and evaluation of students’
knowledge. The quality management system in higher education institution as a whole
consists of the quality management of each type of university activities (educational,
scientific, educational-methodological, educational, administrative-economic, etc.).
The analysis of different models of quality management systems has shown that
the technological solutions of quality management in an educational organization
should be focused on:
• elaboration of the mission, policy, and development strategy of the educational

organization;
• creation of a new dynamic organizational management structure, including the

definition of the components of this structure and their position in relation to
each other, the establishment of interconnection of components, and ensuring
the implementation of “development” strategy and interaction;
• transition from the subordinate principle of management organization to the

dominance of horizontal coordination type organization, uniting equal and
independent components on the basis of self-organization and self-development;
• the optimal combination of functional and linear quality management structures

with a situational approach to management;
• ensuring the integrity of management functions within the management cycle;
• targeting of control actions, definition of objects and subjects of management,

clear delimitation of powers, rights, duties, and responsibilities of the subjects of
management;
• strengthening elements of monitoring, analysis, and evaluation of the results of the

educational process, the construction of sound criteria and evaluation indicators;
• combination of different types of material and social motivation, as well as

volitional management, organizational impact;
• economic, educational, organizational, and administrative, psychological and

pedagogical methods of management.
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3.2 Development of quality systems in higher education organizations
There are two main ways to create quality systems in higher education institu-
tions. The first is the development of a unique model of quality management system
on the example of a particular institution, partly universal and applicable to other
organizations. The second way is the use of universal principles of modern quality
management systems used in different spheres of human activity. The third way is
the integrated process of building a unique quality management system in education
using TQM principles and the requirements of international ISO standards.
The top management should bring to the attention of the staff the following provi-
sion: in order to manage the quality of the process, it is necessary to be able to measure
its effectiveness and efficiency. In addition, the management of the university should
ensure that the management representative prepares a report on the functioning of
the QMS and the need to improve it. This report should be used as input for manage-
ment’s analysis. It usually includes the following information [12]: the status of actions
based on previous management reviews; changes in external and internal factors;
information on the QMS performance and results, including various trends (customer
satisfaction; feedback from stakeholders; extent to which quality objectives have been
achieved; nonconformance and corrective actions; monitoring and measurement
results; audit results; external supplier results); adequacy of resources; effectiveness of
actions taken in relation to risks and opportunities; opportunities for improvement.
Methods should be developed to measure (evaluate) the performance of each pro-
cess. Senior management should ensure that the results of analysis are used to assess:
• the conformity of products and services (results of processes of educational

services and other categories of university products);
• the degree of customer satisfaction; c) performance and effectiveness of the

QMS; d) the success of planning;
• the effectiveness of actions taken in relation to risks and opportunities;
• results of external suppliers (including the expected number of high school

graduates and secondary vocational school graduates);
• needs for improvement of the QMS.
The quality of the results of the activity of higher educational institutions (HEIs)
should be provided through quality management of the main working processes
of HEIs. It is reasonable to distinguish three groups of processes: basic processes,
management processes, and supporting processes. Taking into account these require-
ments, it is possible to recommend to distinguish the formation of educational
program of professional education and organization of educational process among
the main processes of educational activity of university. Each of the abovementioned
processes should include subprocesses, which should take into account the general
requirements for the formation and organization of educational process, as well as the
specifics of the university. In turn, these processes can also be decomposed.
Quality management processes at universities (HEIs) should include, first of all,
those processes that are regulated by mandatory procedures in accordance with ISO
9001:2015 “Quality management system. Requirements” [12]. These include: QMS
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Figure 2.
Quality management processes at universities that should be under analysis.
documentation management, quality data management (records), internal audit,

management of nonconforming products, corrective and preventive actions. In addi-
tion, it is also necessary to provide for a number of other processes, such as develop-
ment and updating of quality policy and objectives, quality planning, quality analysis
by management, etc. (Figure 2).
It is claimed in some research that all of the dimensions of e-services quality have
had an impact on student satisfaction for ease of use [3].
To characterize the quality of education, certain indicators are introduced, which
can be divided into three enlarged groups: indicators of investment in education,
indicators of the quality of processes, and indicators of the quality of results. The
indicators of the first group include information on financial, material, and technical,
personnel, information and methodological support, etc. The indicators of the second
group—process quality indicators—are identified on the basis of information
In order to be able to use the information obtained in the process of improving the
quality of education, it is necessary to combine all the indicators that characterize the
educational system “at the input,” “in the process,” and “at the output,” to establish
the nature of the observed relationships and then, based on the analysis done, to
outline a strategy to improve the quality of the output results.
There are indicators of the third group, they include the results of the assessment
of the quality of training and value orientation of students, as well as information
about their career development after the completion of a certain educational stage.
To assess the effectiveness of the educational institution, the indicators affecting
the learning outcomes can be divided into:
• indicators of the capacity of the organization or the area of activity under study;
static indicators of performance and effectiveness achieved to date.
Processing of the results of education quality assessment can be carried out using
special statistical methods of regression and correlation analysis, specific techniques
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recommended by ISO 9000 Series of Quality Standards. The method of multilevel

models is also used to assess the effectiveness and efficiency of the organization or a
separate direction.
After determining the indicators that characterize the quality of the educational
process, it is necessary to design the process of quality analysis (monitoring, informa-
tion processing, and evaluation). The process of self-analysis and self-assessment
is extremely useful, which is not so simple and requires considerable expense. It is
extremely important to conduct self-analysis of an educational organization and be
able to compare its results with the opinion of independent external experts.
The organization must identify the processes required for the quality management
system and establish the sequence of these processes and their interaction.
With the introduction of big data analysis in the quality management system of
universities, it is effective to consider the concepts of “risks” and “opportunities” as
two independent and independent indicators. In this case, it is characteristic to tie
“risks” to unfavorable events, and “opportunities” to favorable ones. The indicator
“opportunities” should be considered separately from the indicator “risks.”
The system of Hazard Analysis and Critical Control Points (HACCP) provides for
the application of risk assessments using a combination of two indicators, the first
of which is called “probabilities of hazard realization” and the second – “severity of
consequences from the realization of the hazard” [13].
By analogy with HACCP, it is proposed to use the following approach: when
assessing the indicator “possibility” (P) using a combination of two indicators:
1. Experts make a point estimate of the first indicator – “probability of realization

of potential improvement” (PI) based on four possible assessment options in the
form of points: 1 – practically equal to zero; 2 – low (probability of realization
not more than 40%); 3 – medium (probability of realization 40...85%); 4 – high
(probability of realization 85...100%);
2. Experts carry out point estimation of the second indicator – “significance of

positive consequences of the supposed improvement” (SI). Here also four vari-
ants of this consequence estimation are possible (in the form of points given be-
low): 1 – very small (the effect of improvement is insignificant); 2 – small (costs
are recouped in 3 – 7 years); 3 – significant (costs are recouped in 1 – 3 years); 4
– large (costs are recouped faster than 1 year);
3. The boundary of permissible values of indicator “possibilities” on the qualita-

tive diagram coordinates in the form of “probability of realization of potential
improvement” (PI) and “significance of positive consequences of supposed
improvement” (SI) as it is indicated in Figure 3;
4. For each considered case of using the indicator “possibility” (improvement), a

point is plotted on the diagram with the coordinates of PI and SI, the values of
which were evaluated as indicated above. If the point lies on the border or above –
the assessed option of improvement of activity in QMS is characterized by a high
value of the “possibility” and should be considered by the management of the divi-
sion or organization for the use of the available opportunity. If the point lies below
the border, then the value of the indicator of “possibility” is small in magnitude,
and the considered option of improvement of activity is unpromising for planning
and implementation of the project aimed at use of the available situation. Thus,
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Figure 3.
Sphere of opportunity distribution.
the indicator “possibility” (improvement) is represented by a point (vector) on the

plane with coordinates PI and SI. Possibility = F(PI, SI), where PI – point estimate
of “probability of potential improvement”; SI – point estimate of “significance of
positive consequences of the expected improvement”; F – designation of the func-
tion, which puts a point on Figure 3 in accordance with the coordinates of PI and SI.
In the figure, the boundary of the desired values of the indicator “possibility” is
plotted with the coordinates of PI and SI. Going to or beyond this boundary means
that the situation is promising for the project to use the available opportunity of
improvement. There are cases if a point lies in the area of low values of the indicator
“possibility” or if a point lies in the area of high (desirable) values of this indicator.
If a point lies on the border, it is also corresponding to high (desirable) values of the
“possibility” indicator. The two-dimensional evaluation of the “possibility” indica-
tor seems to be the most convenient and universal. Interpretation of this indicator
(“possibility”) as a set of two indicators of PI and SI allows to enter the following
definition: indicator of “possibility” of improvement is “probability of realization
of potential improvement” (PI) taking into account “significance of positive conse-
quences of supposed improvement (SI).”
4. Conclusion
The use of big data seems obvious and inevitable: “the industry 4.0 revolution was
entirely based on the new technologies, mainly in computer and information tech-
nologies. With the introduction and the use of Internet of things, cloud services, big
data, artificial intelligence, various algorithms result in integrated systems providing
excellent customer service for the organization activities” [14]. However, the analysis
and application of processing results require resources and should be built into the
quality management system of the university.
In all educational systems, foreign and national, the object of education quality
assessment is the quality of educational services, which is traditionally evaluated by
the results, which are understood as learning outcomes (experience accumulated
in the learning process). The content of the concept “quality” is largely determined by
the system of quality assurance and control adopted in the sphere of education in this
or that state and, primarily, by the government’s powers in solving these problems.
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The HEI quality management system can be built in accordance with the require-
ments and recommendations of international ISO 9000 Series of Quality Standards,
the principles of Total Quality Management (TQM), or based on the model of the
European Foundation for Quality Management (EFQM).
Universities need to find their own methods, techniques, procedures of self-
assessment, and self-analysis of activities, to create associations of single-profile
educational organizations and enterprises—consumers of specialists for an adequate
and effective quality audit. In modern conditions practically every HEI is interested in
creating a system that would constantly monitor, evaluate, forecast, plan, and manage
all the processes in the HEI. The need for this system is justified, and its reasonable
application will allow the institution to successfully compete in the labor market and
educational services.
One of the main difficulties that exist today for the implementation of big data in
university management practices is the difficulty of translating data sets into simple
indicators. The expensiveness of the use of big data is obvious, while the efficiency
is recognized insofar as we are living in the era of another technological revolution.
In addition, the processing of big data requires software and specialists. In practice,
universities engage professional marketers and market specialists to solve their prob-
lems. It is necessary to provide a mechanism for translating big data into a few simple
indicators that reflect management efficiency.
The use of big data in higher education is necessary. First of all, it is the analysis of
attendance at the university website and university profiles in social networks. This
analysis involves serious analytics and statistical processing that will never be of deep
interest to middle and upper management because of its complexity. This is another
reason for converting the data into simple metrics. Big data analysis should be imple-
mented, first of all, in monitoring the results of educational services.
To sum up, the mission, vision, goals, development strategy, and quality policy
of the HEI together form an important strategic management tool, which expresses
the spirit of the organization, states what the organization stands for, what its pur-
pose is, what its goals are, where it is going, how it is going to achieve all this, and
what important points everyone has to focus on. They shape the collective ambition
of the organization, have an important influence on the connection of employees
and employees to the organization and to the quality of their work. A successfully
articulated collective ambition reveals to people how their activities contribute to the
common cause, how they work together to achieve goals that contribute to a higher
quality of performance in the organization.
After developing strategic plans, determining critical success factors and perfor-
mance metrics, defining policies, and setting quality goals for the organization, there
appear: the strategic plan of the organization as a whole; operational plans for the
departments (services) of the organization; specific quality improvement projects.
After approval of these strategic and operational plans, they proceed to implement
them. The specific actions are usually defined in operational plans for the various
business functions, usually developed over a period of time for various business
functions, usually developed for a period of up to one year. The central issues of such
operational plans are:
• what market research needs to be done?
• what new specialties need to be opened?
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• what academic disciplines will be introduced in the new academic year?
• what new educational laboratories should be created?
• what needs to be financed?
• what human resources will be needed?
• what will have to be purchased?
• what research and development
• what repairs and (or) maintenance will have to be performed?
• what services (third-party organizations, partners) will be required?
Only after the answering the above questions it will be possible to begin to achieve
the goals set by implementing the strategic and operational plans of the organization.
These questions are useful in that they capture those areas of activity where the use of
big data is appropriate.
Conflict of interest
All authors declare that they have no conflicts of interest.
Appendices and nomenclature
EFQM European Foundation for Quality Management

HEIs higher educational institutions
IIoT Industrial Internet of Things
PI probability of realization of potential improvement
QMS quality management systems
SI significance of positive consequences of the supposed improvement
TQM Total Quality Management
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and big data technologies for higher 620a8c698de35861ad4c9d9696ee0c3ee7a/
education. Education and Information [Accessed: May 20, 2022]
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[11] Miah SJ, Solomonides I, Gammack J.
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Chapter 7
Accelerated Change for the Good

(ACG™)Facilitator – A
Transformational Approach to
Perform Continuous Improvement
(CI)
Andrew Wowczuk, Yurij Wowczuk, Zenovy Wowczuk and
Borys Wowczuk
“Long-term commitment to new learning and new philosophy is required of any

management that seeks transformation. The timid and the fainthearted, and the
people that expect quick results, are doomed to disappointment.”
—W. Edwards Deming, Author of Out of the Crisis (1986).
Abstract
This chapter introduces an updated Kaizen-based concept of facilitation through a

uniquely guided organizational approach and certification program. The Accelerated
Change for the Good (ACG) Facilitator program was developed exclusively by the
Civil-Military Innovation Institute (CMI2). The contents of the program follow best
practices in Lean and Six Sigma methods using DMAIC (Define, Measure, Analyze,
Improve, and Control) problem-solving techniques and stress modern facilitation
skills. From an implementation perspective, ACG accelerates an organization’s initia-
tion of continuous improvement (CI) by overcoming the constraints of traditional
Lean/Six Sigma deployments. The ACG framework has been structured into an inter-
active 30 h of contact time using various blended knowledge transfer techniques.
To obtain certification, a student must complete all workshop activities, pass a
50-question web-based quiz, and submit written evidence of leading or participating
in a live event by applying the tools and techniques provided. The submittal of an
event requires documentation by an exclusive workbook provided in the workshop.
The program has been approved as a micro-credential activity at SUNY Maritime
College and will be rolled out to several other academic institutions in the next
24 months. CMI2 has customized the program to meet client needs and has delivered
the contents using both classroom and virtual platforms (e.g., Zoom, MS Teams) with
a diversified cross-functional mix of participants. The research initially conducted
during the formative stages of this framework consisted of a review of the lean
88
management, continuous improvement, and operational excellence literature with a

particular view toward defined and tested models (e.g., Toyota Production System,
Danaher Business System). Particular emphasis was placed on methods that were
applicable for a variety of industries and organizational/business structures, and that
emphasized sustainability, human capital development, and focus on innovation.
Keywords: kaizen, Lean/Six Sigma, continuous improvement, ACG, process

improvement, quality engineering, team dynamics, business process improvement,
team dynamics
1. Introduction
ACG is an acronym for “Accelerated Change for the Good, which replaces the
Japanese term Kaizen. Kaizen translates to “good change,” “change for the better,” or
“improvement.” This methodology is a replacement for traditional Lean/Six Sigma
methods. Figure 1 shows terms typically used in ACG [1].
ACG promotes an attitude where incremental changes, accomplished a set
timeframe, creating a major impact to the organization over time. It requires organi-
zational buy-in and typically includes stakeholders and sometimes even customers
[2]. As a methodology, ACG improves specific processes and systems in a company or
organization by involving both management and frontline employees to initiate sim-
ple changes, knowing that many minor improvements can yield significant results.
Emphasis on non-capital (CAPEX) expenditures exploiting all the resources available
in existing organization is priority [3].
The notion of incremental change as a management improvement tool can be
traced back to post-World War II, when economic reform consequently took over US,
Japan, and trading partners. In Japan, the Toyota Motor Corporation implemented the
Creative Idea Suggestion System in 1951, which resulted in changes and innovations
that spawned higher product quality and worker productivity, contributing to the
company’s development.
In 1955, Japanese executives started visiting the United States as one of the initiatives
of the Japan Productivity Center to benefit from American Innovation and know-how.
Integrating the American way of doing business with a humanized approach pushed
Japanese companies into worldwide competitiveness. During the 1980’s, management
consultant Masaaki Imai worked with Taiichi Ohno to spread the message of the Toyota
Production System (TPS), a result of several years of continuous improvements.
Figure 1.
Typical words describing ACG.
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Problem-Solving Method
The DMAIC Roadmap
Define Measure Analyze Improve Control
• Initiate the • Understand the • Analyze Data to • Verify Critical • Finalize

Project Process Prioritize Key Inputs Using the Control
• Define the • Evaluate Risks on Input Variable Planned System
Process Process Inputs • Identify Waste Experiments • Verify
• Determine • Develop and • Design Long Term
Customer Evaluate Improvements Capability
Requirements Measurement • Pilot new Process
• Define Key Systems
Process • Measure Current
Output Process
Variables Performance
Table 1.
The DMAIC process: Problem-solving in five phases found in Lean/Six Sigma.
Considered the Father of Incremental Change, Masaaki Imai globally introduced a

new systematic management methodology in Kaizen: The Key to Japan’s Competitive
Success (1986). Today, organizations across different industries adopt incremental
change as a part of their core values and practice continuous improvement on a daily
basis with best practices and tools from Lean/Six Sigma. Problem-solving is guided by
DMAIC (Define Measure, Improve and Control) as shown in Table 1.
“Kaizen is an everyday improvement—every day is a challenge to find a better

way of doing things. It needs tremendous self-discipline and commitment.”—
Masaaki Imai, Founder of Kaizen Institute.
2. Core principles and key elements required for successful ACG

implementation
One of the goals of ACG certification is to accelerate the knowledge transfer

processes in CI by making ACG facilitators the in-house champions for methodology
acceptance. Traditional Lean/Six Sigma certification bypasses the applied learning of
new techniques and does not tie methodology transfer with project execution. The
Implementation of CI in the workplace can be difficult or nearly impossible because
management usually expects immediate dramatic results. Therefore, many Lean/Six
Sigma initiatives have not shown benefits tangible, sustained. Companies often miss
out on improved safety performance, optimized business processes, and enhanced
employee engagement due to an exclusive focus on breakthrough performance.
• Maximize Employee Involvement and Empowerment in CI with Emphasis on

“Value Add”
Ensure there is an understanding of how “value” is determined in the organization.
Encouraging workers to keep adding value to the products and services will boost
morale. It also gives everyone ownership of continuous improvement.
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Process and Value stream mapping (VSM) are utilized as a process improvement
tool. The ACG framework shows explicitly how the DMAIC problem-solving
methodology should align with process improvement for impact in any type of
business environment or function [4].
ACG implements from the perspective of the employee executing individual job
responsibilities—it is the employee that knows their job more definitively than
anyone. Managers and leaders should create an environment where people feel
empowered to contribute so that suggestions for improvement can come from all
levels and ranks. Create a continuous learning environment where best practices are
applied during ACG events [5].
• Management responsibility
One of the most common reasons CI implementations fail is the lack of support
and, more importantly, action from the organization’s management and leaders. Imai
states, “The top management of the company has the most important role in
implementing this kaizen approach, and then every manager, then it goes down to
rank-and-file employees.” When top management demonstrates its long-term
commitment to continuous improvement, managers inevitably follow through on
ACG initiatives and workers personally develop an ACG mindset.
• Practice employee empowerment

Leaders should create an environment where people feel empowered to contribute
so that suggestions for improvement can come from all levels. Encouraging workers to
keep adding value to the organization boosts morale and gives everyone ownership of
continuous improvement efforts, which contributes to the successful implementation
of ACG.
• ACG events are performed at the workplace with frequently scheduled Gemba
walks
Achieving operational efficiency begins where the actual task happens, not from a
conference room. A Gemba Walk—derived from the term gemba or gembutsu, which
means “the actual place where the work is performed”—is usually done by managers
to learn or review exactly how a specific process works and gain insights from workers
about its improvement. A Gemba Walk Checklist is provided with the workshop
material and guides the observers in asking relevant questions to determine the root
cause of problems and the next steps. Every employee should be required to
participate in a least two ACG events as part of their annual performance review. An
ACG event is typically 2–5 days long, and all action items are completed within a
month following the completion of an event [6–9].
• 5S + 2S
One of the most significant barriers to continuous improvement is clinging to old
practices or assuming new methods will fail. The 5S principles (sort, set, order, shine,
standardize, and sustain) aim to enhance workplace efficiency by constantly looking
for ways to eliminate waste and improve local housekeeping. The initiation of 5S is
usually the start of organizational involvement in Lean practices [10].
Organizations should refrain from thinking that just because something worked
before means, it will continue to work. Status and progress in 5S + 2S should be
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measured in a standardized metric visible at the Gemba. The original 5S in lean is now
supplemented by two additional S—safety and security, emphasizing the setup of
preventive controls and protection for safe work operations. A 5S + 2S program are
initiated as part of continuous improvement.
“Progress cannot be generated when we are satisfied with existing situations.”—

Taiichi Ohno, Father of the TPS—the basis of lean manufacturing
3. Workshop delivery and the certification process
The workshop knowledge transfer consists of an interactive presentation and a

specialized workbook guiding facilitator activities [11]. The pages are annotated and
work standalone learning material in a live ACG event. Workshop execution and
documentation is accomplished by completion of the facilitator workbook.
Workshop facilitators also act as mentors and coaches to the participants as they
execute their first project.
The workshop can be delivered in a live classroom environment or by distance
learning using a virtual platform. The live classroom version is designed for 30 h over
three days with approximately 5 h of homework/self-study. For the proctored virtual
version, the workshop is delivered in 10 one-and-a-half-hour sessions using the con-
tent outline shown on the last page. Both versions will be preceded by a 1-h kick-off
session using a virtual platform providing examples of past projects and a unique
method of project evaluation.
The delivery of a workshop and certification can be customized to the require-
ments of the participants and typically takes the following format:
1. A virtual kick-off session for 1.5 h held 1 week before the start of the actual
workshop—introduces the concept of continuous improvement and starts the
process of potential project selection.
2. Two days, 20 h of face-to-face classroom time.
3. 10 h of Zoom work sessions to complete workshop assignments and imitate

certification event—Zoom sessions are held in the evening and typically are 1.5 h
long over a 4-week duration.
4. Completion and review of a 50 question, open book exam (taken online).
5. The completion and submittal of an ACG event must be accomplished within

6 months after finishing a workshop.
6. Final certification is issued within one month of submitting a project.
4. ACG facilitator workshop contents/syllabus
This workshop/event includes following 22 sections with over 320 PowerPoint

slides and a facilitator workbook. Supplemental material is provided through access in
a Dropbox file maintained by workshop facilitators. New material is added as it
becomes available. Five versions have been delivered to date.
5
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4.1 Define current state (define phase of DMAIC)
• Potential focus areas for ACG start with a detailed review of the current state
process(es). The concept of creating a SIPOC is introduced.
Learning Outcome: The Student will be able to define a ACG project. Document
current state. Complete a process map and project charter demonstrating business
benefits to the organization and define how the project relates to strategic planning.
4.2 Using 5 W ad 1 M
• A problem statement to be used in a project charter is constructed with 5 Ws

(What, Why, When, Where, and Who) and 1 M (a related measurement).
Learning Outcome: This technique is introduced in the kick-off session and serves
as a way to draft and validate ideas for potential projects.
4.3 Data collection
• The importance to capturing the current performance with the right data is
explained. An introduction is provided to Measurement System Analysis (MSA).
Learning Outcome: ACG practitioners learn how to characterize different types

data and use the results to guide for decision making.
4.4 Descriptive statistics
• ACG practitioners see the value of characterizing data beyond just calculating an
average.
Learning Outcome: Excel methods are introduced to calculate the range of

descriptive parameters for both sample and population data.
4.5 ACG explanations
ACG Event purpose and execution – elimination of waste by removing Non-Value

Adding activities resulting in standardized systems, improved efficiency of processes,
higher quality, faster delivery, and cost savings.
4.6 ACG history
• Learn the history of ACG.
Learning Outcome: Understand the history of ACG as it developed from Toyota

Kaizen events and how American companies and civil institutions have adapted it.
4.7 Future state
• To get to the future state, you undertake a focused effort that looks at each
element of the current state and how to make it better.
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• ACG uses the DMAIC (Define, Measure, Analyze, Improve, and Control) as a
Lean operating model.
Learning Outcome: Basic understanding of future-state and the ACG experience.

Understand DMAIC phased problem-solving.
4.8 Value stream and process mapping
• Following an explanation of value, the concept of viewing all aspects of an

organization as a value stream is introduced.
Learning Outcome: Workshop participants understand how to create and interpret

an organization’s value stream.
4.9 ACG versus other improvement methodologies
• Lean, Six Sigma, and ACG are all continuous improvement methodologies. They
vary in application but all help with providing the framework for improvement
of processes.
Learning Outcome: Understand the difference between a ACG project and other
improvement methodologies.
4.10 ACG characteristics
• ACG is an intensive burst of business process improvement.
Learning Outcome: Understand the characteristics of a ACG project and how it is

structured.
4.11 Lean principles
• Lean is generally referred to as a manufacturing or production improvement

methodology but has expanded to health care and office environments.
• It is exemplified by the Toyota Production Method (TPM) and related

frameworks.
• As a term in business, it has a broad-based customer focus that concentrates on

providing more to the customer with the same resources.
Learning Outcome: Understand that ACG events build on lean principles. Learn
those principles.
4.12 Lean process management
• When you start to undertake Lean reviews within an organization, you could
integrate it into the corporate strategy and long-term vision for the business.
Likewise corporate strategies and strategic plans should include CI initiatives as a
primary lever to achieve desired results.
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Learning Outcome: Understand the process of lean management using balanced

scorecard reports.
4.13 Lean industries (control phase)
• Although Lean principles were developed for manufacturing, it is now

recognized within a whole range of business sectors.
Learning Outcome: Learn how different industries use Lean principles.
4.14 Lean analysis tools and measurements
• Within every workflow or production path, there are core elements that are
essential to its success.
• Simple metrics exemplify improvement in the processes before and after

improvement.
Learning Outcome: General overview of the tools used during an ACG project,
including Critical Path Analysis, TIMWOOD, Kanban, JIT, Push & Pull, 5S, Cause &
Effect, Poka Yoke.
4.15 ACG events (ACG project)
• ACG Events are relatively simple in format and can be used to make significant
improvements when continually applied within your organization.
Learning Outcome: Understand the major components and subcomponents of a

ACG Event.
4.16 Forming an ACG event team
• An ACG event should always have an executive team member participate to

display organizational support and alignment with the strategic goals.
Learning Outcome: Understand the key members who should be on an ACG

project and how they are selected. Understand current practices on defining CI func-
tions and roles.
4.17 Event kickoff
The event kickoff is the opportunity to build the energy for the event.
Learning outcome:
• Understand the need for the event kickoff.
• Review typical program materials presented in a kick-off event.
Learning Outcome: Recording Current-state.

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4.18 Effective facilitation
• The role and responsibility of an event or meeting facilitator is explained with

examples. How to recognize and alleviate misbehavior is explained. Team
dynamics are defined.
4.19 The language of lean
• Value Stream—This describes the activities that provide the customer with value
in delivering their product.
Learning Outcome: Understand a Value Stream & Value Stream Mapping.
4.20 Three forms of waste
• In Lean you have three types of waste: Mura, Muri, Muda
Learning Outcome: Understand Musa, Muri, Muda.
4.21 The eight elements of waste
• The eight classic wastes introduce) include overproduction, inventory, defects,

over-processing, waiting, motion, transportation. In the US an eight waste is
added—untapped creativity.
Learning Outcome: Understand the 7 + 1 elements of waste.
4.22 Performing root cause analysis
• Once wastes are determined you can begin looking into the root causes of
problems of the process.
Learning Outcome: Understand Root Cause Analysis.
4.23 Prioritizing improvements (improve phase)
• The team may develop a multitude of possible solutions to resolve problems or a

multitude of solutions for just a single problem so it may be advantageous for the
team to utilize some sort of prioritization or scoring matrix.
Learning Outcome: Understand how to prioritize the improvements and using a

matrix diagram.
Figure 2 shows the contents of the main agenda for a workshop-based workshop.
5. In summary
The ACG framework can dramatically improve the efficiency and standardization
of your company’s workflows, processes, and procedures. Following the format and
methods provided in the ACG workshop can make a significant impact on employee
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Figure 2.
Typical classroom-based agenda.
engagement and culture, and workflow improvements. ACG is a way to transform the
way your business works if everyone is committed to making positive changes at all
company levels. Certification follows a successful project submission. An advanced
version of the ACG workshop is planned for 2023.
It is not necessity to change. Survival is not mandatory. —W.E. Deming.
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References
[1] Imai M. Kaizen: The Key to Japan’s [9] Kobayashi I. 20 Keys to Workplace
Competitive Success. New York: Improvement. Portland, OR, USA:
McGraw-Hill/Irwin; 1986. ISBN 0-07- Productivity Inc.; 1995. ISBN 1-56327-
554332-X 109-5
[2] Dinero D. Training Within Industry: [10] Scotchmer A. 5S Kaizen in 90

The Foundation of. New York: Minutes. USA: Management Books 2000
Productivity Press; 2005. ISBN 1-56327- Ltd.; 2008. ISBN 978-1-85252-547-7
307-1
[11] Karen M, Mike O. The Kaizen Event
[3] Maurer R. The Spirit of Kaizen: Planner. New York: CRC PRESS. ISBN
Creating Lasting Excellence One Small 978-1-56327-351-3
Step at a Time. 1st ed. New York:
McGraw-Hill; 2012. ISBN 978-
0071796170
[4] Bodek N. How to Do Kaizen: A New

Path to Innovation—Empowering
Everyone to be a Problem Solver.
Vancouver, WA, USA: PCS Press; 2010.
ISBN 978-0-9712436-7-5
[5] Graban M, Joe S. Healthcare Kaizen:

Engaging Front-Line Staff in Sustainable
Continuous Improvements. 1st ed. New
York: Productivity Press; 2012. ISBN
978-1439872963
[6] Emiliani B, Stec D, Grasso L,

Stodder J. Better Thinking, Better
Results: Case Study and Analysis of an
Enterprise-Wide Lean Transformation.
2nd ed. Kensington, CT, USA: The
CLBM, LLC; 2007. ISBN 978-0-
9722591-2-5
[7] Hanebuth D. Rethinking Kaizen: An

empirical approach to the employee
perspective. In: Felfe J, editor.
Organizational Development and
Leadership. Vol. 11. Frankfurt A. M.:
Peter Lang; 2002. pp. 59-85. ISBN 978-3-
631-38624-8
[8] Masaaki I. Gemba Kaizen: A

Commonsense, Low-Cost Approach to
Management. 1st ed. McGraw-Hill; 1997.
ISBN 0-07-031446-2
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Chapter 8
Impact of Corporate Investment on

Business Performance: The Case of
Slovenian Firms for the Period
2000–2017
Vladimir Bukvič and Metka Tekavčič
Abstract
This paper, which is derived from comprehensive research based on the

microeconomic theory of investment and the theoretical approach to measuring the
financial performance of firms, presents a conceptual model to define, assess, and
measure the impact of corporate investment on business performance. In terms of
investment, the focus falls only on tangible fixed assets, whereas business perfor-
mance is defined solely as performance measured by the relevant financial indicators.
Several research hypotheses are tested on an extensive sample of Slovenian firms. A
statistically significant correlation between investment and financial performance
indicators is found for the period 2000–2017. This correlation is particularly strong
with net sales revenues, added value, and operating cash flow (EBITDA). Since the
global financial crisis occurring at the break of the last decade is also included in the
designated period, the creditless growth of investment together with the simultaneous
deleveraging that took place after the financial crisis is explored and compared with
the growth of selected financial performance indicators.
Keywords: corporate strategic investment, tangible fixed assets, dynamics of

investment, rating and indebtedness, financial performance
1. Introduction
The purpose of this research is to determine how corporate investment influences

the business performance of firms. This also can be considered as our research ques-
tion. We explore this issue in the case of Slovenian firms, specifically, how successful
they were with their investments in the period from 2010 to 2017. The reason why this
topic has been chosen as a research subject lies in the fact that in spite of the relatively
high capex being spent in firms in the last decade, quite a few of these firms have not
performed well for many years. How many of them did not perform well is also the
subject of our research, with investments achieving neither a satisfactory return on
equity, ROE, nor the planned adequate cash flow.
We might venture to claim that the investment projects should have been justified
by investment programs, or that a better business performance should have been
99
foreseen, expressed either by higher net sales revenues, higher earnings before inter-
ests and taxes plus depreciation and amortization, EBITDA, a higher net profit, a
higher ROE, a higher return on assets, ROA, or a higher positive cash flow, CF, etc. If
we suppose that at the time when the investment decision was made, the investment
projects as such had been assessed as profitable and economically justified, that is,
economically sound, well set up, and promising for the investors, then the question
might be raised, did these investment projects turn out to be as efficient as anticipated
or as they should have been, or to put it another way, did these investments improve
the business performance of the firms. Similarly, the investment project implementa-
tion with respect to what had been planned is also questioned, for example regarding
the suitability of its technology and equipment, the planned investment budget, its
sufficient and reasonable financial resources, reliable market projections, agile man-
agement, qualified labor force, etc. There is also doubt about achieving the required
rate of return on investment projects and other relevant financial ratios by which
business performance is measured and which are expected to be met by various
stakeholders, mainly owners and creditors. Surely, not everything listed above is valid
for all the firms. Among them, there are some who have improved their business
performance due to their investments.
The research problem in our study can be addressed operationally in the following
way. We base our research on resources as key drivers by which successful investment
project implementation and the sustainable and profitable growth of a firm should be
assured. As strong evidence for such a statement, we rely on the theoretical stand-
points and comprehensions of various authors, and from the perspective of the
operationality we set up a simple conceptual and measurement model, which links
investments in tangible fixed assets and the business performance of the firms,
expressed by a number of relevant financial indicators and ratios. From this model, a
basic research thesis is erected: corporate investments in tangible fixed assets have a positive
impact on business performance.
The existing research has mainly considered the effects of individual investments
and their performance, and very rare the researchers have studied how investments
do influence the business performance of the firms. Our research is grounded on a
holistic view of the impact of investments on the business performance of firms,
which can be accounted for as a novelty in this field. The potential contribution of
our paper is to highlight the impact of Slovenian firms’ investments on their
business performance in a rather long time span, including the big financial crisis as
well, which can be also considered as a novelty in the area of corporate investment
activity.
Based on the literature review, the authors develop a simple conceptual and mea-
surement model to study the performance of the firms deriving from their invest-
ment. They establish a set of financial indicators and ratios, relating mainly to increase
in sales, productivity, profitability, and cash flow, and find their correlation with the
investment in tangible fixed assets. They try to find out if these correlations are
statistically significant and how strong they are. Some of this research is quite similar
to what some researchers have already done using the data for their national indus-
tries. Their scientific contribution in this field is an integral approach, a set of two
groups of financial measures of the business performance and establishing or
confirming their relevance to assess the effect of investments on business perfor-
mance. Such a concept—corporate investments generally influence firms’ perfor-
mance—has not been used before, and it is empirically tested on a rather big sample of
Slovenian firms.
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On top of that, the authors also study the behavior of the firms as investors, and
they show how the firms as investors were able to exploit investment opportunities,
what their prevailing motives to invest were, how often and when they invested
(investment dynamics), what their investment growth in the longer study period was,
what efficiency of their investment implementation was, and last but not least what
economic effects they achieved by their investments. Such a complex and all-
embracing analysis of the investment activity of the firms in the real economic sector
in a longer period of time (after the last big financial crisis) at the national level has
not been carried out recently either.
The relevance of this research can be pinpointed by the fact that investment
activity is crucial for the firms’ sustainable growth and their long-lasting performance,
and that the interest of the managers should be increased by the appropriate recovery
of their consciousness and education in the sense that they consider all the resources
that define and influence their investment ability differently than they do currently.
Investment ability manifests in investment implementation and business perfor-
mance. For this reason, it is very important that firms do not pay attention only to the
pre-investment period when they make investment decisions, but also to the imple-
mentation of their investment and to the post-investment period, when they have to
accompany and measure the financial results of their investments to find out how
successful and efficient their investment was. It is especially relevant to know what
financial indicators and ratios the investment influence. All this is the authors’ impor-
tant contribution to the existing body of literature.
In the theoretical part of our research, the concepts and basic issues related to
corporate strategic investments and their impact on business performance are
presented. The scientific method of description and scientific methods of classifica-
tion, comparison, analysis, and synthesis are used. A central issue in implementing
this investigation is to find out whether there exists a correlation between investments
in tangible fixed assets and the financial performance of firms. We do not deal with
the total factor productivity (TFP). It is not an investigation to obtain any relevant
measures of TFP.1
The empirical part of our research is based on the use of several research methods.
As a basic method of our empirical research work, the statistical method of primary
data analysis is used. Preliminary data were obtained by a questionnaire sent to
Slovenian large and medium-sized enterprises (SMEs), classified from A to J
according to the SKD 2008, V2 classification. Only the firms in the non-financial
sector were observed. The financial data for the firms that responded to the question-
naire were collected from the GVIN (BISNODE—D&B) database. For testing the
hypotheses, the chi-square test, t-statistics, and linear regression were used.
As already mentioned above, before testing our research hypotheses, the invest-
ment activities of the firms from our sample in the study period are presented from
various aspects and illustrated graphically. Some results of this kind of research based
on a sample of Slovenian firms are quite surprising.
At the end of this paper, we summarize the main findings of our research, in the
first place the results of testing our research hypotheses. Limitations are also exposed,
as are guidelines for further research work in the field of studying business perfor-
mance due to investments.
1
There is a bulk of literature focusing on the estimation of productivity [1–3].
101
2. Theoretical and conceptual background, and research hypotheses
In the theoretical framework of our research, first, a literature review is

highlighted supporting the relevance of the research question. Thus, business perfor-
mance related to corporate investments is presented and addresses our research
hypothesis. Second, strategic corporate investments are defined with the emphasis on
the dynamics of investment and its funding. Third, a conceptual and measurement
model of investment impact on business performance is set up.
2.1 A literature review from the perspective of the relevance of the research
question
The author of this paper tends to show in a systematic and critical manner how the
existing literature deals with the relationship between investments and a firm’s per-
formance, how it measures the effects of the investments on business performance,
and to what conclusions the researchers have come so far studying this issue. Only on
this basis one can better understand what the contribution of this paper stated above is
like, how this paper is attached to the findings of the existing research work, what in
essence this paper adds to the existing body of literature, and last but not least, why
this research question is relevant.
For many years, a number of authors, such as Schultes [4], have studied the
numerous factors that influence the performance of investments, and quite a few
academicians and experts, for example, Grazzi et al. [5], have followed similar topics
in the field of business, especially as they relate to investments in fixed assets (tangible
and intangible), and studied the measurement of their efficiency from the point of
view of business performance. A relatively strong interest in this field has emerged
especially with regard to strategic investments and their role in strategic planning.
They are considered as a key driver of a firm’s growth and progress [6].
Assessment of the impact of corporate investments was not a relevant research topic
in the past, mainly due to a lack of data on investments. One of the first steps in this
field was made by Doms and Dunne [7] who investigated corporate investments of
American firms. The other researchers followed their case and they have found similar
results: the years of investment inactivity or only of repairs and maintenance of tangible
fixed assets followed the years of intensive investment activity in the firms and in the
whole industry. Carlson and Laseen [8] showed that models of non-convex cost of
adjustment offer a more suitable frame for better understanding of investment deci-
sions and they reject those models that assume regular capital accumulation samples.
Although a lot of research has been done assessing the impact of various factors on
investment project performance [9, 10], there are only a few empirical studies aimed at
investigating the correlation between individual investment project performance and
the firms’ financial performance. We should mention the research work done by Pol-
lack and Adler [11]. They assert that there is a positive relationship between these two
kinds of performance, which sounds logical and can be supported by project manage-
ment theory. In some cases, the size of investment projects, innovation, and technolog-
ical uncertainty, investment projects are not supposed to generate only profits, but they
should also bring about strategic organizational benefits, such as product diversification
to increase market share, the creation of new technical competences, the installation
of new production lines, and the acquisition of new markets [12]. Ekrot et al. [13]
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advocate the thesis that a firm’s performance and efficiency, strongly based on project
management organization, depend to a great extent on the performance of each indi-
vidual project. Serrador and Turner [14] have found that the efficiency of investment
projects measured by time, budget frame, and scope correlates significantly with a
broader range of qualitative performance indicators, for instance, customer satisfaction,
and general firm performance, the latter being expressed by financial ratios, which is
also the subject of our research.
Some literature exists that studies the relationship between the increase of the
firms’ wealth based on investment and their business performance as revealed by
productivity and growth rate [15–19], by employment growth [20], by sales growth
[21], or by other production factors [18, 22].
Models advocating the “learning by doing” principle argue that there is a certain
time needed for workers to learn how to use new technology. For this reason, their
productivity following the investment will very likely be U-shaped. This means that it
decreases at the very beginning and then starts to increase, eventually reaching a
higher level. The majority of empirical researchers [15, 17, 19, 22] provide evidence
that the effect of investment on productivity growth is negative in the short run.
Researchers who study long-term effects do not support a positive relationship
between investment and productivity growth either. This causes quite an enigma
from both the theoretical and the empirical aspects. Why invest in fixed assets if these
investments do not generate benefits? The above-mentioned authors have studied this
relationship in greater detail using a more sophisticated approach and providing
evidence in the case of Italian and French firms that investments de facto improve the
firms’ performance. Meanwhile, Power [15] has not found any evidence of a positive
correlation between productivity and high recent investment spikes. Still, on the other
hand, Huggett and Ospina [17] have found that productivity in fact decreased right
after the implementation of a big investment. Bessen [16] has come to the conclusion
that the productivity in newly built production plants increases over time, which he
ascribes to the process of learning by doing. Power [15] has revealed a positive
correlation between labor productivity and the age of production plants. Shima [19]
has even observed a negative relationship between technical efficiency and the age of
equipment. Kapelko et al. [23] have studied a sample of Spanish firms and they have
come up with an interesting finding, namely that investment spikes cause productiv-
ity to decrease in the first year after an investment (cf. Ospina), that the relationship
between technical changes and investment spikes is U-shaped, and that the effects of
investment spikes on the dynamics of productivity changes differ depending on the
size of the firm.
Based on a different econometric approach, Nilsen et al. [15] have found a positive
and significant effect of investment implemented in the same year on labor produc-
tivity. It is interesting, though, that these effects disappeared throughout the follow-
ing years. Their study also revealed that the group of firms with a bigger investment
spike in at least 1 year of the sample period demonstrated a significantly higher
productivity level than the group of firms with no bigger investments. Similarly,
Grazzi et al. [5] have found a positive relationship between investment spikes and the
firm’s sales growth. Having studied this particular relationship in the case of Italian
and French firms, they realized that if the firms had at least one bigger investment in
the study period, they increased their sales volume and profitability as well. The effect
of the investment was strongest right after its implementation, in the period of the
first year of its operation, afterwards, it decreased.
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2.2 Corporate strategic investments, the dynamics of investment, and its funding
Investments are expenses designed for increasing or maintaining the stack of

capital. We deal only with net investments designating a real capital increase. Mean-
while, following the statistical definition, an investment is everything that cannot be
consumed, and following the general definition, an investment is every expense
designed for increasing income in the future [24]. While investment expenses or
capex can be aligned into several categories, the subject of this research is long-term
corporate investments comprising corporate expenses for durable goods (equipment,
premises).
Whenever we analyze corporate investments, the following questions are raised:
How much capital do the firms want to use, at what given costs, and what return of
capital and product level should be considered? What defines the desired stack of
capital, that is, that stack of capital the firms want to possess in the long run? Clearly,
firms cannot adjust their stack of capital to the level needed in their production right
away. They need a certain period of time. We speak of an adjustment rate at which the
firms adjust themselves from the existing stack of capital to its desired level. The
adjustment rate defines the investment rate. Thus, investments express an adjustment
rate of the economy to its desired level [24]. Technological modernization of produc-
tion processes, such as robotization in firms, is an example of such an adjustment on
the micro level. Today, we are witnessing the 4th industrial revolution, where cyber-
physical systems, the internet of things, IoT, artificial intelligence, AI, and fast-
growing production efficacy methods are broadly applied in the corporate industrial
sector and elsewhere.
When Weissenrieder [6] asked himself what investments create value, he sorted
investments into two groups, namely strategic and non-strategic investments. Strate-
gic investments are those that pursue the goal “to create new value for the owners and
to ensure the firm’s growth.” Non-strategic investments are those that maintain and
save the value made by strategic investments. Strategic investments, such as invest-
ments in new product development or investment in acquiring new markets, are
followed by more non-strategic investments. A strategic investment can be an invest-
ment in tangible fixed assets, which is the subject of our research, or in intangible
fixed assets. It is irrelevant whether we talk about capex or not. Everything that counts
as a cash expense in a firm is closely tied to new value creation and can be, according
to Weissenrieder [6], defined as a strategic investment.
In relation to capital adjustment in firms, there are several studies [7, 25–27] that
have found that firms adjust their production factors, such as capital, in a lumpy
fashion.
A team of researchers [5] supports the thesis that decision-making dealing with
rather big investment projects and their temporal dimension is linked with the man-
agers’ expectations about future business opportunities, and with investment cycles.
From the perspective of investment dynamics, Gourrio and Kashyap [28] provide
evidence that the majority of the aggregate investment changes are explained by the
changes in the number of firms being in the phase of comprehensive investments and
having so-called investment spikes. Similarly, just as in macroeconomics, where we
are interested in how to explain changes in aggregate investments and how these
changes affect economic growth, we would also like to understand heterogeneous
behavior at the micro level.
Sometimes firms renounce their investment, sometimes they are captured by a real
wave of investment. Caballero [29] asserts that accounting for such lumpy
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investments is critical because it has an impact on the formation of the dynamic

behavior of aggregate investments. Gourrio and Kashyap [28] have supported this
thesis with their research of American and Chilean firms. They called the waves of
investments investment spikes. The investment growth rates are mainly due to the
firms’ investment spikes.
As the size of corporate investments depends on the available financial resources,
besides own funds also borrowings, there arises the following issue: In the first decade
of this century, the dynamic growth of corporate investments has been supported
mainly by debt.
At the onset of the financial crisis, the delayed opening of the economy and the late
arrival of international financial markets led to interaction among the financial accel-
erator channel, the liquidity channel, the banking credit extension channel, and the
capital surge. A drastic reversal of foreign capital flows, triggered by banks from the
most developed EU countries, caused a contagion of illiquidity, which drastically
affected all the countries in the region. It led to bankruptcies and liquidations
of firms [30].
After the great financial crisis at the break of the first decade, investment growth
slowed down, firms were obliged primarily to deleverage, and at the very beginning,
commercial banks stopped crediting the firms (credit crunch). Later after the finan-
cial crisis, the criteria and conditions for acquiring credits and loans became very
strict. Thus, after the year 2010, we can observe an economic creditless recovery. This
phenomenon is known as the Phoenix Miracle [31]. For this reason, we have
established another hypothesis and tested it on the case of Slovenian firms, that is: The
rating, defining, and monitoring of firms by commercial banks is closely tied to the firms’
indebtedness, which can point us to an important source of corporate investment funding,
and which strongly influences corporate investment activities.
Figure 1.
Conceptual and measurement model of investment impact on business performance. Source: Author.
105
The rating of firms shows to a certain extent the credit capability of firms, but
ultimately not whether they are able to exploit investment opportunities on the
market and ensure themselves sustainable growth and development.
2.3 Conceptual and measurement model
Figure 1 presents the conceptual and measurement model relating to the

hypothesis that investment in tangible fixed assets as an independent variable directly
influences financial performance as a dependent variable, expressed by some most
commonly used financial indicators and financial ratios.
The business performance of a firm, defined in our conceptual and measurement
model as a dependent variable, can be measured and assessed by a wide range of
financial indicators. In our research, the following financial indicators are used: Net
sales revenues, Added value, EBITDA, and Net profit or net loss. Furthermore, the
following financial ratios are used: Profit margin, ROA, EBITDA/Assets, ROE, Net
profit or net loss per employee, Added value per employee, Sales revenues/Operating
costs (thriftiness), and Net sale revenues per employee. Both groups, financial indi-
cators and financial ratios, derive from the accounting databases of the firms in our
sample.
3. Research methodology
3.1 Questionnaire design
The questionnaire was designed according to the relevant guidelines [32, 33].
Respondents chose among pre-defined possible answers. The closed questions design
was preferred since it makes the alignment of answers easier and more reliable, hence
facilitating statistical analysis.
The questionnaire consisted of two sections. The first section consisted of key
questions inquiring about the opinions of respondents (mainly financial managers and
CEOs), about the investment activity in their firms. The questions in this section were
split into two subsections. The first one deals with the investment activity in their
firms and is relevant for this paper. The second subsection deals with the investment
ability. As this research is rather comprehensive and complex, the investment ability
is a subject of another paper.2 Anyhow, the questionnaire as a whole is enclosed in this
paper.
The second section of the questionnaire gathered general data on the respondents,
such as their position in the firm and age, as well as general data on their firms, for
example, the firm’s year of incorporation, size, average number of employees, and
technical staff.
The first draft of the questionnaire was pilot tested on a convenience sample of 20
financial managers and CEOs. The final version was designed with minor amend-
ments.
The questionnaire analysis relating to the investment activity of the firms in the
study period is presented in Section 4.1 of this paper.
2
See a paper “Impact of companies’ investment ability on their performance” [34].
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3.2 Data collection and sample
The primary data were collected in the period from January to April 2017 by means
of the questionnaire being distributed to 1142 Slovenian large and medium-sized
enterprises, sorted from A to J according to the Slovenian Standard Classification of
Activities (SKD) 2008, V2. The segmentation into large and medium-sized firms was
based on the Slovenian Companies Act (Paragraph 55, ZGD-1-NPB14). In total, 293
questionnaires were completed (of which 91.14% were useable). Thus, we have
received 267 valid questionnaires (with a respondent rate of 23.40%). The sample
consists of large firms (29.21%) and medium-sized firms (70.79%). Firms from all
Slovenian statistical regions [12] were included in the sample. In terms of their legal
and organizational status, the majority of the firms in the sample were limited liability
companies (74.54%) and stock companies (21.35%). Almost 72% of the firms in the
sample fall in the age span between 11 and 30 years, which means that the majority of
the firms in our sample are mature from the perspective of their life cycle.
The financial data of the firms that sent back the questionnaires were acquired for
the period 2010–2017 from the GVIN database, generated from the annual reports of
the firms.
3.3 Data analysis
The causal links in our proposed conceptual model have been tested by bivariate
analysis. This is a statistical method used to analyze the relationship between two
variables. It enables us to draw conclusions from the sample and generalize them to
the entire population. It means that we are able to infer the behavior of the population
as a whole based on the results of the sample analysis. This has been carried out by
setting up hypotheses, which can be either confirmed or rejected by statistical
inference.
By means of the SPSS 25 software platform, we have calculated Pearson’s and
Spearman’s correlation coefficients.
Contingent tables (Crosstabs) have also been used to study links between variables
or constructs in our conceptual model and thereby test our research hypotheses.
Additionally, we wanted to test the link between two nominal variables. Crosstabs are
multidimensional frequency distributions, which generally enable one to infer about
the link between two variables.
Values of dependent variables Y, which are in our case financial performance
indicators, that is, Net sale revenues, Added value, EBITDA, and Net profit or Net
loss, need to be expressed by the independent variable X, in our case by investments
in tangible fixed assets, in the form of linear connection:
Y ¼ a þ βX þ ε (1)
Our research sample can be written as:
y¼a ^
^ þ βx (2)
The regression line is a line with the equation y ¼ a þ βx, which best fits the data in
the plane (x1, y1), (x2, y2), … , (xn, yn) (it is determined by the least-squares method)
and serves as a mathematical model used to estimate the expected value of the variable
Y by a given value of the variable X.
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The validity of the linear model can be tested by a variance analysis based on size
by the model explained variance for an alternative hypothesis:
H1 : R2 6¼ 0 ðlinear model is appropriateÞ (3)
The reliability of the calculated parameters of the regression line can be tested by
the t-test:
H1 : β 6¼ 0 ða 6¼ 0Þ: (4)
Let us also state, that explanatory variables in the context of regression are some-
times referred to as endogenous. Thus, ordinary least squares (OLS) can produce
biased and inconsistent estimates. In our statistical analysis, we have not included any
instrumental variables to avoid biased estimates, which can be considered as one of
the limitations of our research.
By testing the hypotheses, we have to arrange the time series of the chosen variables
first, for we have conducted a time series analysis. The investment in tangible fixed
assets was calculated as the difference between two sets of data for the consecutive
years, that is, as a difference between two book values of the tangible fixed assets in
year t + 1 and year t. If the book value of the tangible fixed assets in year t + 1 was higher
than the book value of the tangible fixed assets in year t, the following conclusion can be
made: a firm has increased the book value of its tangible fixed assets, a firm has
invested. If the book value in year t + 1 was lower than that in previous year t, a firm has
depreciated its tangible fixed assets more than it has invested.
An increase in the book value of fixed assets could be also influenced by a revalu-
ation of the fixed assets. We have not accounted for this issue because the requisite
data, that is, revaluation reserves data were not available. For this reason, our calcu-
lations might not be quite accurate, but there was no inflation worth mentioning; in
fact, in the last years of our study period, there was even deflation. However, we can
assume that the firms did not revaluate their tangible fixed assets, or if they did so (of
course only a few of them), this might not have caused a serious problem, it can imply
only a negligible error in our analysis. However, this issue can be considered as a
certain limitation of our research.
Further, we have to calculate for each year of the study period relevant financial
indicators or financial ratios for each firm in our sample. To get relevant indicators
and ratios for the whole sample, we have scaled them with the net sales revenues of
the firms. Similarly, we have done such a scaling with the investment in tangible fixed
assets. To get the investment in tangible fixed assets for the whole sample, we have
scaled them with the total assets of the firms. Thus, we have avoided possible
heteroscedasticity problems in our regression analysis.
4. Empirical results
4.1 An outline of Slovenian firms’ investment activity in the period 2010–2017

viewed from various aspects
4.1.1 Exploitation of investment opportunities
Our research embraces in its 8-year period also the last 2 years of the great financial
crisis and economic recession, that is, the years 2010 and 2011. Therefore, it is logical
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that almost 15% of the firms in our sample responded that they were primarily
constrained to deleverage due to the credits and loans acquired in the past. This means
that the firms have not or have only partially taken advantage of those business
opportunities on the market that required some investments to be made.
Almost 23% of the firms in our sample responded that they did not have sufficient
funds to invest, and more than 8% of the firms did not manage to acquire borrowing
funds. This also implies that a certain number of firms did not borrow money for new
investments in that period because they already had high financial leverage, that is, an
inadequate capital structure, or simply that they could not get new credits and loans
due to the credit crunch.
More than 45% of the firms in our sample responded that, in the 8-year period,
they totally exploited those business opportunities in the market that required some
investments. This means that these firms increased their business if we exclude those
who only modernized their production process (automation and robotization). As
already mentioned, the period after the financial crisis was characterized by a credit
crunch. Therefore, we can identify creditless economic growth, which was typical for
Slovenia in the period from 2013 up until the end of 2015 [35]. Creditless growth is a
special (marginal) form of financial leverage decrease. We even witnessed this
decrease later, after the recovery of the Slovenian banking sector, with episodes of the
economy recovering without a simultaneous or precursive credit growth recovery.
This phenomenon has been perceived in the case of exits from crises by Calvo et al.
[31]. The genesis of these crises was closely tied to the unexpected blockade of capital
inflow into developing countries. The same authors, as well as others [36], found
similar patterns at the time of exits from crises with different geneses, including in
developed countries. This phenomenon of creditless growth is called the Phoenix
Miracle.
We have checked if such a recovery without credits also took place in the case of
our sample firms. Figure 2 shows that investments in tangible fixed assets increased in
parallel with bank credits and loans from the beginning of the previous decade up to
the great crisis in 2009. This implies that bank credits and loans were a generator and
Figure 2.
Increase of tangible fixed assets, net sales revenues, and added value versus decrease of financial liabilities (credits
and loans) after the last recession. Source: Author (AJPES database for the period 2002–2017).
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accelerator of investment growth.3 After the great financial crisis and the global
recession, investments in the greater part of the firms from our sample stagnated
(investments took place in the amount of depreciation, or better said, the firms
implemented only replacement investments). Investments started to grow again after
2014, while the post-crisis bank credits and loans apparently decreased up to 2016.
The economic recovery of the firms in our sample was accompanied by either a
decrease or negative growth in bank credits and loans.
4.1.2 Main themes to invest
The firms in our sample were mostly motivated to invest by technological progress
(a need to modernize their technological processes), new opportunities on the market,
and an increase in their customers’ demand. These three motives or main themes
represent more than two-fifths of all the given incentives and impulses to increase
investments in the past 8-year period.
4.1.3 Dynamics of investment
More than one-half of the firms in our sample invested in the past 8-year period
evenly, that is, without bigger investment spikes. This finding relates to more or less
big and medium-sized firms. However, approximately one-fourth of all the firms in
our sample invested in a concentrated manner, with an investment spike in 1 or 2
years at the end of the 8-year period. Investment activity was a little bit more pro-
nounced in medium-sized firms in our sample. This can be explained by the fact that
those firms that incurred excessive debt after the last financial crisis directed their
accumulation into deleveraging and less so into purchasing new fixed assets. We can
refer to the financial accelerator and support the above-given statements with find-
ings from the study conducted by Bole et al. [37]. They advocate the thesis that the
financial accelerator changes not only in individual phases of the business cycle
(boom, bust, recovery) but also with various kinds of investments, including invest-
ment in the real economic sector, furthermore in various industries and regions, and
last but not least even with respect to the solvency of commodity producers.
Besides data acquired by means of the questionnaire, we also acquired financial
data from the AJPES database. Among other things, we looked for the book value of
fixed assets of the firms in our sample for each year in the study period 2010–2017.
Thus, we found out whether, firstly, their book value increased or decreased in the last
8 years, secondly, what was their average rate of growth or drop, and thirdly, by what
kind of dynamics their value changed, that is, evenly or in a concentrated manner at
the beginning, end, or in the middle of the studied period.
Table 1 shows the number and structure of the firms that increased or decreased
the book value of their fixed assets (2017/2010). The average growth rates of their
increase and decrease, respectively, are shown as well. The latter has been calculated
as a geometric mean of chain indices through individual years for each firm in our
sample, and for all of the firms together as well.
3
In the SPSS 25 software platform, we carried out a linear regression between investments as a dependent
variable and bank credits and loans as an independent variable. The value of R2 is 0.842, which means that
bank credits and loans can explain the 84.2% variation in investments. For these data, the F statistic is
F = 74,49, which is statistically significant at p < 0.001 level.
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Movement Number of firms %
Increase of book value of tangible fixed assets 157 58.81
Decrease of book value of tangible fixed assets 107 40.07
Unchanged book value of tangible fixed assets 3 1.12
Total 267 100
Positive growth 150 56.18
Negative growth 105 39.33
Zero growth 12 4.49
Total 267 100
Average rate of increase of book value of tangible fixed assets 16%
Average rate of decrease of book value of tangible fixed assets 8%
Average growth rate of investment for all the sample firms 6%

Source: AJPES database for the period 2010–2017.
Table 1.
Number and structure of the firms according to book value of their tangible fixed assets in the study period 2010–
2017.
It can also be seen that 150 firms (a little less than three-fifths of the total) in our
research sample had a positive investment growth (16%) in the past 8-year period,
furthermore that 105 firms (two fifths) evidenced a negative investment growth
(8%) in the same period, and, last but not least, that approximately 5% of the firms
in the sample had zero investment growth. In the period 2010–2017, the average
investment growth for all the firms in the research sample was 6% per year. This
means that almost three-fifths of the firms invested more in that period than they
depreciated their tangible fixed assets.
4.1.4 Efficiency of investment implementation
Almost four-fifths of the firms responded that they realized their investments in
tangible fixed assets successfully at the time (only investments bigger than EUR
100,000 were taken into account). A little bit less than one-half of the firms reported
that they implemented their investment projects within the scheduled financial bud-
get, and almost two-fifths of the firms asserted that they stuck with the physical scale
of their investments.
Considering the first three answers, indicating that the firms finished their biggest
investments in tangible fixed assets on schedule (or even sooner), in the planned
physical volume, and within their financial budget, we get into the cross-section of a
very small number of firms (less than 1% of all the firms in our sample). If we
consider the combinations of only two kinds of answers, we get very low percentages
as well (a maximum of 7%). This supports the thesis that quite a few of the firms
did not implement their investment projects successfully, which can imply their
insufficient investment ability.
Whether the size of a firm has any impact on investment project implementation
has been tested by the chi-square test χ2. The test has shown that there is no statisti-
cally significant correlation between these two variables (Pearson’s chi-square = 0.686,
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p = 0.421). The size of the firms in our sample does not influence investment project
implementation neither in terms of financial budget nor time schedule.
4.1.5 Achievement of the planned economic effects of the realized investment projects
Figure 3 shows what real economic effects compared to goals the firms realized
with their investments in the 8-year period.
It can also be seen that more than two-thirds of the firms in our sample responded
that they realized the economic effects of their investments in the range of 91–100%
in comparison to what they had planned (a little bit less than one-half of the firms in
the sample), or even exceeded it (one-fifth of the firms in the sample). This means
that the investments of big and medium-sized Slovenian firms in tangible fixed assets
should contribute considerably to business performance improvement. One-fifth of
the firms in the sample estimated the economic efficiency of the implemented invest-
ment projects in a range of 71 to 90% in comparison to what they had planned, and
less than one-tenth of the firms in the sample are critical of the results achieved (in the
range of up to 70%; 2% below 51%). From this review, the conclusion can be drawn
that the output of investments in tangible fixed assets was at a level of a little over
two-thirds (68.17%).
In this case, we have also carried out the chi-square test χ2 to test the hypothesis
whether the size of firms influences the achievement of the economic effects of their
realized investments. The test has revealed that there is no correlation between these
two observed variables.
4.2 Hypotheses testing
4.2.1 Testing of the hypothesis: the rating of firms influences their borrowing as a relevant
factor of the firms’ investment activity
The investment activities of firms are mainly restrained by financial restrictions,

which to some extent exclude the possibility to exploit opportunities for growth.
According to Fazzari et al. [38], Kaplan and Zingales [39], Dasgupta et al. [40],
Gatchev et al. [41], Ostergaard et al. [42] and Drobetz et al. [43], the restrictions
Figure 3.
Achievement of the economic effects of the investments implemented. Source: Investment ability of the companies,
questionnaire 2018.
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derive from market imperfections, especially from information asymmetry and wrong
choice, all being dependent on the firms’ ratings. The latter is crucial for acquiring
borrowing funds, that is, bank credits and loans. Due to these restrictions, firms
cannot access the borrowing funds for their investments as economically justified by
positive net present value (one of the dynamic investment criteria). For this reason,
their investments can be funded only by their own funds. Therefore, the volatility of
proper funds can be demonstrated through the volatility of their investments,
although the elasticity of investments increases relative to operating cash flow. On the
other hand, well-performing firms are not financially restricted, their investments are
independent of short-term oscillations in business performance, and elasticity is zero
or very low [35]. Fazzari et al. [38] claim that when operating cash flow increases, the
firms with restricted access to funds and with good investment opportunities use this
cash flow to fund their investments.
Table 2 shows the ratings of firms from our sample. Besides the qualitative data
(the classification of firms into rating categories based on answers from the question-
naire), we also used the NFD/EBITDA ratio as an approximate estimate for the rating
of the firms, calculated from the data acquired for each year from the AJPES database.
The NFD/EBITDA ratio explains relatively well the current capability of a firm to
generate cash flow for repaying its debt, which has been supported by other authors
who used this ratio as well [35]. In the financial crisis, the firms decreased their debt
due to their own motives and reasons. The consequences of the customers’ and
suppliers’ push, which increased the insolvency of business partners, cannot be
overlooked either. In such a situation, the greater part of cash flow is assigned to
lowering indebtedness. Consequently, the sensitivity of investments to operating cash
flow is lower than usual.
For the last year of the study period (2017), we tried to check whether there is any
correlation between these two sets of data. To find out, in the case of our sample of big
and medium-sized firms, how the NFD/EBITDA ratio reflects the capability of a firm
to generate cash flow for debt repayment and thus also the investment ability of the
firm [34], all the firms were sorted into three segments according to their indebted-
ness. In the first segment, there are firms with an NFD/EBITDA ratio less or equal
(≤2). At the beginning of our study period (in 2010), there were 109 such firms
(40.8%), and at the end of the study period (2017), there were 164 such firms
(61.4%). These firms were able to repay their financial debt within the time span of 2
years, which means that the banks were ready to lend them new credits and loans. As
a matter of fact, we put into the first segment all those firms that were net creditors
Ratio Rating
NFD/EBITDA A B C E Unknown Total
≤2 151 10 1 2 164
>2 in ≤5 47 13 2 2 1 65
>5 16 17 3 1 37
n.a. 1 1
Total 215 40 6 2 4 267

Source: Questionnaire and AJPES database for 2017.
Table 2.
Number of firms in terms of rating and indebtedness measured by the NFD/EBITDA ratio.
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with negative net debt. These were the firms whose cash balance exceeded financial
liabilities. In 2010, there were 42 such firms (15.7%), and in 2017 there were 77 such
firms (28.8%). In the second segment, we put firms that were more indebted, having
higher financial leverage. Their indebtedness ranged from 2- to 5-times EBITDA. In
2010, there were 72 such firms (27%), and in 2017 there were 65 such firms (24.3%).
In the third segment, we put firms with very high financial leverage, having a NFD/
EBITDA ratio higher than 5. In 2010, there were 71 such firms (26.6%), and in 2017
there were 37 such firms (13.9%). The firms with a negative EBIDTA, that is, a
negative operating cash flow, were excluded from our analysis. There were only a few.
For the last year of the study period (2017), we carried out the chi-square test. For
each variable we set two categories, “good rating” and “bad rating”, and “appropriate”
and “inappropriate” indebtedness. Pearson’s chi-square test, χ2, examines if there is
any correlation between two nominal variables, in our case between the rating of the
firms and their financial leverage (indebtedness). The Crosstabs procedure generates
a contingent table, the results of the chi-square test, its characteristics, and the
significance value. The results are presented in Tables 3 and 4.
Pearson’s chi-square test examines if the two perceived variables are independent.
If the significance value is small enough (Sig. < 0.05), then we reject the hypothesis
Indebtedness
Inadequate Adequate Total

a b
Rating Good Count 68 149 217
Expected count 87.3 129.7 217.0
% within rating 31.3% 68.7% 100.0%
% within indebtedness 64.8% 95.5% 83.1%
% of total 26.1% 57.1% 83.1%
Std. residual 2.1 1.7

a
Bad Count 37 7b 44
% within rating 84.1% 15.9% 100.0%
% of total 14.2% 2.7% 16.9%
Std. residual 4.6 3.8
Total Count 105 156 261
% within rating 40.2% 59.8% 100.0%
% of total 40.2% 59.8% 100.0%

Each subscript letter (a, b) denotes a subset of indebtedness categories whose column proportions do not differ significantly
from each other at the 0.05 level.
Table 3.
Relationship between the rating of the firms and their indebtedness measured by the NFD/EBITDA ratio.
(rating*indebtedness crosstabulation).
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Value df Asympt. Sig. Exact Sig. (two- Exact Sig.

(two-sided) sided) (1-sided)
pearson chi-square 42.341a 1 .000 .000 .000

b
Continuity correction 40.175 1 .000
Likelihood ratio 43.388 1 .000 .000 .000
Fisher’s exact test .000 .000
N of valid cases 261

a
0 cells (0.0%) have an expected count of less than 5. The minimum expected count is 17.70.bComputed only for a 2 2
table.
Table 4.
Chi-Square test for the rating of the firms and their indebtedness.
that variables are independent, and we can trust that the variables are somehow
correlated [44]. The value of chi-square statistics, shown together with the degrees of
freedom and the significance value, is 42.341, which is within the round-off error.
This value is strongly significant (p < 0.001), which shows that the rating of firms has
a strong impact on whether the indebtedness of firms is appropriate or inappropriate,
or the other way around, that the indebtedness of firms has a strong impact on
whether the rating of the firms is good or bad.The very distinctive result shows that
there is a correlation between rating and indebtedness irrespective of whether the
latter is appropriate or inappropriate. In other words, in our sample of answers, there
is a distinctive difference (i.e., between the portion of firms having a good rating and
the portion of firms having a bad rating) in the case of two kinds of indebtedness. By
means of the z-test, we have found that well-rated firms are significantly less
indebted, and inversely, that poorly-rated firms are significantly more indebted and
have higher financial leverage. This important finding can be considered from another
perspective as well, that is, in percentage: more than 60% of the firms with a good
rating (A and B) are appropriately indebted, and more than 85% of the firms with a
bad rating (C, D, and E) are inappropriately indebted. The following conclusion can
be drawn: the indebtedness of a firm significantly influences the rating, that is, the
rating of a firm is good if a firm is appropriately (less) indebted and hence has low
financial leverage.
Similarly, we have calculated the correlation between these two kinds of data,
shown in Table 2. It can be seen that there were 151 firms in 2017 whose financial
managers reported the rating A (at least their commercial banks rated them like this)
according to the financial data from the AJPES database, and these firms had an NFD/
EBITDA ratio of less than or equal 2. Such a result is logical. It is also logical that a firm
with the rating E was in the category with the highest NFD/EBITDA ratio, with high
financial leverage. However, it is not logical that at the same time 16 firms were rated
A while being very much indebted, or that a firm with the rating C is in the first
category, with low financial leverage.
We have calculated Spearman’s correlation coefficient, r. Both sets of data have got
an appropriate rank, rating A being assigned the highest rank, that is, 5, and rating E
the lowest rank, that is, 1. The least indebted firms, that is, the firms having an NFD/
EBITDA ratio of less than 2, are given rank 3, medium indebted firms rank 2, and the
most indebted firms rank 1. The results are shown in Table 5.
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Rating
b
Spearman’s rho Rating Bootstrap Correlation coefficient 1000
Sig.(2-tailed)
N 261
Bias .000
Std. Error .000
Bca 95% Confidence Interval Lower 1000

Upper 1000
NFD/EBITDA Bootstrapb Correlation coefficient .437**
Sig. (2-tailed) .000
N 261
Bias .000
Std. error .055
BCA 95% Confidence Interval Lower .332

Upper .539
**Correlation is significant at the 0.01 level (2-tailed).
b
Unless otherwise noted, bootstrap results are based on 1000 bootstrap samples.
Table 5.
Spearman’s correlation coefficient for two variables, the rating of the firm and the NFD/EBITDA ratio.
4.2.2 Testing of the hypothesis: Increase of investment in tangible fixed assets influences some
financial indicators and ratios
Let us further test the hypothesis stating that an increase of investment in tangible
fixed assets significantly influences some financial performance indicators, such as
Added value per employee, Profit margin, ROE, ROA, Net sales revenues per
employee, Net profit per employee, EBITDA to Assets, and Net sales revenues to
Costs of goods sold. For this analysis, we used a longer time series of financial data for
the firms in our sample, encompassing the 18-year period from 2000 to 2017.
As already mentioned, the analysis is based on financial data from the AJPES
database, and its chart of accounts derived from the general ledger of firms. Account
No. 0010102 presents the net book value of tangible fixed assets. This value constantly
changes over time, within an individual year, and over the years. This value changes
due to depreciation and the sale-off of assets (disinvestment). Both of these reduce
this value on said account. On the other hand, this value also changes due to the
purchase of new assets (including those acquired by financial lease). As already
explained, for the purpose of our analysis, revaluation, which could have influenced
the net book value of assets, was ignored. As inflation during our study period was low
(in some years there was even deflation), we assumed that it had no important impact
on the aforementioned value. If the difference between the purchasing value of new
tangible fixed assets and the depreciated value of the existing fixed assets or the value
reduced by disinvestments is positive, we get net investments in tangible fixed assets.
If we consider these net book values of tangible fixed assets throughout a longer
period of time, we can find out from the differences (or from calculated chain
indexes) whether the firms in our sample invested or disinvested. The difference
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between the two annual balances (at the end of each calendar year, as of December 31,
Year X) of the net book values of tangible fixed assets TFAt – TFAt-1 (Account No.
0010102) represents the net investment in tangible fixed assets in year t.
As we quite considerably prolonged our study period, and to assure comparability
of the data through time, all values were properly corrected by deflators or inflators of
the individual year (SURS—recalculation of the financial data in time series due to
inflation for the period 2000–2017).
We computed the average values for each of the above-presented variables for
each individual year for the entire sample of 267 firms.
Chain indexes have been computed for each firm included in the sample and on
their basis the average growth rate for each variable. The geometric mean has been
computed as follows:
!n1
Y
n
p ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
ai ¼ n
a1 a2 a3 … an (5)
i¼1
For carrying out linear regression, investment in tangible fixed assets was taken as
an independent variable, while several financial indicators, such as Net sales revenues,
Added value, EBITDA, Net profit, ROA, and others, were accounted for as dependent
variables for each year of the computed average values.
Impact of the increase of investment in tangible fixed assets on Net sales revenues.
Linear regression for the first pair of dependent variables, that is, for tangible fixed
assets and Net sales revenues is calculated and presented in Tables 6–9.
R2 is 0.673, which means that investment in tangible fixed assets represents more
than two-thirds of the variation in Net sales revenues. In other words, if we try to
explain why firms increase the sale of their products/services and commodities/mate-
rials, we can look at the variation in Net sales revenues. There is a great number of
factors that can explain this variation. In 67%, though, this variation can be explained
by our model as comprising only investments in tangible fixed assets. Certainly, there
are also other factors, other variables that influence the increase in sales.
Model R R square Adjusted R square Std. error of the estimate

a
1 0.821 0.673 0.652 4054964.139
a
Predictors: (Constant), Tangible fixed assets.
Table 6.
Model summary.
Model Sum of squares df Mean square F Sig.
1 Regression 5.085E+14 1 5.085E+14 30.926 0.000b
Residual 2.466E+14 15 1.644E+13
Total 7.552E+14 16
a
Dependent variable: net sales revenues.
b
Predictors: (constant), tangible fixed assets.
Table 7.
ANOVAa
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Model Unstandardized Coefficients std. Standardized t Sig.

B error coefficients beta
1 (Constant) 2365465.1 9981459.460 2.370 0.032
Tangible fixed 1.505 0.271 0.821 5.561 0.000

assets
a
Dependent variable: Net sales revenues.
Table 8.
Coefficientsa.
Model B Bias Std. error Bootstrapa BCa 95% Confidence

Sig. Interval
(2-tailed) Lower Upper
1 (Constant) 23654658.1 818984.712 11901364.94 .116 47733387.8 666241.520
Tangible fixed 1.505 0.027 0.338 0.012 0.894 2.193

assets
a
Unless otherwise noted, bootstrap results are based on 1000 bootstrap samples.
Table 9.
Bootstrap for coefficients.
The ANOVA tells us whether the model, overall, results in a significantly good
degree of prediction of the outcome variable. The sums of squares and the degrees of
freedom are calculated. From these two values, the average sums of squares (the mean
squares) can be calculated by dividing the sums of squares by the associated degrees of
freedom. The most important part of this calculation is the F-ratio and the associated
significance value of that F-ratio. For these data, F is 30.93, which is significant at p
< 0.001 (because the value in the column labeled Sig. is less than 0.001). This result tells
us that there is a less than 0.1% chance that an F-ratio this large would happen if the null
hypothesis were true. Therefore, we can conclude that our regression model overall
predicts Net sales revenues significantly well. Such a result is quite logical and expected.
Calculation of linear regression for the investments in tangible fixed assets and Net
sales revenues.
Other factors that can influence the bigger volume of sales (although they are not
considered in our research) can be the increase in sales prices, the increase in produc-
tivity, export incentives or customs relieves, business process rationalization and
improvement, organizational changes, etc.
As previously mentioned, the ANOVA shows whether our model predicts the
outcome variable well enough. However, it does not show the contributions of indi-
vidual variables, except in our model where only one independent variable exists, and
we can infer that this variable is a good predictor.
The regression calculation provides estimates of the model parameters (the beta
values) and the significance of these values. From this calculation, we can conclude
that b0 is EUR 23.6 million, which can be interpreted as follows: when no money is
spent on investment in tangible fixed assets (when X = 0), the model predicts that all
firms in our sample will decrease their Net sales revenues in the amount of EUR 23.6
million. We can also read off the value of b1 from the regression calculation. It is 1.505.
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Although this value constitutes the slope of the regression line, it is more useful to
think of it as representing the change in the outcome associated with a unit change in
the predictor. Therefore, if our predictor variable is increased by one unit (if the
investment in tangible fixed assets is increased by EUR 100), then our model predicts
that EUR 150.5 of extra Net sales revenues will be generated, which can be considered
a good result with respect to the fact that an increase in investment contributes more
than two thirds to the increase in Net sales revenues.
Let us look in this calculation at the values for t. The t-test tells us whether the
value of b is different from zero (0). The statistical tool SPSS 25 provides the exact
probability of the perceived value of t occurring if the value of b in the population
were zero. If this observed significance is less than 0.05, then the result reflects a
genuine effect. In our case, this holds entirely. For one t value, the probability equals
0.032, for the other t value, the probability equals 0.000. Thus, we can claim that the
probability of these t values occurring if the values of b in the population were zero is
less than 0.001. Therefore, the values of b are significantly different from zero. In the
case of the b for investment in tangible fixed assets, this result supports the thesis that
investment in tangible fixed assets makes a significant contribution (p < 0.001) to
predicting the increase in Net sales revenues.
In the same calculation, the bootstrap confidence interval suggests that the popu-
lation of b values for tangible fixed assets is likely to fall between 0.894 and 2.193, and
because this interval does not include zero (0), we would conclude that there is a
genuine positive relationship between investment in tangible fixed assets and Net
sales revenues. Also, the significance associated with this confidence interval is
p = 0.012, which is significant. Figure 4 shows the distribution of correlation
coefficients between these two variables for all the firms in our sample.
Linear regression has also been calculated for the other pairs of dependent vari-
ables. We were always interested in the impact of the independent variable, that is,
investment in tangible fixed assets on financial indicators. Regarding Added value,
this impact is medium strong (R2 = 0.531; b1 = 0.461; Sig.: 0.001). In the case of b for
investment in tangible fixed assets, this result means that investment in tangible fixed
assets significantly contributes (p = 0.001) to predicting the increase of Added value.
An increase of tangible fixed assets by EUR 1000 generates EUR 461 of Added value.
Figure 4.
Distribution of correlation coefficients for two variables, Investment in tangible fixed assets and net sales revenues,
for all the sample firms in the period 2000–2017.
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Figure 5.
Movement of added value for the 30 biggest sample firms in the period 2000–2017.
4.2.2.1 Impact of the increase of investment in tangible fixed assets on Added value
As this financial performance indicator is very important for the firms’

benchmarking, the dynamics of Added value for the firms in our sample in the period
2000–2017 are shown in Figure 5. From this chart, a change in the relationship between
the Added value of the 30 biggest firms in the sample and the Added value of the
remaining firms in the sample over the 18-year period can be seen as well. Each year,
except in the year of the last biggest financial crisis and global economic recession
(2009), the 30 biggest firms in the sample taken together generated more Added value
than the rest of the firms in the sample. Afterward, the scissors started to open gradually.
Figure 6 shows, for all the firms in our research sample, a course of two perfor-
mance indicators, that is, productivity expressed by Net sales revenues per employee
and Added value per employee. The data are presented for the period 2000–2017. It
can be seen how the financial crisis and economic recession hurt our sample firms.
After the crisis, Added value per employee increased faster than Net sales revenues
per employee, although the firms did not yet reach their prior levels.
Figure 6.
Movement of productivity for the sample firms in the period 2000–2017.
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4.2.2.2 Impact of the increase of investment in tangible fixed assets on financial

performance ratios
Impact of the independent variable, that is, investment in tangible fixed assets, on
the financial indicator EBITDA is weak (R2 = 0.305; b1 = 0.145; Sig.: 0.02). In the case
of b for investment in tangible fixed assets, the result suggests that investment con-
tributes significantly (p = 0.02) to the prediction of EBITDA increase. The increase of
investment in fixed assets by EUR 1000 generates an operating cash flow in the
amount of EUR 145. This relates to one year. However, the investment generates
operating cash flow for its entire life span, which lasts several years, depending on the
type of tangible fixed asset. By all means, this is not high profitability, though, if we
compare it to the profitability of common riskier financial investments.
Let us consider the question of how investment in tangible fixed assets influences
Net profit. In the case of this particular financial indicator, the predicting value of the
regression coefficient b becomes totally vague (R2 = 0.025). As a matter of fact, in the
period 2000–2017, there was no profitability of investments implemented in tangible
fixed assets by the firms in our sample and measured by Net profit. Taking into
account interests, we get an answer as to why Net profit is relatively weak or even
negative (loss). As already explained, the firms substantially increased their indebt-
edness due to investments before the financial crisis in 2008. This implied high rates
of interest paid to creditors, which lowered their Net profit a great deal.
As there is a strong positive correlation between investment in tangible fixed assets
and Net sales revenues (their impact amounts to more than two thirds), we could
draw the conclusion that even an increase of Net sales revenues due to investments
positively influences select financial performance ratios, such as ROA, ROE, EBITDA/
Assets, and Sales revenues/Operating costs.
Consequently, we could expect an increase in ROA (return on assets). Good exploi-
tation of the production assets should imply a higher ROA. The question can be raised
whether the tangible fixed assets were well used (does the production run in fewer than
three or four shifts?), and last but not least, whether the firms in our sample met all the
customers’ needs. Linear regression shows a statistically significant but relatively weak
correlation between ROA and Net sales revenues (R2 = 0.236; Sig.: 0.048).
Figure 7.
Movement of profitability ratios and sales revenues/operating costs ratio for the sample firms in the period 2000–
2017. Source: AJPES database of the sample firms for the period 2000–2017.
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Similar findings about a weak correlation between the compared variables have
been revealed with other financial performance ratios, specifically ROE, EBITDA/
Assets, and Net sales revenues/Operating costs. For all of them, linear regression with
Net sales revenues has been calculated. The course of the relevant ratios for the firms
in our sample for the period 2000–2017 is presented in Figure 7. The blue curve
presenting ROE is strongly accentuated. This ratio was high in 2007 (0.35), before the
financial crisis, then it kept decreasing up to 2010. The owners’ capital of the firms in
our sample reached average annual profitability of 10% no sooner than in 2017.
4.2.2.3 Trend of the increase of investment in Slovenian firms compared to the course of
select financial indicators in the period 2000–2017
Figure 8 presents the trend of nominal average values of some of the most relevant
financial indicators, including financial costs (interests), for the population of our
sample firms in the period 2000–2017. It is understood that this 18-year time span also
includes a period denoted by a financial crisis and global economic recession, which
endured from 2008 to 2012. The dynamic growth of financial indicators, for instance,
Net sales revenues, Added value, and Net profit, stopped in 2009 (of Net profit
already in 2008). The inertia of the growing trend of the increase of investments in
tangible fixed assets, however, lasted up until the end of 2009 (finishing the imple-
mentation of investments made before the crisis). In 2010, there is a considerable
decrease in the book value of tangible fixed assets (touching bottom) as the book
value of these assets decreased by 6% and remained at this level until 2015. A year
later, the average book value of such assets increased by 3%, although it did not yet
reach its pre-crisis level. On the other hand, after a considerable drop in 2009, Net
sales revenues started to increase slightly, even during the crisis. Similar findings have
been revealed for Added value. The crisis had the biggest impact on Net profit, which
started to decrease considerably in 2008. It grew a little bit in the next 2 years but
Figure 8.
Impact of investment in tangible fixed assets on select financial ratios for the sample firms in the period 2000–
2017.
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remained at half its 2007 value until 2013. From 2008 to 2013, the total financial costs
(interest) for our sample firms were in fact higher than their total Net profit.
4.2.2.4 The changing of financial costs (interest) due to the indebtedness of firms and its
impact on profit margin
While estimating investment profitability, all the stakeholders who provided funds
for the investments must be taken into account. As this includes financial institutions,
the interests on credits and loans constitute returns generated by investment projects.
These returns do not pertain to the firms or their owners, though, they are returns
produced only by the investments.
For this reason, we are also interested in how Financial costs (interests) changed in
the study period – the relevant data are available for the sample firms for the period
2005–2017 – due to the financial leverage, and what is the linear regression between
the NFD/EBITDA ratio and Financial costs. Figure 9 shows three curves of NFD/
EBITDA ratio distribution for three temporal cross-sections (cuts), that is, for 2007
(before the financial crisis), 2010 (during the financial crisis), and 2017 (after the
financial crisis). It can be observed that the red curve representing a normal NFD/
EBITDA ratio distribution for the sample firms for 2010 is asymmetric to the right
(the same goes for the other two curves), more flattened (the other two curves are
more squeezed, with higher peaks), more elongated (stretched) to the right, and
generally lies above the other two curves. This means that in the year of the last
biggest financial crisis, absolutely more firms had a higher NFD/EBITDA ratio (more
EBITDA was needed to cover net financial debt). On the curve, this is visible to the
right from value 0. The left side of the curve from value 0, which lies underneath the
other two curves, implies a similar conclusion. Those firms in our sample that were
not indebted—meaning that their NFD/EBITDA ratio was negative—had more cash
and cash equivalents or a lower EBITDA or both at the time of crisis. Thus, more firms
had an NFD/EBITDA ratio equal to 2 in 2007 and 2017 than in the years of the crisis.
As Net profit is the main source for repaying debt, we were also interested in the
relationship between the indebtedness of our sample firms and their profit margin
throughout the study period. This is shown in Figure 10. The profit margin started to
improve right after the financial crisis and economic recession, and it reached 5%
in 2017. The firms with higher financial leverage generated financial resources for
repaying their debt. This thesis can be supported by the finding that the firms in our
sample started to decrease their indebtedness in the same period. The NFD/EBITDA
Figure 9.
Distribution of NFD/EBITDA ratios for the sample firms for the years 2007, 2010, and 2017.
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Figure 10.
Movement of indebtedness (NFD/EBITDA ratio) and profit margin of the sample firms in the period 2000–2017.
Source: AJPES database of the sample firms for the years 2000, 2007, 2010 and 2017.
Figure 11.
Estimate of the conceptual model of the impact of investment in tangible fixed assets on business performance for
Slovenian firms. Source: Author.
ratio—which was almost 2 in the year 2010—reached 1.20 in 2017. As already men-
tioned, this is a weighted average ratio of all 267 firms, calculated by means of the
weights of the Net sales revenues of each firm.
Following our findings and statistical analyses, our conceptual model can be adjusted
so that only those financial indicators are included where there exists a statistically
strong and medium-strong correlation with investment in tangible fixed assets. From
Figure 11, looking at the correlation coefficients, it can be understood that the correla-
tion is strong with Net sales revenues, Added value, and EBITDA, and less so with Net
profit. However, only very weak correlations exist between investment in tangible fixed
assets and financial performance ratios. Therefore, we skipped them in Figure 11.
5. Conclusion, limitation, and future directions
This study is based on the micro theory of investment and theoretical approaches to
measuring firms’ financial performance. It relies on a simple conceptual model consisting
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of only two constructs, investment in tangible fixed assets on one side and financial
performance on the other. By means of this model, we try to find out and assess how
much investment in tangible fixed assets improves the business performance of firms,
expressed and measured by the relevant financial indicators and financial ratios.
Let us first summarize the general findings from the empirical part of the research,
based on the answers of the financial managers responding to the questionnaire. A
little bit less than half of the sample firms exploited the investment opportunities in
the study period 2010–2017 in their entirety. The other firms exploited their invest-
ment opportunities partly, while some firms exploited none of them since they were
primarily obliged to deleverage or did not have enough funds at their disposal, neither
their own nor borrowed. They could not access borrowing funds due to either the
credit crunch or their excessively high financial leverage.
The prevailing motives of the firms to invest were a need to modernize technology
processes, to exploit new opportunities on the market, and to meet the growing
demands of customers (new increasing orders).
In the investigated 8-year period, more than one-half of the firms under study
invested evenly, without bigger investment spikes, whereas approximately one-fourth
of the firms invested in a concentrated manner, with an investment spike in 1 or 2
years toward the end of this period.
A little bit less than three-fifths of the firms evidenced a positive investment
growth (16%), while two-fifths of them reported a negative growth (8%). All the
firms in our research sample evidenced an average annual investment growth rate in
intangible fixed assets of 6%.
In terms of investment implementation efficiency, almost four-fifths of the firms
realized their investment in tangible fixed assets successfully, meaning on time, with a
little bit less than one-half of the firms performing their investment within the sched-
uled financial budget, and almost two-fifths in the planned physical scale, that is,
without additional works and assets. If all the aspects of efficiency are taken into
account simultaneously, quite a few of the studied firms were not efficient enough
throughout the realization of their investment projects. In this, the size of the firm did
not play a special role.
From the point of view of achieving economic effects, investments in tangible
fixed assets are supposed to contribute a great deal to the firms’ business performance
improvement, which partly agrees with the findings of our conceptual model.
To verify our conceptual model and test our research hypotheses, we analyzed a
temporal series of financial data extending back to the year 2000. In this way, we
captured a period of intensive investment in the first decade of this century until the
occurrence of the great financial crisis in 2008.
The results of our research carried out on big and medium-sized Slovenian firms
for the period 2000–2017 partly support our hypotheses set up in the introduction.
Investment in tangible fixed assets positively influences the financial performance of
firms, as expressed by financial indicators and financial ratios. Statistically significant
(Sig., p < 0.000), there exists a strong correlation between investment in tangible
fixed assets and Net sales revenues (R2 = 0.673), which has already been confirmed by
studies undertaken by Licandro et al. (2001) and Grazzi et al. [5]. However, there is
also a quite strong statistically significant (Sig., p < 0.001) correlation between
investment in tangible fixed assets and Added value (R2 = 0.531), which has not yet
been substantiated in the literature. Statistically significant is also the correlation
between investment in tangible fixed assets and the operating cash flow (EBITDA); it
can be designated as a medium-strong correlation (R2 = 0.305). This particular
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relationship has not been studied yet or is at least not observed in the literature. Last
but not least, there is a statistically significant correlation between investment in
tangible fixed assets and Net profit (Sig., p < 0.02), which has been previously
supported by Grazzi et al. [5]. However, in our case, this correlation is negligible
(R2 = 0.025).
Our research has not revealed any significant correlation between investment in
tangible fixed assets and the selected financial ratios we originally included in our
conceptual model. There is no correlation found between investment in tangible fixed
assets and financial ratios, specifically Added value/Employee, Profit margin, ROE,
ROA, Net sales revenues/Employee, Net income/Employee, EBITDA/Assets, and
Business revenues/Operating costs.
We are aware of the limitations of the present study, in terms of the relatively
small sample size and company size, and the endogeneity of the variables included in
our linear model. Our sample includes a relatively high number of large and medium-
sized firms. If the survey had been conducted internationally, it would have included a
greater number of large firms, where the impact of strategic investments is more
pronounced. Endogeneity refers to situations in which an explanatory variable is
correlated with the error term. By using an instrumental variable in a linear model
more consistent estimates may be obtained.
Another limitation of our research is a lack of data referring to the revaluation
reserves in the balance sheet of the firms in our sample, which might be considered as
a certain deficiency in the calculations of the financial ratios.
The third limitation refers to the methodological part. Instead of conducting time
series analysis, we use geometrical means, which caused a certain reduction of the
observations in our model. Consequently, the results could be more accurate.
In the future, we also plan to introduce certain methodological improvements in
the questionnaire, which will include a number of other determinants from sources
found in the field of investment activity, and performance indicators, including non-
financial ones. The relevant literature furthermore led us to consider the directions of
causality in the model. Since our research is based on a cross-sectional database, we
cannot prove causation but can only confirm the assumed paths. The direction of
causality could be determined only by a longitudinal study, which represents an
important opportunity for further research.
A. Questionnaire
#V Questions
1 Data on interviewee
1.1 Questionnaire completed by
1.2 E-mail address of the interviewee
1.3 Position in the company
1.4 Number of years in this position in the company
2 Information on the company
2.1 Identification number of the company /Matična št. je sicer Company Registration Number
2.2 Name of the company
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#V Questions
2.3 The company is situated at/in …
2.4 Address of the company
2.5 Size of the company
2.6 The year of the company’s foundation
2.7 Legal and organizational status of the company
2.8 Core business/activity of the company according to SKD 2008
2.9 Predominant activity of the company according to SKD 2008
2.10 Average number of employees in 2017
2.11 Average number of employees in technical (investment) department in 2017
2.12 If your company is a stock company, is it listed on a stock exchange?
2.13 Current rating at the parent bank the company mainly works with
2.13.1 Class A: the companies for which the banks do not foresee any problems with settling their
liabilities
2.13.2 Class B: the companies which for the time being have a weak financial strength, but it does not
seem to be getting worse and they frequently settle their liabilities with delay
2.13.3 Class C: the companies which do not have sufficient long-term financial resources and the bank
does not receive from them satisfactory current information or appropriate documentation
regarding their debt
2.13.4 Class D: the illiquid and insolvent companies, whereat there is a high probability for not settling
the liabilities
2.13.5 Class E: the companies which are supposed not to be able to settle their liabilities; thus they define
their “expected” solvency and according to this estimation they run their proper credit policy
2.14 Management of the company
2.14.1 The company has one-member board (general manager/president of the management board)
2.14.2 The company has a managing board consisting of several members
2.15 Ownership structure of your company
2.15.1 One private shareholder/associate has at least 50% share in the company
2.15.2 Two biggest private shareholders/associates together have at least 50% share in the company
2.15.3 One shareholder/associate owned by the state has at least 50% share in the company
2.15.4 Two biggest shareholders/associates together have at least 50% share in the company, whereat one
of them is state owned
2.15.5 One shareholder/associate is a financial holding and has more than 50% share in the company
2.15.6 Two biggest shareholders/associates together have at least 50% share in the company, whereat one
of them is a financial holding
2.15.7 Neither one shareholder/associate by himself/herself nor the two biggest shareholders/associates
together have at least 50% share in the company
3 Implementation of the investment opportunities in the last 8 years
3.1 Have you in the last 8 years (from 2010 to 2017) succeeded in taking advantage of those business
opportunities in the market which required investments?
3.1.1 Entirely
3.1.2 Partly
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#V Questions
3.1.3 No
3.2 We have not taken advantage of (all) the business opportunities being offered to our company in
the market in the last 8 years, because:
3.2.1 our company has not had enough of its own financial resources for the necessary investments
3.2.2 our company has not succeeded in acquiring (borrowing) debt financial resources for the
necessary investments
3.2.3 first our company had to free from debts (deleveraging) acquired in the past
3.2.4 the strategic guidelines (directives) for the necessary investments (the investments were not
planned in our strategic business plan) have not been confirmed
3.2.5 the owners /through their supervisory board/ have not accepted/confirmed the business plans
3.2.6 we have not been ready for the implementation of the new investments /in the sense of getting
ready with the project documentation and acquiring all the required licenses and permits
3.2.7 the investments have been too demanding with respect to the necessary funds
3.2.8 the investments have been too demanding with respect to technology
3.2.9 our company has not had sufficient human resources /lacked qualified physical labor force/
3.2.10 our company has not had sufficient human resources /lacked technical skill/
3.2.11 our company has been overtaken by competition
3.2.12 our company has not received new orders (in pipeline) from the existing clients
3.2.13 our company has not received new customers/clients for its products/services relating to the new
planned investments
3.2.14 in the meantime, some organizational changes in our company occurred
3.2.15 other /please explain what … /
4 Investment activity of our company in the last 8 years (from 2010 to 2017)
4.1 What has encouraged your company to invest in the last 8 years?
4.1.1 Competition which invests
4.1.2 Increase in the customers’ orders
4.1.3 Increase in the sale in the previous year
4.1.4 Increase in export
4.1.5 Increase in productivity
4.1.6 New business opportunities in the market
4.1.7 Relatively high degree of the write-off of your equipment
4.1.8 Technological progress (a need for modernization)
4.1.9 Innovativeness and own R&D activities
4.1.10 Substitution of manual work with the process automation
4.1.11 Increase of profit
4.1.12 Offer of favorable financial resources
4.2 Has your company implemented bigger and financially demanding investments in the last 8 years:
4.2.1 equally, each year in approximately the same value
4.2.2 concentrated with an investment spike in one or two years at the beginning of the 8 year period
4.2.3 concentrated with an investment spike in one or two years at the end of the 8 year period
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#V Questions
4.2.4 concentrated with an investment spike in one or two years in the middle of the 8 year period
4.3 How has your company implemented the biggest investments in fixed assets in Slovenia in the last
8 years? This question relates to one or more investments the joint value of which exceeded 100
thousand €:
4.3.1 The biggest investments were successfully finished before the deadline
4.3.2 The biggest investments were successfully finished on time
4.3.3 The biggest investments were successfully finished in the expected volume (size)
4.3.4 The biggest investments were successfully finished in the scheduled financial frame
4.3.5 The biggest investments were not realized according to the time schedule
4.3.6 The investment implementation was delayed due to acquiring the licenses and permits
4.3.7 During the investment implementation, some important technical changes occurred
4.3.8 The delay of the investment implementation was due to force majeure (weather, strikes, epidemic
diseases, etc.)
4.3.9 During the investment implementation, the suppliers of the equipment were late
4.3.10 During the investment implementation, the constructors did not adhere to the time schedule
4.3.11 The investments were not realized in the expected volume (size)
4.3.12 The cost of the investment was exceeded due to the price increase
4.3.13 The cost of the investment was exceeded due to the excessive and additional unexpected works
4.3.14 The funds for the planned investments were not provided on time
4.3.15 The financial resources for the investments were different from those originally planned
4.3.16 The borrowed funds were bigger than the originally planned
4.3.17 In the end, the investments required additional employment, more workers than planned
4.3.18 Orders of the customers decreased either during the investment implementation or at the very end
4.4 Please estimate the economic effects of the investments (their performance) by choosing an
appropriate answer below
4.4.1 Economic effects of the investments are bigger than the originally planned
4.4.2 Economic effects of the investments are achieved in the span from 91–100% of the originally
planned
planned
planned
4.4.5 Economic effects of the investments are achieved in the span under 51% of the originally planned
5 Financial flexibility of the company
5.1 Capability to acquire financial resources
5.1.1 Capability to acquire financial resources (also in financial distress and during the financial crisis)
5.1.2 Capability to borrow in the long run when necessary
5.1.3 Cumulation of cash reserves to be able to borrow in the future
5.1.4 Capability to use financial leverage for new investments
5.2 Capability to manage the risk of being able to pay
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5.2.1 Capability to manage the financial risk (exchange rate, interest rate, investment)
5.2.2 Capability to protect itself against a sudden drop of cash-flow (smaller vulnerability)
5.2.3 Disposal of cash reserves
5.2.4 Capability to maintain a good rating with banks (B and higher than B)
5.3 Capability to maintain capital adequacy in the long-run
5.3.1 Capability to maintain an appropriate capital structure (Debt to Equity Ratio) while respecting a
balance golden rule
5.3.2 Capability to restructure short-term financial resources considering their time span and price
5.3.3 Disposal of cash reserves
6 Knowledge - competencies and dynamic capabilities
6.1 Technical competences
6.1.1 The employees have plenty of technical knowledge and skill
6.1.2 There are clearly defined needs for professional knowledge in our company
6.1.3 The employees learn fast and they are able to manage new technologies and implement them in
the processes
6.1.4 Development of new products /services is supported by own knowledge in the company
6.1.5 The employees are able to receive and transmit good practices (technical solutions) from outside
of the company and within it
6.1.6 The employees’ capability of innovation is comparable to the competition’s or is even bigger
6.1.7 Managers with technical competencies influence the innovativeness of the employees
6.1.8 Managers with technical competencies influence the permanent learning of the employees
6.2 Organizational and managerial competences
6.2.1 Middle management (leaders of sectors and services) is familiar with the strategy of the company
6.2.2 Middle management in our company takes part in investment planning
6.2.3 Business processes in our company are backed up with modern IT
6.2.4 From an organizational perspective, the management successfully delegates the tasks and
empowers the employees
6.2.5 Management effectively supervises and controls the implementation of the tasks and projects and
takes timely measures if deviations from goals and objectives occur
6.2.6 Implementation of the demanding tasks and projects is based on teamwork
6.2.7 There is a two way and effective communication among the employees in the company (each
employee receives all the necessary information for the execution of his/her tasks)
6.2.8 For all the stakeholders involved in investment projects, there is an effective awarding system set
up in our company
6.3 Project competences
6.3.1 Implementation of demanding projects is based on project management
6.3.2 For the majority of the suppliers for the investment implementation, the company acquires at
least three bids
6.3.3 Strategic suppliers are involved in the design and development of the investment projects
6.3.4 As early as in the phase of the investment project design the crucial risk in the phase of
implementation is assessed by the project managers who also prepare several scenarios
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#V Questions
6.3.5 Project managers master all the phases of the investment projects
6.4 Dynamic capabilities
6.4.1 Investment project managers (within the company) are familiar with the development strategy of
the company
6.4.2 Investment project managers (within the company) are involved in the design of the company’s
development strategy
6.4.3 Top and middle management are involved in investment designing
6.4.4 Managers responsible for individual processes are able to perceive the strengths /weaknesses and
opportunities/threats in the company and environment ahead of the competition
6.4.5 Managers responsible for individual processes continually observe and research the markets,
technologies, and business environment
6.4.6 Top and middle management are able to identify business opportunities
6.4.7 Top and middle management are able to achieve the goals of the company
6.4.8 Top and middle management are able to decide, take decision, and then undertake the necessary
measures to reach the goals
6.4.9 Top and middle management are able to combine and transform the resources
6.4.10 Top and middle management are able to transform the organizational structure in line with
changes in the environment
7 Performance of the company in the last 8 years
7.1 Non-financial aspect
7.1.1 New products/services related to the new investments were marketed faster than those by the
competition
7.1.2 The performance of the new products/services related to new investments was high
7.1.3 New investments increased the market share of our products/services
7.1.4 Turnover of workforce in the company is low
7.1.5 Turnover of technical staff in the company is low
7.1.6 Satisfaction of our customers increased after the investments were finished
7.1.7 Satisfaction of our employees increased after the investments were finished
8 Choose if you want to receive the feedback and results of this questionnaire and research
8.1.1 Yes
8.1.2 No
9 Comments/remarks
JEL:
C12; D25
33
131
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135
Chapter 9
Mediation Impact of Supplier

Quality on Association between
Top Management Commitment
and Resource Utilization in Indian
Automotive Sector
Gaurav Goyal
Abstract
The study intends to investigate mediating role of supplier quality improvement

on relationship between top management commitment and resource utilization in
Indian automotive sector. It is a given that the management of an organization plays
a vital role in the success of an organization, which includes managing strategic
resources and forming strategic alliances with key stakeholders. For manufacturing
organizations where suppliers become an indispensable stakeholder in the organiza-
tion’s value chain, maintaining supplier quality leads to sustainable profits for the
organization. Hence, a conceptual framework based on extant literature review is
proposed for extracted constructs, namely top management commitment, supplier
quality improvement, and resource utilization to analyze a possible relationship
between the three constructs. To validate the proposed hypothesized relationships,
data were collected by sending research instrument to senior management executives
of Indian automotive organizations. Results of data analysis suggest that supplier
quality improvement mediates the impact of top management commitment on
resource utilization. Study strongly recommends that for optimum utilization of
resources, automotive organization(s) must develop long-term relationship with
selected set of trusted supplier’s. Further, results suggest that as much as possible
real-time voice of customer ought to be communicated to the selected set of suppliers.
Keywords: top management commitment, supplier quality, resource utilization,

mediation analysis, automotive industry
1. Introduction
For manufacturing organizations where suppliers become an indispensable

stakeholder in the organization’s value chain, maintaining supplier quality is
directly associated with sustainable profits for the organization [1]. Global competi-
tive environment has forced these manufacturing organizations to focus on their
136
inherent resources to be competitive and sustainable. With resources being limited,

it becomes pertinent for top management to have a renewed emphasis on utilization
of the strategic resources at their disposal. Resource-based view of the firm also
advocates the fact that creation and sustenance of competitive advantage are heavily
dependent on optimum utilization of the core resources and capabilities by the con-
cerned firm [2–4]. Moreover, resource-based view implies that interfirm activities
involved in a supply chain system possess a high impact on resource utilization [5,
6]. One of the prominent ways through which interfirm activities can be improved
includes focusing on continual improvement of suppliers’ quality based on customer
demands. Researchers and industry practitioners (alike) have argued that managing
quality from the very beginning of the supply chain results in significant improve-
ment in the firm performance. Researchers have suggested that firm performance is
improved by reducing both waste and number of quality inspections required at the
same time [1, 7–10].
India in recent time has emerged as one of the favored destinations for manu-
facturing a quality product at lower cost. Recent report by “Deloitte & Touche” and
the Council on Global Competitiveness for global manufacturing competitiveness
index has indicated India as one of the potential nations that will emerge as a big
manufacturing hub in the time to come [11]. This optimistic view on India arises
due to the abundance of cheap labor, favorable demographic profiles, and sustained
economic growth. GDP of Indian manufacturing sector has reached an all-time high
of INR 5331.94 billion in the first quadrant of 2017, with automotive sector represent-
ing a major share [12]. In fact, in post-COVID era as well, automotive sector is one of
the major sectors about which Indian government is quite bullish for bailing out its
economy from the postpandemic depression. India’s strength in this sector emanci-
pates from its large domestic consumption base for automobiles as well as due to its
cost-competitive value chain (low labor and material cost) and strategic geographi-
cal location [13]. Moreover, few other industry reports suggest that market size of
automotive sector is going to quadruple by the year 2026, that is, an increase from INR
4701 billion in year 2015 to INR 20,100 billion by year 2026 [13, 14]. This competitive-
ness of the Indian automotive sector can also be attributed to the ever-demanding
Indian customers who want to have best of both worlds, i.e., price and performance.
Researchers have also argued that customers change their buying decision(s) due to
late delivery of automobiles caused by quality-related problems of suppliers [14, 15].
Thus to retain and boost their market share, top management of automotive orga-
nizations must emphasize on improving suppliers’ quality. The improved suppliers’
quality will help firm to reduce waste and rejections during quality inspection, thus
leading to enhanced utilization of organizational resources.
This paper aims to investigate the same empirically by validating the proposed
conceptual framework following the regression process procedure laid out by
Preacher and Kelley [16] using Hayes PROCESS [17] for Indian automotive orga-
nizations. The presented study’s structure includes sections covering literature
review, methodology, theoretical and managerial contribution, and conclusion.
Literature review section explores the extant literature available on top manage-
ment commitment and resource utilization in light of supplier quality. Methodology
section concentrates on data collection, reliability analysis, correlation analysis, and
mediation analysis. Managerial and theoretical contribution section elaborates on
importance of results from the presented work to managers and academicians. Last
section of the study leads to recommendations and scope for future research in the
underlying area.
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Mediation Impact of Supplier Quality on Association between Top Management Commitment…
ITexLi.105781
2. Literature review
Researchers have articulated on the fact that pertinent way through which organi-
zations compete on competitive performance has shifted from manufacturing to sup-
ply chain management [18–21]. Supply chain management has sought to enhance the
competitive performance by closely integrating internal functions within a company
and effectively linking them to external operations of suppliers, customers, and other
channel members for optimum utilization of resources [22, 23]. Resource-based view
had also emphasized on the fact that firm can attain competitive advantage (exploit-
ing transaction specific investments) by creating a competitive cost barrier [24, 25].
This signifies that manufacturing firms can attain sustainable competitive advantage
by judiciously managing its heterogeneous set of strategic resources (that cannot be
easily bought, transferred, or copied) [2, 26–28]. Resource utilization concentrates on
deployment of excess buffer capacity so that manufacturing organizations can attain
cost minimization [29]. Resource-based view of the firm suggests that creation and
sustenance of competitive advantage are dependent on the way core resources and
capabilities get utilized in a supply chain system that also involve interfirm activi-
ties [2–4, 30]. Researchers have suggested that interfirm activities are dependent on
top management commitment and supplier’s quality improvement, thus bearing a
direct impact on resource utilization [1, 27, 31]. Management of interfirm activities
for understanding and improving quality deficiencies of their suppliers involves
selection of supplier based on quality, training of suppliers on upgrades in quality
improvement and frequent visits of organizational representative to suppliers’ facili-
ties. Improvement in supplier’s quality helps organizational management not only in
reducing waste but also in paving their way toward optimal utilization of resources
for delivering finished product at a minimal price to end customers. However, one
research question that remains unanswered is whether supplier’s quality improve-
ment mediates the relationship between top management commitment and resource
utilization or not?
2.1 Top management commitment and supplier’s quality improvement
Customers are demanding superior-quality product at lowest prices in the global

competitive environment. This emphasizes on the fact that Indian automotive sector
has to deliver quality product at lowest cost possible. The post-COVID forecast for the
Indian automotive industry is quite bullish. This bullish forecast for Indian automo-
tive industry is lunged forward by demand of high-quality product at nominal prices
[32, 33]. Top management of organization by optimally utilizing the firm’s resources
in the supply chain system would be in a position to cut short on their internal cost of
production, thereby able to offer their respective products at nominal prices [5, 33, 34].
Supply chain presents an ideal area where optimizing activities implemented by strong
leadership could yield considerable synergy and competitive advantage [35–40]. One of
the prominent ways through which top management of a manufacturing organization
can improve interfirm activities include focusing on continual improvement of sup-
plier’s quality based on frequent upgrades in customer quality requirements [27, 41–44].
Fulfillment of the customer’s expectations ensures that quality standards of the higher
order in the supply chain are continuously met [1, 20, 45–47]. Commitment from orga-
nization’s top management is required to assure that these high customer expectations
are repeatedly satisfied by incorporating these expectations into supply chain processes
from the very beginning enabling the firm to manufacture the desired quality product
3
138
[5, 48–50]. This calls for embedding of quality management in supply chain processes
involving interfirm activities as well [20, 51]. The above discussion indicates that top
management commitment impact’s supplier quality improvement, thereby helping us
in postulating our first hypothesis as
H1a =Top management commitment positively impacts supplier's

quality improvement
2.2 Top management commitment and resource utilization
Improvement in supplier’s quality helps organizational management not only in

reducing waste and number of quality inspections but also in paving their way toward
optimal utilization of resources for delivering finished product at a minimal price to
end customers. More the top management is focused on utilization of resources, better
will be the competitive positioning of the concerned firm. This phenomenon has been
well documented by a number of previous researchers in their studies [32, 33, 39, 45,
48, 52–54]. Moreover, resource-based view implies that interfirm activities involved in
a supply chain system have a high impact on resource utilization [5, 6]. Indian organi-
zations experience a significant socioeconomic difference with respect to their global
counterparts [55]. Thus, the following hypothesis has been conceptualized:
H1 b = Top management commitment positively impacts resource utilization
2.3 Top management commitment, supplier’s quality improvement, and resource

utilization
Organization must possess a system for collecting complaints and suggestions

from their customers and communicating the same to all the related stakeholders as
soon as possible [45, 56]. Thus, top management of the organization should periodi-
cally share information regarding risk and rewards of quality parameters with its
various supply chain partners [43, 48, 57, 58]. This periodic performance feedback
serves dual benefit of supplier development as well as maintaining healthy competi-
tion among firm’s suppliers [23, 56, 59, 60]. Suppliers by getting periodic feedback
on quality improvement parameters enable them to develop, which in turn helps the
concerned manufacturing organization in meeting the stringent customer quality
requirements [5, 6]. This ability of supplier to fulfill the quality demands of customer
not only affects the competitive advantage of the said supplier but it also significantly
influences the competitive positioning of the manufacturing organization in ques-
tion [1, 48, 61, 62]. It becomes extremely important for top management to keep
motivating their organization’s suppliers for continuous improvement on quality front
for retaining the dual benefit of suppliers’ own development and sharpening their
competitive edge as well [23, 62, 63].
Top management ought to concentrate on interfirm alliances [20] by placing
their executives at the business facilities of their upstream supply chain partners for
continually enhancing their supplier’s quality [57, 64]. This would motivate firm’s
suppliers for manufacturing according to the customers’ quality parameters [49, 57].
Highly motivated suppliers might result in optimal utilization of inventory and mini-
mization of waste, thereby translating into enhanced resource utilization [20, 45, 65].
This clearly highlights that top management commitment impacts supplier’s quality
4
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ITexLi.105781
improvement and resource utilization. However, it will be interesting to investigate

whether supplier’s quality improvement has a mediating impact on the relationship
between top management commitment and resource utilization in the context of
Indian organizations. Thus, the next hypothesis is formulated as given below:
H1 c = Top management commitment positively impacts resource

utilizationwith respect to supplier' s quality improvement.
Top management of organization from long had been focusing on dealing with a
select supplier base that is chosen on the basis of customer feedback related to quality
aspects, [27, 56], ISO standards [1], efficient inventory echelon models [66], and
improvised supply chain networks [56]. Current extant literature fails to address
whether supplier quality improvement mediates the relationship between top man-
agement commitment and resource utilization. Both researchers and industry prac-
titioners have considered that top management commitment and supplier’s quality
improvement play a distinct role in contributing to resource utilization [6, 27, 35, 45,
49, 59, 65]. However, in this study it is proposed that top management commitment
is an antecedent to supplier’s quality improvement leading to the conceptual research
framework as shown below in Figure 1. Table 1 provides description and supporting
references of the constructs used in the presented study.
Figure 1.
Conceptual framework.
Sr. No Constructs Description Supporting references
1 Top Management Engaging/motivating/training supplier and [32, 33, 39, 45, 52–54,
Commitment employees for quality improvement; feedback 56, 67]
(TMC) from customer on quality improvement; long
term relationship with supplier
Mediator
2 Supplier’s Quality Continual improvement in quality of supplies; [1, 18, 41, 48, 58, 63, 68]
Improvement feedback on quality aspects at regular
(SQI) intervals; Supplier commitment to upgrade the
technology
3 Resource Efficient utilization of resources for an overall [20, 31, 57, 69]
Utilization (RU) reduction in the internal cost
Table 1.
Construct description and supporting references.
140
3. Methodology
This section of the study is divided into four subsections. Survey instrument and
data collection section emphasizes the development of scale, sampling technique
used, and response rate of the study. Reliability section concentrates on determina-
tion of Cronbach alpha using SPSS 21.0 software. Correlation matrix section checks
whether there exists a significant correlation among constructs of the study. At last,
regression analysis section elaborates on mediated regression analysis as proposed by
Preacher and Kelley using Hayes [17] PROCESS macro in SPSS 21.0.
3.1 Survey instrument and data collection
In-depth structured interviews with top management officials of Indian automotive

organizations were conducted for identifying the pertinent items for the constructs.
These interviews have helped in ensuring that constructs and their relationships are
consistent with industry practices. After gathering valuable industry feedback, a draft
is prepared and sent for feedback to selected academicians with relevant experience in
the automotive sector. The process helped to obtain feedback on comprehensiveness,
clarity, face validity, and readability of the scale of survey instrument. This valuable
feedback helps in revising and finalizing the questionnaire as presented in Table 2.
Five-point Likert scale (1 – Strongly Disagree, 5 – Strongly Agree) was used to
capture organizational responses of the questionnaire. Further, the research team
distributed the research questionnaire based on snowball sampling. Reason for choos-
ing snowball sampling was that respondent’s references were considered for sending
questionnaire to other respondents. Respondents of the study include the top level
managers, chief executive officer’s (CEO’s), chief operational officer’s (COO’s), supply
chain manager’s and quality manager’s; of 300 automotive organizations across India,
and they were contacted through various modes, namely email, personal visits, and
postal mails. This study has considered that the respondent was replying on behalf
of the organization. Hence, the organization is considered as the unit of analysis.
One-hundred and thirty automotive organizations responded to the questionnaire.
After a careful examination of responses, 98 organizational responses are selected as
valid for study. The reason for not selecting the other responses was due to either their
incomplete or invalid response. Overall, the response rate of the study is 32.67% that is
acceptable as per the literature [56, 57, 70, 71].
3.2 Reliability
The research team computed Cronbach’s alpha [72] of constructs using SPSS version
21.0. The reliability results are presented along with the questionnaire in Table 2 above.
The construct’s Cronbach alpha values presented in Table 2 were found to be greater
than 0.7, which is acceptable as per literature [1, 27, 63, 68, 72]. Thus, Cronbach alpha
values validate the reliability of scale for further research usage.
3.3 Correlation matrix
To perform the regression analysis, it is first required to test the interrelation-

ships between the study constructs. Table 3 presents the interrelationships among
the various study constructs. Top management commitment and supplier’s quality
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ITexLi.105781
Construct Reliability (Cronbach Alpha) Item description

Supplier quality 0.720 Shares both quality improvement benefits and risks with
improvement their supply chain partners
Provides quality performance feedback periodically to
suppliers
Communicates product specifications and quality
requirements at regular intervals
Significant investments in tooling and equipment from
suppliers to improve quality of the final product
Top management 0.849 Focuses at continuously improving the supply quality of
commitment the product by making it as one of its organizational goal
Has a system to collect complaints on product quality
aspects from customers.
Encourages active participation of employees in the
production activities to assure quality
Committed to develop long-term relationship with
suppliers by improving their processes in the long run
Places executives at the business facilities of its supply
chain partners to facilitate collaboration
Cooperates extensively with customers with respect to
selection of quality processes for improvement in product
design
Contacts end users of its product(s) to get feedback on
product performance
Collects and evaluates both formal and informal
complaints for the satisfaction of its customers to
strengthen long-term relationships
Resource utilization 0.768 Ability to minimize total product cost for final customers
Possesses good inventory management process which
results in reduction of inventory cost
Ability to minimize all types of waste throughout the
supply chain
Table 2.
Research questionnaire.
Mean SD RU TMC SQI
RU 3.9111 0.66818 1
TMC 4.1251 0.59272 0.708** 1

**
SQI 4.2477 0.57694 0.669 0.805** 1
**Correlation is significant (p < 0.01).
Table 3.
Mean, standard deviation (SD) and correlations.
improvement are significantly correlated with resource utilization (p < 0.01). It is also
evident from Table 3 that top management commitment is significantly correlated to
supplier’s quality improvement (p < 0.01).
142
3.4 Regression analysis
Three-step mediation analysis procedure as proposed by Baron & Kenney [73]

has been considered to be the most traditional approach to mediation analysis with
a limitation of use of descriptors such as “complete” and “partial” mediation [16].
Researchers had advocated that bootstrapping, a nonparametric resampling method,
is a robust alternative to overcome this shortcoming [16, 74, 75]. Therefore, it is being
recommended that constructs of bootstrapping confidence intervals (CI) for the
indirect effect must exist between the limits.
Indirect, direct and total effects mediation analysis procedure [16] is used to inves-
tigate the mediating role of supplier’s quality improvement using PROCESS macro
[17] in SPSS version 21.0. Proposed framework with various notable research values is
presented in Figure 2.
It is evident from Figure 2 that regression coefficient of top management commit-
ment (β = 0.7834, p < 0.05) with respect to supplier’s quality improvement is positive.
Additionally, top management commitment accounts for 63.92% of the variance in
the supplier’s quality improvement. Moreover, the results presented in Table 4 below
suggest that the “p” value for hypothesis H1a is significant (p < 0.05), thereby validat-
ing hypothesis H1a.
Figure 2 also highlights that the coefficient of top management commit-
ment (β = 0.7981, p < 0.05) with respect to resource utilization is significant.
Furthermore, the results presented in Table 4 validate the hypothesis H2a, which
states that top management commitment positively influences the resource utiliza-
tion of the firm.
Preacher and Kelly’s regression method suggests that the total effect and the direct
effect must be significant (p < 0.05) to validate the mediating impact of supplier’s
quality improvement. To significantly validate the indirect impact, boot standard
error (SE) values must be within the boot upper limit confidence interval and lower
limit confidence interval, and it is a must that the limits must not possess zero [16].
Thus, standard error must be positive and must be between positive control limits.
Total and direct effect results presented in Table 5 given below significantly vali-
date that top management commitment impacts resource utilization with respect
to supplier’s quality improvement. Further, Table 6 proves that there exists an
indirect impact of supplier’s quality improvement on the relationship between top
management commitment and resource utilization, thereby validating hypothesis
H3a. Therefore, it can be said that there exists a mediating role of supplier’s qual-
ity improvement on the relationship between top management commitment and
resource utilization.
Figure 2.
Framework with notable research values.
143
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Structural path Hypothesis Effect SE t-value p-value* UCL** LCL** Significant/Not Significant
TMC → SQI H1a 0.7834 0.0590 13.2883 0.0000 0.6664 0.9005 Significant
TMC → RU H1b 0.7981 0.0813 9.8212 0.0000 0.6368 0.9594 Significant
TMC → SQI → RU H1c 0.3250 0.1374 2.3647 0.0201 0.0521 0.5978 Significant
*The bold values represent significance level at p < 0.05.
**Bootstrap upper and lower confidence intervals for the indirect effect.
Table 4.
Regression model results.
144
Type Effect SE t-value p-value* LLCI** ULCI** Significant/Not Significant
Total 0.7981 0.0813 9.8212 0.0000 0.6368 0.9594 Significant
Direct 0.5435 0.1338 4.0630 0.0001 0.2779 0.8090 Significant

*The bold values represent significance level at p < 0.05.
**Bootstrap sample size = 1000 (α = 0.05), LLCI = Lower limit confidence interval, ULCI = Upper limit confidence
interval.
Table 5.
Total and direct effect results.
Type Indirect Effect Boot SE Boot LLCI* Boot ULCI* Significant/Not

Significant
Indirect effect SQI 0.2546 0.1035 0.0501 0.4650 Significant
Preacher and SQI 0.1900 0.0796 0.0333 0.3464 Significant

Kelly
*Bootstrap sample size = 1000 (α = 0.05), LLCI = Lower limit confidence interval, ULCI = Upper limit confidence
interval.
Table 6.
Indirect effect and Preacher and Kelly results.
4. Theoretical and managerial contributions
4.1 Theoretical contribution
The study validates the mediating role of supplier’s quality improvement on the
relationship between top management commitment and resource utilization in the
context of Indian automotive organizations. The resource-based view has focused
on economies of scale but somehow lacks in its coverage of the role played by top
management in improving the supplier’s quality for achieving better resource utiliza-
tion. This research has enriched the literature by investigating the same for Indian
automotive sector. India is a major contributor in the Asian automotive sector [13, 14,
76], thus researchers primarily working in the area of Asian automotive sector can use
this model in various other Asian countries.
The existing literature has already captured the competitive edge attainment
by dwelling on selecting supplier based on quality customer feedback [27, 56], ISO
standards [1], efficient inventory echelon models [66], supply chain flexibility issues
[15], supply chain networks [56], supply chain risk [77], and flexible supply chain
capabilities at various tiers [78]. However, the findings of the presented study add
another dimension to the same by suggesting that suppliers’ quality improvement can
mediate the relationship between top management commitment and resource utiliza-
tion, thereby providing better competitive positioning to the concerned firm.
4.2 Managerial contributions
The mediating role of supplier’s quality improvement in the Indian automotive

sector suggests that top management must be committed to improve the supplier’s
quality for optimum utilization of resources. The automotive management must
ensure the same so that they can obtain a sustainable competitive advantage through
10
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ITexLi.105781
various ways covering employee commitment on quality issues, shortening of product

development time, and communicating the updated customer requirements to sup-
pliers in real time or as soon as possible. The achieved sustainable advantage will not
only improve the manufacturing capability but also help automotive organizations
on achieving the customer delight. The delighted customer will enable automotive
organizations to enrich their market positioning not only at national level but also at
the Asian level.
The top management of the automotive organization must assure that all organi-
zational employees are also committed toward supplier’s quality improvement so that
they can obtain a sustainable competitive advantage through utilization of resources
[79]. The committed employee will enable the automotive organization to cut short
on their internal cost of production, thereby able to offer their respective products
at nominal prices [5, 33, 34]. This will help the automotive organizations to attain a
strong competitive advantage in the Asian market.
Report by India Brand Equity Foundation [14] considered India to be a potential
manufacturing choice by most of the leading automotive organizations, and these
organizations are expanding their product portfolio in the Indian Market as well.
The top management of automotive units must work along with their trusted set of
suppliers for solving quality-related issues in the development phase of an automobile
itself, thus shortening the product development time. For doing so, top management
of the firm is required to communicate the updated customer quality requirements
as well as the customer’s quality feedback as quickly as possible to all the respective
suppliers. This will ensure that suppliers remain updated for delivering the demanded
product by modifying their interfirm quality processes for delivering the said prod-
uct. The automotive units will be able to reduce the internal cost of production as
per the resource advantage theory leading to the manufacturing success resulting
in higher utilization of resources and building of long-term relationships with the
trusted set of suppliers.
The discussed strategies can be used by researchers as well as management profes-
sionals for boosting the manufacturing capability of the Asian automotive sector. The
researchers can perform the same research in the various Asian markets and compare
the results with the current study.
5. Conclusion and future scope
This study validates the mediation impact of supplier’s quality improvement on

the relationship between top management commitment and resource utilization in
the context of Indian automotive organizations. Results of the data analysis suggest
that top management of automotive organizations must focus on building long-term
relationships with trusted set of suppliers so that they can improve quality of supplies,
which translates into optimum utilization of inventory and minimization of waste.
Another recommendation of the study is that organizations must provide up-to-
date quality expectations of customers to their supplier in real time, if possible. By
doing so, suppliers have a chance to update their system for quality improvements,
which will ultimately result in reducing the internal cost of production in-line with
the resource advantage theory. Management can utilize these savings for further
improving supplier’s quality that will help automotive organizations in fulfilling high
expectations of customers. These accrued savings can further be utilized by the firms
in strengthening their research and development wing helping the firm concerned
11
146
with attaining a sustainable competitive advantage in today’s dynamic and volatile

business environment.
However, there are a few limitations of this study. Firstly, the sample collected
for this study was relatively small, but an effort has been made to cover a substantial
number of units in terms of market share. Secondly, this research had not captured
the secondary data (like internal manufacturing data) to crosscheck the resource
utilization issues. The reason for not using secondary data was the unwillingness
of the Indian automotive organizations to provide the secondary data due to their
organizational policies.
The study being done in the automotive area provides an opportunity for research-
ers to carry out research studies of similar nature in the other industrial manufactur-
ing sectors such as food and beverages, electronics, furniture, and pharmaceuticals.
Another opportunity for researchers can be to work on a comparative analysis by
comparing results across geographical locations for automotive organizations and
thus coming out with a comprehensive model suiting the global requirements. Lastly,
the researchers can work on the limitations of the study.
147
ITexLi.105781
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Hoffman JW, West SG, Sheets V. A
152
Chapter 10
Trends in the Accreditation of

Medical Laboratories by ISO 15189
Paulo Pereira
Abstract
In areas such as transfusion, transplantation, and sports medicine, laboratory

results are critical to the diagnosis of pathologies. In order to minimize intra- and
interlaboratory variability of results, it is equally important to harmonize quality
management and technical practices in the medical laboratory. To ensure the com-
petence of medical laboratories, ISO 15189, 3rd edition, establishes international
standards. A set of critical principles for effective management and control of
technical specifications has been outlined in this document. December 2022 marked
the publication of the fourth edition of this standard. An in-depth analysis of the ISO
15189 standard is presented in this chapter.
Keywords: accreditation, assessment, medical laboratory, ISO, technical, QMS
1. Introduction
The pivotal significance of laboratory results in healthcare is underscored by their

contribution to 70% of clinical diagnoses [1]. This underscores the need for perfor-
mance assessment techniques to ensure that these results are reported in alignment
with their intended purpose. However, it is equally essential to maintain control over
the entire technical environment and support infrastructure.
The quality and competency standards for medical laboratories are delineated
in ISO 15189 “Medical laboratories - Requirements for quality and competence”, an
International Organization for Standardization (ISO) standard [2]. ISO 15189 serves
the dual purpose of establishing quality management systems (QMS) for medical
laboratories and evaluating their competence. Moreover, third parties, including
customers, regulatory bodies, and accreditation entities, employ these standards to
affirm or acknowledge a laboratory’s competency.
As part of its standard life cycle, ISO standards necessitate a comprehensive review
every 5 years. This review process falls under the purview of the Technical Committee
ISO/TC 212, focusing on “Clinical laboratory testing and in vitro diagnostic test
systems.” ISO 15189 is categorized in the International Classification for Standards
(ICS) under 03.120.10, which pertains to quality management and quality assurance,
and 11.100.01, encompassing laboratory medicine in general. The ICS framework
functions as a structure for compiling international, regional, and national standards,
along with other normative documents. It also serves as a basis for standing-order
systems [3]. For detailed information on the revision cycle, please refer to [4].
153
The ISO 15189:2022 is a 76-page document. The current edition, which is the
fourth, was published in December 2022, and it supersedes the third edition, which
has since been withdrawn [5]. This chapter delves into the foundational principles
of the present ISO 15189 editions, taking into consideration anticipated changes and
emerging trends. The target audience for this chapter includes individuals with prior
experience in ISO 15189 accreditation, including those who have been audited and
auditors familiar with this standard.
2. Verbal forms
Drawing from our experience as auditors, we are often reminded of instances

where requirements were mistakenly regarded as recommendations, and vice versa.
It is of paramount importance to grasp the distinctions between what is mandated,
suggested, or allowed in order to gain a comprehensive understanding of the stan-
dard and how it should be applied. This principle holds true not only for those being
audited but also for auditors themselves, particularly internal auditors, who can
sometimes introduce misconceptions when interpreting the standard. This applies
to various fields, including management and technical. ISO 15189 employs specific
verbal forms to convey these distinctions, and they are as follows:
• “shall” indicates a requirement;
• “should” indicates a recommendation;
• “may” indicates permission, and;
• “can” indicates a possibility or capability.
The ISO/IEC Directives, Part 2:2001, titled “Principles and rules for the structure
and drafting of ISO and IEC documents,” outlines the fundamental principles govern-
ing the drafting of ISO and the International Electrotechnical Commission (IEC)
documents. It also prescribes specific rules aimed at ensuring these documents are
clear, precise, and unambiguous. These rules are not only essential for clarity but also
for maintaining the effectiveness of each document in contributing to the cohesive
and interconnected body of knowledge generated by ISO and IEC. In fact, this stan-
dard aligns with the principles governing the use of verbal expressions for provisions,
as outlined in Section 7 of the ISO/IEC Directives ([6], Section 7).
3. Conceptual changes
3.1 Intended use/fitness for purpose
The updated ISO 15189 version includes the assessment of performance

specifications based on the intended use of the method, whether it is for valida-
tion - harmonized methods; “commercial assays” - or verification - developed
or modified methods - purposes. As a result, laboratories will be responsible for
establishing the performance specifications, ideally drawing upon third-party peer-
reviewed research. This methodology for assessing and ensuring precision in both
2
154
Trends in the Accreditation of Medical Laboratories by ISO 15189
ITexLi.113829
(quantitative) measurements and (qualitative) examinations is of paramount impor-

tance for making accurate clinical decisions and subsequent actions.
Within the scope of intra-laboratory applications, it becomes imperative to take
into account the guidelines provided by national accreditation agencies. These guide-
lines may even be obligatory for achieving recognition of ISO 15189 accreditation.
Consider the example of glucose and its diverse applications, ranging from excluding
diabetes, diagnosing diabetes, and ruling out hypoglycemia in emergency settings,
to maintaining precise glycemic control in intensive care units. There are no systems
with “pure” ISO 15189 accreditation, the system being a combination of other guide-
lines, in which the legal ones overlap.
To address these varied purposes, the laboratory should proactively consult the most
current literature for state-of-the-art methodologies in the assessment of both quantita-
tive, for example, using the Clinical and Laboratory Standards Institute (CLSI) EP15-A3
guideline [7], and qualitative assays, encompassing binary, unordered (nominal), and
ordered (ordinal) categorizations, for example using CLSI EP12-A3 [8], Pereira [9], and
Eurachem guide [10]. This literature selected is not only peer-reviewed papers but also
regulation of in vitro diagnostic medical devices (IVD-MD) and inserts from manufac-
turers of this type of devices. In this step, it will be demonstrated whether the laboratory
can achieve/replicate the required performance under its conditions, whether through
regulation or that stated in the manufacturers’ inserts.
3.2 Risk-based decisions
Laboratory techniques come with inherent risks and opportunities, which are
identified within the laboratory setting. The laboratory is required to respond to these
identified risks. To address these risks, a proportional response is essential, taking
into account their potential impact on laboratory test results and the safety of both
patients and personnel. The principles of ISO 15189 and ISO 22367:2020 [11] closely
align with the requirements for risk management. A risk-oriented approach is per-
vasive throughout the entire ISO 15189 document, particularly in Sections 5.6, titled
“Risk management” and 8.5 “Actions to address risks and opportunities.”
In addition to establishing and implementing a management system for the labora-
tory, the laboratory director has the responsibility of applying risk management princi-
ples to all aspects of laboratory operations. By systematically identifying and addressing
any risks that could affect patient care and identifying opportunities for improvement,
the laboratory director ensures the seamless operation of laboratory activities. In cases
where these processes are found to be ineffective, the laboratory director ensures that
they are evaluated and, if necessary, modified and implemented effectively.
It is imperative to identify risks associated with emergencies or situations where labo-
ratory activities are limited or unavailable. A coordinated strategy should be developed
to enable the recovery of systems and the continuity of operations after a disruption.
This involves the development of plans, procedures, and technical measures.
Throughout the pre-examination, examination, and post-examination processes,
the laboratory must identify potential risks to patient care. As part of the risk assess-
ment process, efforts are made to mitigate these risks where possible, and they are
communicated to users most appropriately. The ongoing monitoring and evaluation
of identified risks and the effectiveness of mitigation measures are critical to ascer-
tain whether there is any potential harm to the patient.
Laboratory management bears the responsibility of developing, implementing,
and maintaining processes for identifying risks that could harm patients in relation to
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examinations and activities. These processes are also tasked with devising actions to
address the identified risks and opportunities.
Furthermore, this risk analysis process, established by the laboratory, leads to the
definition and determination of immediate and long-term actions. Laboratories are
obligated to rectify any non-conforming work, taking into account the likelihood of
its recurrence in the future. In cases where there is a risk of harm to patients, exami-
nations are halted, and reports are withheld to prevent such harm.
3.3 Leadership
Leadership involves the capacity of an individual, a group, or an organization

to “lead,” exert influence or provide guidance to other individuals, teams, or entire
organizations. Professionals, as a rule, do not like being forced to carry out specific
and extraordinary tasks. On the other hand, maintaining competency matrices
especially in complex techniques or with large teams can consume a considerable
amount of time and effort. Leadership is influential but also influenced by the specific
demands of the laboratory and the circumstances surrounding the risks of failure it
faces. It must be clear that all activities, including support activities, always depend
on a leadership policy.
4. Structure
4.1 Relationship with ISO/IEC 17025, ISO 9001, and ISO 15189:2012
The ISO 15189 structure is built upon ISO/IEC 17025:2017 [12], much like the pre-
vious versions. ISO 15189 aims to enhance patient well-being by instilling confidence
in the quality and competence of medical laboratories. The 4th version can be viewed
as less prescriptive in defining “what” is required and instead embraces a risk-based
approach for determining “how” requirements are met, placing more emphasis on the
interplay between different elements. This structure adheres to the principles outlined
in the ISO Casco 1700 series for accreditation standards [13].
Similar to ISO/IEC 17025, ISO 15189 follows an input-output structure, aligning
with ISO 9001 [14], which pertains to the QMS. This means that laboratories with
QMS certification under ISO 9001 will undergo third-party audits for ISO 15189
accreditation, focusing primarily on technical requirements. The contemporary struc-
ture also addresses management responsibilities, with a focus on the flow of processes
within the medical laboratory, encompassing recognized pre-analytical, analytical,
and post-analytical phases.
A summary of the key changes and updates from ISO 15189:2012 to ISO 15189:2022
can be found below:
• Management requirements:
○○ ISO 15189:2012 had a section on “Management Requirements” that covered

various aspects of laboratory management.
○○ ISO 15189:2022 introduces new sections, “Structural and governance require-

ments,” and “Requirements regarding patients,” which detail the structural
organization and patient-related aspects of laboratory management.
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○○ The 2022 version places more emphasis on the “Requirements regarding

patients” and “Advisory activities” (“Needs of users”) and includes informa-
tion on “Objectives and policies,” “Structure and authority,” “Quality manage-
ment,” and “Management system requirements.”
• Quality management system:
○○ ISO 15189:2012 had sections on “Quality management system” and

“Documentation requirements.”
○○ ISO 15189:2022 introduces “Management system documentation” and specifies

the documentation and control of management system documents.
○○ The requirement for a “Quality manual” is marked as optional and is no longer

mandatory in ISO 15189:2022.
• Service agreements:
○○ In ISO 15189:2012, there were two sub-sections related to “Service agreements.”
○○ In ISO 15189:2022, these are now merged in the section “Service agreements.”
○○ Evaluation and audits:
○○ ISO 15189:2012 had sections on “Evaluation and audits.”
○○ ISO 15189:2022 introduces a more structured approach with “Evaluations”,

“Quality indicators” and “Internal audits.”
• Management review:
○○ Both versions have sections on “Management review” but provide more details
on the structure of this review in ISO 15189:2022.
• Technical requirements:
○○ ISO 15189:2012 included sections on “Technical requirements.”
○○ In ISO 15189:2022, these are categorized under “Resource requirements.”
• Personnel:
○○ ISO 15189:2012 had sections regarding personnel qualifications, job descrip-

tions, and staff performance reviews.
○○ ISO 15189:2022 adds a section on “Competence requirements and provides

more detailed information about “Continuing education and professional
development.”
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• Accommodation and environmental conditions:
○○ These requirements remain mostly consistent between the two versions, with
some slight reorganization and clarifications.
• Laboratory equipment, reagents, and consumables:
○○ The sections about laboratory equipment, reagents, and consumables have

been restructured, but the core requirements remain consistent.
• Pre-examination, examination, and post-examination processes:
○○ ISO 15189:2022 revises the structure and organization of requirements related

to pre-examination, examination, and post-examination processes.
○○ While the core elements remain similar, the new version offers more clarity
and detail.
• Laboratory information management:
○○ ISO 15189:2022 includes new sections on “Downtime plans,” “Off-site manage-

ment,” and “Continuity and emergency preparedness planning.”
• Annexes:
○○ ISO 15189:2022 includes additional annexes, such as “Additional require-

ments for Point-of-Care Testing” and tables comparing the standard to ISO
9001:2015, ISO/IEC 17025:2017, and ISO 15189:2012.
In summary, ISO 15189:2022 builds upon the foundation of ISO 15189:2012,

offering a more comprehensive and structured framework for quality management in
medical laboratories. It places a greater emphasis on the needs of users, quality indica-
tors, and external assessments, and provides additional guidance in various aspects of
laboratory management and operations.
4.2 POCT integrates ISO 22870
The basis for point-of-care testing (POCT) requirements in the new ISO 15189
edition is a blend of the principles from the previous ISO 15189 version and ISO
22870:2016 [15]. Consequently, this edition incorporates ISO 22870 principles rele-
vant to medical laboratories supporting POCT. Hospitals, clinics, or other ambulatory
care healthcare facilities may conduct POCTs, aligning with ISO specifications.
An additional pertinent technical standard is ISO/TS 22583 [16], which offers
guidance for supervisors and operators of POCT services conducted independently of
medical laboratories’ oversight and support. As a result, ISO/TS 22583 can be seen as
complementary to an ISO 15189 accreditation project.
Moreover, the technical specifications encompass several crucial elements that
must be taken into account to ensure the safety and reliability of POCT results. In the
ISO 15189:2022 context, POCT is treated as any other service provided by a medical
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laboratory, guided by the requirements and service level agreements, and tailored to
the interaction with users based on medical needs.
4.3 Sampling is related to ISO/TS 20658
Starting from 2017, ISO/TS 20658:2017 [17] establishes a set of requirements and
best practices for collecting, transporting, receiving, and handling samples intended
for medical laboratory examinations. Within ISO 15189, sampling specifications
retain their crucial role, incorporating the principles delineated in ISO/TS 20658. This
technical specification serves as a valuable reference for sampling procedures.
The latest iteration of ISO 15189 now integrates specific requirements for the
preparation and identification of suitable samples. These elements are essential
components of the new sampling specifications. Additionally, the updated version
introduces a risk-based assessment of criteria for accepting suboptimal samples, as
well as acceptance and rejection criteria for sampling. So, it is essential to emphasize
that the decision to reject a sample should never be “automatic” - it must be made
with the patient’s best interests in mind, based on clinical data and prognosis.
4.4 Refers to ISO/TS 22367 on risk management
ISO 22367:2020, titled “Medical laboratories - Application of risk management

to medical laboratories” [11], corresponds closely with the ISO 15189 criteria for risk
management. The principles established in the med lab standard are harmonized with
the risk management requirements. Medical laboratories are encouraged to utilize
this document as a tool for recognizing and addressing risks associated with medical
laboratory examinations, benefiting both patients and staff. A robust risk manage-
ment process encompasses the identification, assessment, evaluation, control, and
monitoring of risks.
In addition, this document sets forth stipulations encompassing all facets of medi-
cal laboratory examinations and services, spanning pre-examination and post-exami-
nation protocols, the examination process itself, and the accurate transmission of test
results into electronic medical records. Furthermore, it includes various technical and
managerial procedures relevant to the field.
4.5 Interrelationship between personnel
Every member of the medical laboratory staff is obligated to adhere to the

guidelines that govern the medical laboratory. These guidelines outline their roles,
authority, communication channels, and how they interact with others involved in
managing, executing, or validating laboratory results.
5. Metrological traceability
ISO 15189 is firmly anchored to ISO 17511 [18], which centers on metrologi-
cal traceability. This standard establishes the technical prerequisites and essential
documentation for achieving metrological traceability for quantities gauged IVD-MD.
The highest level of metrological traceability for human samples is attained through
Reference Measurement Procedures (RMP) and Certified Reference Materials
(CRM). However, these materials are not always available, being rare or integrated
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into kits. The traceability remains considered in the scenario where primary refer-
ence materials or reference methods are unavailable. So, traceability must always be
ensured for the quality control material, even if metrological traceability is not pos-
sible. This traceability refers to the reference of the materials, such as the batch and
expiration date. Note that “metrological traceability”, by definition in VIM, is only
applicable to quantitative quantities, not qualitative properties, as true/false, positive/
negative.
The new version also deals with commutability issues within the traceability chain.
Comparatively, the new ISO 15189 requirements can be interpreted as more pragmatic
and forward-thinking when contrasted with the previous version. They comprehen-
sively link all elements concerning metrological traceability. In fact, measurement
traceability mainly refers to verification, validation, measurement uncertainty,
internal quality control, and external quality assessment of methods.
6. Performance assessment
The performance specifications for each examination method should be directly

linked to its intended use and the influence it has on patient care. The laboratory
establishes a verification procedure to confirm its competence in conducting exami-
nation methods before their implementation. Verification thus applies to all standard-
ized assays or methods - referred to as “commercial” - which have been subject to
extensive validation and evaluation by a notified body. This process involves ensur-
ing that the necessary performance criteria, as defined by the manufacturer or the
method itself, can be consistently met.
Otherwise, non-normalized assays or methods, such as laboratory-designed
or developed methods, methods used outside their originally intended scope, and
validated methods subsequently modified, are validated. This process is deeper and
more extensive than the one called “verification”, as it involves more complex compo-
nents. For example, establishment cutoff. In the med lab, it is associated with rare or
reference tests.
By providing objective evidence based on performance characteristics, the test will
confirm that the specific requirements for its intended use have been met. To ensure
consistency in the validity of the results relevant to clinical decision-making, the labo-
ratory shall conduct sufficient verification or validation of the examination method.
Which characteristics are relevant? The ones that are relevant to the intended use.
7. Refers to ISO/TS 20914 on measurement uncertainty
In the 4th edition, the measurement unit (MU) [19, 20] will undergo a compari-
son with performance specifications, the results will be documented, and regularly
reviewed. In the current edition, ISO/TS 20914 [21] establishes itself as a definitive
best practice guide for handling measurement uncertainty. It is crucial to assess and
manage measurement uncertainty in a manner that aligns with its intended purpose,
and this principle is part of the ISO/TS. When reporting uncertainty internally, it is
imperative to take into account several sources of uncertainty, which may include,
but are not limited to, factors related to biological variation. It must be clear what
the components of uncertainty are. If a “top-down” model [22] is used in comput-
ing, important literature references can also be shared with the total analytical error
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determination (measurement analogous to uncertainty), such as CLSI EP15. The

difference between the approaches can be summarized as being due to the different
combinations of sources, where bias is seen as a source of uncertainty through bias
uncertainty and the combination follows the laws of variance combination.
In cases where it is not feasible or relevant to estimate the MU for examination
procedures, the justification for excluding MU estimation should be documented. MU
details will be provided to laboratory users upon request.
The consideration of MU during the verification or validation of a method is
advisable. However, it is important to note that this recommendation is only manda-
tory if the medical laboratory deems it relevant to the assessment.
In examinations producing qualitative results, the assessment of MU in intermedi-
ate measurement steps or internal quality control results that generate quantitative
data should also be extended to critical (high-risk) stages of the process [23–24].
However, this reported recommendation is rarely put into practice. The reason is that
there are other quality control practices regularly applied by laboratories with success.
For further details on MU in med lab, see [25].
7.1 Internal quality control
The primary objective of internal quality control is to ensure the intended qual-
ity of the results. Internal quality control can be deemed as fulfilled, given that it
is contingent on the release of the patient’s results. In the fourth edition, there is a
novel proposal addressing trends and shifts, as well as the inclusion of a data genera-
tor for assessing measurement uncertainty, which represents a focus on long-term
compliance.
7.2 External quality assessment
External quality assessment (EQA), also known as proficiency testing (PT), is

essentially an interlaboratory comparison. In the fourth edition, there is the intro-
duction of a target value and verification of trueness following current schemes.
Whenever feasible, achieving metrological traceability to reference methods is
encouraged. The target value may be determined based on consensus within a peer
group. The notion of “commutable material” indicates that it responds to measure-
ment methods similarly to patient specimens, emphasizing the necessity of commut-
ability. In cases where a suitable EQA scheme is not available, an alternative approach
should be considered. For an introduction to EQA see [26].
8. Discussion and conclusion
The present version of ISO 15189 does not require specific documented proce-
dures. However, this should not be understood as “not documenting” but rather as a
model open to different documentation approaches. In fact, a basis for documenting
could be to follow a similar approach to the previous version, when we asked, “what
to document?”. While the previous version is clear on the do (“do this, do that”), the
new edition focuses on doing what is needed. While the technical aspects of perfor-
mance assessment may have traditionally emphasized measurement-related criteria,
the fourth edition has shifted its focus toward the medical significance of these
criteria. For instance, the European Federation of Clinical Chemistry and Laboratory
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161
Medicine (EFLM) criteria take into account medical requirements, biological varia-
tion, and contemporary conditions. It also emphasizes the specific purpose of each
measurement and the intended use of the test, be it for screening, clinical diagnosis,
or other purposes. As a result, the present edition can be seen as providing fewer rigid
guidelines and, in turn, will demand more thoughtful consideration, making it a
more challenging endeavor to implement.
A recurring limitation found in prior editions is the standard’s potential to foster
better alignment of practices, especially in the context of performance assessment.
Nonetheless, we recognize that this limitation will persist in present and future
versions, as it could potentially conflict with prevailing national regulations, which
always take precedence over standard norms. An example of this lack of harmony is
evident in the variation of acceptable error limits.
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is the evidence base? Annals of Clinical Ellison, editors. Eurachem/CITAC
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Uncertainty in Qualitative Chemical
[2] International Organization for Analysis. Eurachem/CITAC; 2021
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Laboratories Requirements for Quality [11] International Organization for
and Competence. 4th ed. Geneva: ISO, Standardization. ISO 22367 - Medical
Ed.; 2022 Laboratories - Application of Risk
Management to Medical Laboratories.
[3] International Organization for Geneva: ISO, Ed.; 2020
Standardization. International
Classification for Standards (ICS). [12] International Organization for
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and Calibration Laboratories. 3rd ed.
[4] International Organization for
Geneva: ISO, Ed.; 2017
Standardization. 2023. [Online].
Available from: https://www.iso. [13] International Organization for
org/standard/76677.html [Accessed: Standardization. Standards by ISO/
September 21, 2023] CASCO. 2023. [Online]. Available from:
https://www.iso.org/committee/54998/x/
catalogue/p/1/u/0/w/0/d/0 [Accessed:
Standardization. ISO 15189 - Medical
September 21, 2023]
Laboratories Requirements for Quality
and Competence. 3rd ed. Geneva: ISO,
Ed.; 2012
Standardization. ISO 9001 - Quality
Management Systems - Requirements.
Standardization. ISO/IEC Directives, 5th ed. Geneva: ISO, Ed.; 2015
Part 2 - Principles and Rules for the
Structure and Drafting of ISO and IEC
Documents. 9th ed. Geneva: ISO, Ed; Standardization. ISO 22870 - Point-of-
2021 Care Testing (POCT) - Requirements
for Quality and Competence. 2nd ed.
[7] Clinical and Laboratory Standards Geneva: ISO, Ed.; 2016
Institute. EP15-A3 User Verification of
Precision and Estimation of Bias. 3rd ed. [16] International Organization for
Wayne (PA): CLSI, Ed.; 2015 Standardization. ISO/TS 22583 -
Guidance for Supervisors and Operators
[8] Clinical and Laboratory Standards of Point-of-Care Testing (POCT)
Institute. EP12-A2 User Protocol Devices. Geneva: ISO, Ed.; 2019
for Evaluation of Qualitative Test
Performance. 2.ª ed. Wayne (PA): CLSI, [17] International Organization for
Ed.; 2008 Standardization. ISO/TS 20658 -
Medical Laboratories - Requirements
[9] Pereira P. Quality Control of for Collection, Transport, Receipt, and
Qualitative Tests for Medical Laboratories. Handling of Samples. Geneva: ISO, Ed.;
Lisbon: Author-edition; 2019 2017
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[18] International Organization for Measurement uncertainty as a tool for

Standardization. ISO 17511 - In vitro evaluating the ‘grey zone’ to reduce
Diagnostic Medical Devices - the false negatives in immunochemical
Requirements for Establishing screening of blood donors for infectious
Metrological Traceability of Values diseases. Accreditation and Quality
Assigned to Calibrators, Trueness Assurance. 2015;21(1):25-32
Control Materials and Human Samples.
2nd ed. Geneva: CLSI, Ed.; 2020 [25] Pereira P. Uncertainty of
measurement in medical laboratories.
[19] Bureau International des Poids et In: Cocco L, editor. New Trends and
Mesures. JCGM 200:2012 International Developments in Metrology. London:
Vocabulary of Metrology - Basic and IntechOpen; 2016
General Concepts and Associated Terms,
2008 Version with Minor Corrections. [26] Jones RDG, Albared S, Kesseler D,
3rd ed. Sèvres: BIPM, Ed.; 2012. Available MacKenzie F, Mammen J, Pedersen M,
from: http://www.bipm.org/utils/common/ et al. Analytical performance
documents/jcgm/JCGM_200_2012.pdf specifications for EQAS (TFG-APSEQA).
[Accessed: January 4, 2023] Analytical performance specifications for
external quality assessment - definitions
[20] Bureau International des Poids et and descriptions. Clinical Chemistry and
Mesures. Evaluation of measurement Laboratory Medicine. 2017;55(7):949-955
data - guide to the expression of
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Standardization 3 ISO/TS 20914. Medical
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[23] Pereira P, Westgard J, Encarnação P,

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models. Transfusion and Apheresis
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[24] Pereira P, Magnusson B,

Theodorsson E, Westgard J, Encarnação P.
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Chapter 11
Quality 4.0: Data Quality and

Integrity – A Computational
Approach
Rob Christiaanse
Abstract
The use of modern techniques, such as IOT, AI, and machine learning, revolution-
ized the idea of quality and quality control. Auditors face a tidal wave of data. One of
the key challenges is how to determine the quality of the data, systems and processes
produce. We propose a computational model to learn the inherent uncertainty to data
integrity subsumed in the claims actually done by stakeholders within and outside the
organization. The decision procedure combines two strong forms of obtaining audit
evidence. These two forms are external conformation and re-performance. The pro-
cedure fits in the current modern computational idea data-driven assurance, which is
consistent with quality 4.0 concepts in quality control and quality audit practices.
Keywords: data integrity, measurement, uncertainty, quality control, quality audit,

quality standards, assurance, data quality
1. Introduction
It is to be expected that emerging technologies will have a profound impact on how

we produce products, grow our food, use resources, organize services, and so on. We
call these systems cyber-physical systems (CPS). A key characteristic of CPS is that
information is infused in physical infrastructures to improve performance, flexibility,
up-time of machines, product quality, minimize rejection rates, and improve the
perceived product and service quality by end users, such as customers, regulators, and
other stakeholders coined as society at large [1].
The key idea buttressing these developments lies in the realm of measuring things.
In our daily lives, the act of measuring things is very important. Think of the simple
act of buying groceries, in our case tomatoes, at your local grocery store. You enter the
store and ask for 2 kilograms of tomatoes shown on the counter display. The grocer
will pick the tomatoes and put them on a scale. He or she reads from the device the
weight in grams. After having done this, the grocer will calculate the amount due in
the local currency. You pay the amount due to the grocer, and he or she will hand over
the tomatoes you have just bought. The problem you might face is whether the
measured quantity is correct, which is the physical quantity in metrology subject to
measurement. In general, metrology is the science of measurement and its
165
applications. A measurement is said to be traceable when an unbroken chain of

calibrations is established to a specific reference measurement standard, in particular
realizations of the measurement units of the international system of units (SI) [2]. So,
the grocer must be aware that the scale he or she uses does, in fact, measure grams in
the correct way. Needless to say that this is far from simple to establish by him or
herself. So, the grocer trusts the claim of the manufacturer of the scale. But there is an
extra problem you might be aware of. The tomatoes you have just bought must be
compliant with the regulation (EC) No 178/2002 of the European Parliament and of
the council of 28 January 2002 laying down the general principles and requirements of
food law, establishing the European Food Safety Authority and laying down proce-
dures in matters of food safety. The general food law regulation is the foundation of
food and feed law. It sets out an overarching and coherent framework for the devel-
opment of food and feed legislation both at union and national levels. To this end, it
lays down general principles, requirements, and procedures that underpin decision-
making in matters of food and feed safety, covering all stages of food and feed
production and distribution. Food manufacturers, that is, tomato growers must make
sure that their products are safe and do not endanger a human health. In North
America, similar legislation is applicable, see Ref. [3]. Businesses involved with food
must meet national safety and hygiene requirements in order to safeguard consumer
health. So, the grocer again trusts the claim made by the tomato grower(s).
Clearly, there is a relationship between you buying tomatoes from the grocery
store and the trust you must have in the measuring capabilities of the grocer using a
scale and the quality of the tomatoes provided by the grocer trusting him or her that
the tomatoes will not endanger your health. On a more abstract level, we face a
network of interconnected entities like humans and objects like things interacting
with each other. An ecosystem characterized as a communication and information
exchange network in the world coined as social material systems (SMS) [4].
1.1 Research question and research approach
A quality control system (QCS) typically involves monitoring the performance of

measuring instruments, standards of reference, and measurement information sys-
tems within the scope of the QCS. One might ask “How are ecosystems characterized
as a communication and information exchange network, linked to a QCS so that we
can trust the claim of suppliers making up the network?” In fact, this question is really
about whether we can trust the data we use in the assertion of whether the claim of
suppliers in a network is accurate. In this chapter, we propose a computational
approach as a computational model to learn the inherent uncertainty to data integrity
subsumed in the claim of stakeholders within and outside the organization. This
research is in the realm of design science research and is to be characterized as design
theory [5]. In this respect, this research coined as design relevant explanatory/predic-
tive theory (DREPT) augments the “How” part or question with explanatory infor-
mation on “Why” one should trust the proposed design will actually work. The key
point is that the explanatory information is obtained using kernel theories. Kernel
theories are established theories from social sciences, economics, mathematics, com-
puter science, logic, and so on. We are interested in theory building on how to design
effective and efficient governance and control systems, which may be interpreted as
experimental scientific investigation. The ultimate unit of analysis is the individual
coined as methodological individualism [6]. This chapter is outlined as follows. In
chapter 2, we elaborate upon measurement, uncertainty, and how to model exchange
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Quality 4.0: Data Quality and Integrity – A Computational Approach
ITexLi.108213
relationships mathematically. Next, we define what data integrity actually entails. In

chapter 4, we elaborate on modeling decisions as evaluation procedures in auditing
and quality control. The last two paragraphs put the procedure in the context of the
strength of the audit evidence followed by conclusions.
2. Measurement and uncertainty
NIST defines measurement as an experimental or computational process that by

comparing with a standard as a norm, produces an estimate of the true value of a
property of a material, a (virtual) object, a collective of (virtual) objects, a process, an
event, and a series of events, together with an evaluation of the uncertainty associated
with that estimate and intended use in the support of decision making [7]. Measure-
ment uncertainty concerns, that is, express the doubt about the true value of the
measurand as the estimate of the true value of a property as defined after a measure-
ment. The doubt relates to or is associated with the level of rigor to be determined on
the level of uncertainty and what is needed to demonstrate its credibility that deter-
mines the adequacy to meet users’ needs and wants. Most probably the adequacy is
influenced by regulatory rules and regulations set by governmental bodies, such as
governments, customers, demand, reputation of the company, ethical standards, and
so on. This makes traceability to standards and assurance a complex endeavor to reach
and maintain traceable performance standards.
Traceable to (SI) standards is not the same as counting objects. A claim that
counts, as a result of a sample, are traceable to (SI) standards is not correct because it
neglects the fact that counting inextricably involves the definition of what is being
counted which definition is not a part of the (SI) standard, but when some character-
istic of the object is measured then it might be possible that this particular measure-
ment result is traceable to the (SI) standard. Making counting traceable to the (SI)
standard is very important for economic life, one’s health, one’s security, and so on.
The value lies in the precision of the measurement and therefore the measurement
result. Put in other words: “Knowing the measurement uncertainty contributes to
one’s belief whether a measurement result as a count represents the quantity one has
measured traced back to the (SI) standard.”
Note that the noun phrase value like the noun clause traceability of measurement
results has different meanings considering the situations in which the notions as
concepts are used by humans interacting with artifacts, such as machines, software,
and so on. This is why we must address the importance of measuring correctly when
we evaluate the operational performance of some (organizational) entity that uses the
measurement result for some purpose. Measuring correctly is inextricably related to
data quality, but first, we have to model a standard that inextricably defines what is
counted making it possible to make what is counted to be traceable to the (SI)
standard.
2.1 Canonical model of exchange relationships
Exchanges are by definition reciprocal in nature and come in a large variety of

what we coin as means like signed contracts, shaking hands, etc. For example, signing
a contract by both parties is performative in nature; by the act of signing, we com-
municate that the exchange is done. Hence, a signed contract affords exchange. An
affordance establishes the relationship between an object or an environment and an
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organism here a (human) agent through a stimulus to perform an action. In our

example, the stimulus is the signed contract and the detectable change in the external
environment. We assume that the agent is sensitive and therefore able to respond to
external (or internal) stimuli [8, 9].
Bilateral contracts are commonly used in business transactions. You buy 2 kilo-
grams of tomatoes in our introductory example is a type of bilateral contract. The
grocer promises to deliver the tomatoes and you promise to pay for the tomatoes by
giving the grocer the indebted amount you have agreed upon when receiving the
tomatoes. More formally, we can depict the canonical description of a value exchange
cycle as in Figure 1. We use the following notation.
Notation 1.1: (Bilateral contract—canonical model), we will use the left and right
harpoons exclusive for a bilateral contract between two agents S ⇌ B. Furthermore,
actions are denoted as round-edged rectangles. Action nodes are connected via arrows
that specify the control, that is, the information and communication flow. Together
with the initial and the final node depicted as a solid circle and a solid circle
surrounded by a hollow circle, we have a correct descriptive model of the value
exchange cycle.
Note that money is exchanged for goods and or services. The exchange will
actually occur in practice when parties agree upon a contract, that is, the
transaction governance, the transaction structure, and the transaction contents, by
the act of signing denoted by the initial node depicted as a solid circle. The contents
reflect the objects of exchange. In our case tomatoes, now it is possible to extend the
bilateral contract from a market point of view as depicted in Figure 1 into a value
exchange cycle from an organizational point of view. The final result is depicted in
Figure 2.
Remark 1.2: (Bilateral contract—organizational view): Mark that the value
exchange model described the sell-side of agent A and the buy-side of agent B. Now, it
Figure 1.
Value cycle exchange.
Figure 2.
Value exchange cycle double.
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is easy to see that agent A as an organization must also have a buy-side otherwise he
would not be able to deliver the ordered goods or services. The same type of reasoning
does apply to buyer B who must have a sell-side otherwise or has enough budget to
consume the goods or services. By simply doubling the model of the value exchange
cycle (i.e., the bilateral contract—Marker view) we get the precise description of the
value cycle of an organization in which organizational boundaries are denoted as the
dashed line in red. For a more detailed exposition, we refer to Ref. [10].
This concludes our informal description of bilateral contracts used in value
exchange situations. We will see that under specific conditions the market view model
is equivalent to the organizational view model. It is also easy to see that the organiza-
tional point of view is easily extended in a net(work) of contracts similar to supply
chain models commonly used in logistics [11, 12].
2.1.1 Bilateral contract—Market graph
It is quite straightforward to translate the give-and-get relationship depicted in

Figure 1 in a mathematical graph. More specifically a give-and-get relationship is a
directed graph. Formally a graph is defined as follows [13].
Definition 1.3: (Graph): A graph G = (V, E) is a mathematical structure consisting
of two finite sets V and E. The elements of V are vertices (or nodes), and the elements
of E are the edges. Each edge has a set of one or two vertices associated with it, which
are called endpoints. A formal specification of a general digraph D = (V, E, endpoints,
head, and tail) is obtained from the formal specification of the underlying graph by
adding the functions head: EG ! V G and tail: EG ! V G , which designate the head
vertex and the tail vertex of each arc.
Translating the value cycle exchange market view of the bilateral contract into a
directed graph gives us the following result.
In a bilateral exchange relationship, money is exchanged for goods and or services.

This is true from the buyers’ perspective as well as from the sellers’ point of view. We
say that the proportion of goods and or services to money equals the proportion of
money to the goods and or services. So, we get the following equality:
Goods Money
¼ (1)
Money Goods
Let χ denote the goods and μ denote the money, so, we get:
χ μ
¼ (2)
μ χ
Nodes S and B are in fact rationals, defined as follows [14]:

Definition 1.4 (Rational number): A rational number is an expression of the form
a//b, where a and b are integers and b = nonzero; a/0 is not considered to be a rational
number. Two rationals are considered to be equal, a//b = c//d, if and only if ad = bc.
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Given the definition of a rational remark that money, goods and services are not
equal objects, but that the exchange relationship itself is equal. We observe that
χ χ μ2 μ
S¼ ) ) ¼B (3)
μ μ χ2 χ
and
μ μ χ2 χ
B¼ ) ) ¼S (4)
χ χ μ2 μ
It follows that the following equality holds:
μ2 χ 2
B S¼ (5)
χ 2 μ2
Remark 1.5 (Equality—bilinear): Equality (5) is not that easy to understand. For
now, it suffices to state that the multiplication symbol as a connective is to be under-
stood as a multiplicative B ⊗ S which is the bilinear version of and, dominated by the
linear negation ðÞ⊥ , which is a constructive and involutive negation defined in linear
logic [15].
To be precise, the bilateral exchange relationship preserves the identity of the
objects denoted as rationals. Consequently, S delivers χ, denoted as S μ and B pays the
money μ, denoted as B χ. Mark that ι denoted as a loop in the graph serves as an
explicit precondition(s). Now, we can label the nodes and edges.
Remark 1.6 (Equality—linear): It is important to note that S μ and B χ are
additives in linear logic, which is the linear version of and denoted as S&μ and B&χ.
Returning to our example, suppose you have to pay 4 € for 2 kilograms of tomatoes.
The grocer will hand you the 2 kilogram tomatoes expressed by S μ. You pay 4 euros
expressed by B χ. Both actions will take place under the strict condition that you and
the grocer agreed upon the contract denoted by ι and the unit tomatoes per euro
preserving the identity expressed as: S μχ 2 and B μχ 2 . Mind that S and B are rationals.
2 2
Up till now, our notions of goods, services, and money are in fact dimensionless.
Parties will also have agreed upon the unit of measurement of the goods or services
the seller will deliver and get paid for, respectively, the buyer will receive and is
obliged to pay for the received goods or services from the seller. We will use the
following notation.
Notation 1.7 (Units: measures and measurement): The quantity of the object O is
measured in some standard unit expressed as a number and a reference denoted as
superscript st and superscript m, the dimension quality denoted as (q) of object, and
the dimension absolute frequency as a number of objects. Standard units expressed as
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a number and a reference Q stO Q m

O can be denoted as U ðOq ÞS for the sell-side and U ðOq ÞB
for the buy-side, where U denotes the standard unit expressed as a number and a
reference. The quantity of the object O is measured in some standard unit U and the
measurement is expressed as a product Q U, the dimension quality denoted as q of
object, and the dimension absolute frequency as a number of objects.
We denoted χ for the goods and services and μ for money. For the sell-side we get:
Sellerχ≔ Q Sχ q U Sχ q U Sχ (6)
Sellerμ≔ Q Sμq U Sμq U Sμ (7)
For the buy-side we get:
Buyerχ≔ Q Bχ q U Bχ q U Bχ (8)
Buyerμ≔ Q Bμq U Bμq U Bμ (9)
We stated earlier that traceability to (SI) standards is not the same as counting
objects. A claim that counts are traceable to (SI) standards is not correct in the case
one neglects the fact that counting inextricably involves the definition of what is being
counted which definition is not a part of the (SI) standard. The canonical model of the
bilateral contract ensures that all characteristics of an object can be identified and thus
be measured, so that the particular measurement results are by design traceable to the
(SI) standards. Remark that money is considered as an abstract object alike goods and
services. As we will see later on in this chapter it is this particular characteristic which
is very convenient, that is, helpful, but first, we have to extend our model to fit the
organizational view.
2.1.2 Bilateral contract: Organizational graph
From a business perspective, we have to translate the value cycle exchange market
view of the bilateral contract into a directed graph representing the bilateral contract
organizational view. To do so, we have to extend our definition for rational numbers
for sum, product, negation, subtraction, and quotient.
Definition 1.8 (Rational number—sum, product, negation, subtraction, and quo-
tient). If a//b and c//d are rational numbers, we define:
½sumða==bÞ þ ðc==dÞ≔ðad þ bcÞ==ðbdÞ (10)

½Productða==bÞ ðc==dÞ≔ðacÞ==ðbdÞ (11)
½Negation ða==bÞ≔ðaÞ==b (12)
½Subtractionða==bÞ ðc==dÞ≔ðad bcÞ==ðbdÞ (13)
½Quotientx=y≔x y1 (14)
Next, there are basic properties of order on the rationals. Following Tao
they are [14]:
Proposition 1.9 (Basic properties of order on the rationals): Let x, y, and z be
rationals, then the following properties hold:
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Laws 1.10 Order trichotomy. Exactly one of the three statements x = y, x < y or
x > y is true.
Laws 1.11 Order is antisymmetric. One has x < y if and only if y > x.
Laws 1.12 Order is transitive. If x < y and y < z, then x < z.
Laws 1.13 Addition preserves order. If x < y, then x + z < y + z.
Laws 1.14 Positive multiplication preserves order. If x < y and z is positive,
then xz < yz.
Via law 1.10 order trichotomy, we know that it must be the case that exactly one of
the three statements x = y, x < y or x > y is true. It follows that:
Laws 1.15: In the case S=B, then it must be the case that x equals y. In the case S 6¼
B, then it must be the case that x < y or x > y.
Now, we introduce the notion of distance.
Definition 1.16 (Distance δ): Let x and y be rational numbers. The quantity |x - y| is
called the distance between x and y denoted as d(x,y), thus d(x,y): =|x-y|.
It follows that d(x,y) = 0 if and only if x = y and d(x,y) 6¼ 0 if and only if x 6¼ y.
Translation of the value cycle exchange market view of the bilateral contract into a
directed graph representing the bilateral contract organizational view we get the
following result.
Subtraction of rationals is defined in eq. 13. When we apply subtraction of B and S0

and take the absolute value, then we get the distance:
μ χ μμχχ
∣ ∣¼ ∣ ∣¼ δ (15)
χ μ χμ
Extending the graph gives us the following result.
Remark 1.17 (Equality - δ): To see that the extended graph—organizational view is
equivalent to the canonical model of the bilateral contract—market view we take eq.
3, 4, and 15 into account. Eq. 15 gives the definition of δ:
μ χ μμχχ
∣ ∣¼ ∣ ∣¼ δ (16)
χ μ χμ
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The formulas χ χμ2 ⊗ μ μχ2 can be rewritten by substituting χ by S μ and

substituting μ by B χ. We get:
μ μ2 χ μ2 μ
S¼Sμ ) S ) ¼ ¼B (17)
χ2 χ2 μ χ2 χ
and
χ χ2 μ χ2 χ
B¼Bχ ) B ) ¼ ¼S (18)
μ2 μ2 χ μ2 μ
Now, it is easy to see that both models—market vs. organizational view—are

equivalent, that is, isomorphic.
When we interpret the graph, then it is easy to see that δ is only meaningful if and
only if the units of measurement are identical. The following axioms must hold:
Equality of units of measurementχ U Sχ q U Sχ ¼ U Bχ q U Bχ (19)
Equality of units of measurementμ U Sμq U Sμ ¼ U Bμq U Bμ (20)
In the case, B and S0 are the same agents as S and B0 , then δ = 0. In the case, they are
not the same agents then δ can have three values of which exactly one of the three
statements x = y, x < y, or x > y is true. It follows that when x = y that the following
laws hold:
Equality B¼S (21)

Equality S¼B (22)
If x < y or x > y is true, then the following equalities hold, respectively:
Equality Bþδ¼S (23)

Equality B¼Sþδ (24)
Remark that we are interested in the proportionality and not in the quotient
arithmetically.
With this description, we are complete to elaborate on the notion and role of data
quality in a rigorous way, but first, we have to elaborate on the notion of data
integrity.
3. Data integrity
Making counting traceable to a (SI) standard contributes to the precision of the

measurement itself and it determines whether the measurement result is acceptable to
the adhered standards, implying that there exists a decision procedure as an evalua-
tion procedure warranting that the standards are met.
A decision procedure as described assumes that the data quality is up to stan-
dards. To understand the concept of data quality, one needs to understand data
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integrity. Data integrity in itself is defined as “the state that exists when data are
unchanged from its source and has not been accidentally or maliciously modified,
altered or destroyed” [16]. This view is consistent with the model proposed by
Boritz in Ref. [17, 18] in which data integrity is subsumed in the notion of infor-
mation integrity. Boritz defines information integrity as the representational
faithfulness of information to the true state of the object that the information
represents. His aim was to define and validate a general purpose framework that
can be used for controlling and as well as for auditing purposes. In this way,
information integrity impairments can be addressed in an organized and rigorous
manner to guide management risk assessments and control deployment on the
criteria to be addressed to attain reasonable assurance of whether information
integrity objectives are met. Information integrity really concerns the validity and
completeness aspects of the representation itself. Indeed, the object actually
measured.
Boritz distinguishes (core) attributes from enablers, helping realize representa-
tional faithfulness. In his view, representational faithfulness is viewed as a degree of
achievement of it rather than absolute quality. Practically it is all about accuracy/
correctness, which has two dimensions viz. completeness on one side and validity on
the other side. In the case, these dimensions are flawed, then it has negative conse-
quences for the accuracy/correctness assertion. Obviously, there is a trade-off. Con-
sequently, representational faithfulness is subject to some degree of imperfection,
with the tolerable degree of imperfection being defined differently in different
domains and contexts. In Figure 3, this trade-off relationship is depicted by the
pointed arrows.
Now, it is quite logical how these core attributes help in realizing the
representational faithfulness of information to the true state of the object that the
information represents. From an user perspective, granularity enables under-
standability and relevance buttressing the decision-useful approach in decision-
making. From a systems view is it essential that all data are available and accessible
as enablers helping to warrant that the data are complete, current, and timely.
From a data integrity perspective, security warrants as an enabler that the proper
authorization is realized subsumed in validity. The attributes predictability,
consistency, and neutrality preserve the informational quality as measurement.
Neutrality warrants from this point of view that the information is free from
biases, that is, neutrality preserves that objective standards are met. Verifiability as
an enabler warrant the ability that independent observers, applying the same
processes and tolerances for completeness, currency, timeliness, and validity that
are used to produce the information, to replicate substantially the same result.
Where auditability refers to the possibility to trace information back to its source
and confirms the representational faithfulness of the information. It applies to
all enablers that we design and implement controls to assure that the core attri-
butes are fulfilled and therewith the representational faithfulness is attained.
In Figure 4, we have extended Figure 3 with the attributes which determine and
influences the accuracy of the data.
Figure 3.
Accuracy data.
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Figure 4.
Accuracy data and their properties.
4. Modeling the decision procedure as in auditing and quality control
In describing the decision procedure we use a pseudo-code format as in Ref. [19].

Our motivation is to reveal the algorithmic idea behind quality auditing and quality
control practices within a business context but not limited to so. We happily leave it to
the reader to make a final choice on how to implement algorithms using the program
technology of his or her choice. It is important to be aware of what is to be considered as
the object language. An object language is used to denote the language talked about for
example formal expressions of propositional logic, linear logic, and so on. A metalan-
guage denotes the language in which we are talking about the object language, for
example, a natural language augmented by a variety of common mathematical symbols.
We think for the purpose of this chapter comprehensibility is preferred to the level of
mathematical, that is, computational rigor required for implementing algorithms in
some program technology running on some (preferred) hardware configuration part of
a technological infrastructure coined as an information and communication network.
As we have stated in paragraph 2, measurement uncertainty expresses doubt about the
true value of the measurement, as the estimate of the true value of a property as defined
after a measurement. The doubt about the true value concerns the result of an evaluation
of the uncertainty associated with the actual measurements compared with the estimated
uncertainty and the intended use in the support of decision-making. In paragraph 2.2.1,
we defined the notion of distance δ giving us the means to quantify the expected mea-
surement result and to quantify simultaneously the actual impact of noncompliance by
comparing the actual business outputs with expectations. This type of analysis is com-
monly known as variance analysis. Expectations are thought of as norms and predict
normative behavior [20]. Norms in itself can be thought of as preconditions or
postconditions that serve as conditionals in the determination of whether to accept the
input conditions or to accept the output conditions. In the next sub-paragraphs we will
elaborate on how to model an evaluation procedure to assess the data integrity. We define
a process modeling language to translate the value exchange cycle as depicted in Figure 2
to model the evaluation procedure to assess the data integrity of given data sets.
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4.1 Modeling evaluation procedure data integrity
Accepting conditions presumes a decision procedure where inputs are compared

with the norm(s) applicable to the input(s). So, we assume that there exists for any set
S of formulas a valuation of S, which is a function v from S into the set t,f , where t
denotes true and f denotes false coined as truth values. We say that X is true under v if
v(X) = t, and false under v if v(X) = f. So, accepted inputs or outputs make up the
truth set [21]. We give the following definition:
Definition 1.18 (Boolean valuation):
• B1 : The formula ¬X receives the value t if X receives the value f and f if X receives
the value t.
• B2 : The formula X∧Y receives the value t if X, Y both receive the value t,
otherwise X∧Y receives the value f.
• B3 : The formula X∨Y receives the value t if at least one of X, Y receives the value
t, otherwise X∨Y receives the value f.
• B4 : The formula X⊃Y receives the value f if X, Y receives the respective values t, f
otherwise X⊃Y receives the value t.
By an interpretation of a formula X, we mean an assignment of truth values to all

the variables which occur in X.
Proposition 1.19 (Accuracy): The data is accurate and is TRUE if and only if:
(1) the data is VALID is TRUE is TRUE ∧ the data is COMPLETE is TRUE is TRUE.
Algorithm 1: Decision procedure interpretation
This completes our description of the decision procedure. Now, we have to address
the data. Data integrity are subsumed in the notion of information integrity coined as
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the representational faithfulness of information to the true state of the object, mea-
sured and registered in an information system, that the data as information repre-
sents. Following Clark and Wilson [22], we recognize the notions of internal
consistency and external consistency of the data produced by a system. The distinc-
tion is similar to the distinction between internal and external validity made in
research methods. Suppose we have a well-managed computer system. Its specifica-
tions have been verified to be correct and the system itself has been tested and
behaves according to its specifications. That means that when we enter data into the
system that is valid, valid data will ensue (internal consistency). However, even in
such a near-perfect system, there is nothing to ensure correspondence with reality
(external consistency). In general, external consistency can only be ensured by a
combination of organizational measures (segregation of duties, policies, and so on),
procedural measures (e.g., processing controls and supervision), and physical mea-
sures (e.g., gates, fences, and use of IDs). These measures are basic and some authors,
therefore, call these measures indispensable controls, because they must ensure
external validity of the (quality) control and (quality) audit evidence. From a design
point of view, the key questions we have to address are whether we can trust the data
and can use the data. The question can we use the data really concerns the question of
whether the data actually registered in the information system itself actually fits our
information needs. This is the first step we have to consider and is directly related to
the data file at the start of our decision procedure. In the case, the data file actually
represents the data as information for decision purposes then it is useful to check
whether the data file contains data that are valid and complete. To answer
these questions, we extend our bilateral contract—organizational view, as depicted in
Figure 2 by introducing our process-model language.
4.2 Process-model language: Definition and meaning
For our purposes, we need a language to make sure that our reasoning is precise
and most of all easy to use. There are numerous ways to model processes, techniques
to choose from and methodologies to apply. For our purposes, it suffices to use UML
(unified modeling language) because UML provides a common meta-model that
formally defines the abstract syntax of all sorts of diagrams for modeling process
behavior. The declarative meta-model is a very good alternative to grammar used to
define formal languages. As we will see, this feature characteristic provides the possi-
bility to reason in a correct way. In our exposition, we use activity diagrams to model
process behavior. The next section is based on Ref. [23].
Actions describe the tasks that have to be performed in realizing a primary func-
tion to be viable [24]. An action stands for some transformation in the modeled
system to be performed. The sequence in which the actions must be executed is the
most fundamental control structure. As we have seen actions in our language are
denoted as round-edged rectangles. The arrows between the action nodes are the
activity edges which specify the control flow. Together with the initial and the final
node depicted as a solid circle and a solid circle surrounded by a hollow circle we have
a correct specification of the control flow (Figure 5).
The semantics is defined as a token flow that can also be used to refer to data and
physical objects. The tokens are referred to as control tokens and as object tokens.
Mind that actions can only start when tokens are available from the proceeding action
or actions along the incoming edges. We say that tokens are consumed when action
starts. Consequently, tokens are produced, that is, offered to the outgoing edges when
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Figure 5.
Control flow.
Figure 6.
Decision nodes and guards.
completed. In some circumstances, decisions have to be made for the choice of alter-
native control flows. Decision nodes are denoted as diamonds annotated by guards.
The extended control flow can be depicted in Figure 6. Guards are logical expressions
ending up to be true or false. Either we can state them in natural language, program-
ming language constructs, or in formal mathematical logic. Guards can be refined as
being pre and postconditions. When needed we will introduce them. The control logic
remains the same. There are many more types of nodes used in modeling control
flows, such as fork nodes, merge nodes, and join nodes. These types of nodes can be
useful.
Finally, we have two types of nodes that are essential for our purposes. These are
object nodes and data store nodes. Object nodes are needed to model the occurrence of
objects at a particular moment or point in the process. Objects can be typed. We will
extend this formalism extensively for our theory. To capture the object flow, the token
flow semantics of activity diagrams is extended with object tokens. An object token
behaves like a control token but it carries additionally a reference to a certain object
type. Remark that we have to consider object type compatibility. This requirement is
of utmost importance for our theory which we will see later in this chapter. A very
convenient modeling notion is to use input pins and output pins which enables us to
know which input and output parameters are assigned to various actions in the
process. Pins are depicted as small hollow squares with their type written next to the
square. In the case, we want to store information about orders, for example, than we
can model such an action as a data store using data store nodes denoted as a rectangle.
A data store node keep all tokens that enter it, copying them when they are chosen to
move downward. See Figure 7 for an example.
4.3 Modeling evaluation procedure data integrity extended
Now, we can extend our bilateral contract—organizational view to get a clear view
about the informational needs and therewith next to it the requirements to meet a
company’s control and auditing objectives. The result is depicted in Figure 8.
Our objective is to assert whether the data stored as depicted in Figure 8 can be
considered to be accurate. More specifically these data stores enable us to extract one
or more data files we need as input data in our decision, that is, evaluation procedure
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Figure 7.
Pins and data store.
Figure 8.
Control flow extended.
to assert the accuracy of the extracted data set(s) and its acceptability, that is, ade-
quacy for quality control and quality audit purposes. In our example, we have identi-
fied data about stored goods, data about order-picked goods (to be) delivered, data
about the collected revenues of the goods sold, and data about the actual payments of
invoices received from suppliers for the goods we have received and stored in the
warehouse. In general, a process stands for the behavioral pattern of an object, as far
as it can be described in terms of the given named activities selected as its alphabet
[25]. An alphabet denotes a permanent predefined property of an object. Remark that
the name of an activity denotes an event class. There may be many events in a single
event class named as an activity. Choosing an alphabet involves careful deliberation to
decide which properties should be considered. A trace of the behavior of a process is
defined as a finite sequence of symbols recording the event in which the process is
engaged up to some moment in time. More formally:
Definition 1.20 (a trace is the sequence of symbols separated by commas closed by
angular brackets):
• < x,y > denoting two events, x followed by y,
• < x > denoting one sequent, containing only the event x,
• < > denoting an empty sequence.
So, our extracted data set(s) from the data store(s) must contain all traces of the
goods received from suppliers, all traces of the order picked goods (to be) delivered,
all traces of the collected revenues goods sold to customers, and all traces of the paid
invoices for the received goods from suppliers. It follows from the definition of a
process that an alphabet defines the dimensions as column attributes giving us the
names of all attributes making up the first row of the data set extracted from the data
store(s) stored in the data file. The alphabet also gives us precise definitions of the
object types and their properties. How do we proceed from here? Let us extend our
running example.
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4.3.1 An example
Suppose the organization we focus on is a trading organization specialized in

tomatoes. On a daily basis, the organization buys the needed tomatoes at a local
vegetable auction. The clients of the organization are retail organizations serving end
customers. It is important to point out the fact that the organization has to comply
with strict food safety regulations like Ref. [3]. For tomatoes quality indicators have
been well established by total soluble solids measured by Brix-scale, dry matter, and
acid contents. A Brix rating is important because it informs us about the quality of the
tomato. The measurement is worked out on a scale based on 1∘ Brix denoted as ∘ Bx,
which is 1 g of sucrose per 100 g of solution. A low Brix rating indicates a nutrient
deficiency. The Brix rating is used to measure the sweetness of tomatoes, but the
rating is also linked to the acidity or PH level of the tomato. Tomatoes have on average
a PH level between 4.3 PH and 4.9 PH on a scale of 0–14 PH. It is the combination of
sweetness vs. acidity that gives the tomato its unique flavor. The Brix rating can be
measured by using techniques labeled as NIR-spectroscopy, see Ref. [26]. From qual-
ity control and quality audit perspective, we need to know the unit(s) of measurement
to determine whether the procured and sold tomatoes comply with quality standards
to adhere for tomatoes. Relative density or specific gravity is defined as the ratio of the
density (mass of a unit volume) of a substance to the density of a given reference
material (substance). More formally:
ρsubstance
RD ¼ (25)
ρreference
where RD denotes the relative density and ρ denotes density. So, a reference
material is indicated as RDsubstance=reference which means the relative density of substance
with respect to the reference. This description is equivalent to the notation and
definitions introduced in paragraph. 2.1.1. Mind that mass and weight are separate
quantities, they have different units of measure.
Let us assume that the organization bought 4000 kg of tomatoes and sold the
4000 kg to clients of the company. The company trades in one type of a large variety
of tomatoes is the assortment. The buying price was €2,51 kg. The selling price was
€2,63 kg. The agreed-upon contracts stipulates all sorts of requirements, including
quality standards, applicable to the tomatoes. Parties agreed upon the acidity of the
tomatoes must have a PH level between 4.3 PH and 4.5 PH on a scale of 0–14 PH and a
sucrose RD of 9,993,325 ∘ Bx.
4.3.2 Data integrity revisited
To assert whether the data stored as depicted in Figure 8 can be considered to be

accurate one needs to understand the objective of the evaluation procedure modeled
in Algorithm 1: Desicion procedure interpretation. The proposition is:
Proposition 1.21 (Accuracy): The data is accurate is TRUE denoted as T if and
only if:
The data is VALID is T is T ∧ the data is COMPLETE is T is T.
In paragraph 3, we elaborated on the concept of data integrity. In Figure 4, we
depicted the accuracy data model and its key aspects that determine the accuracy of
the data. There are three major aspects that determine the accuracy of the data and
therefore its data integrity. These are:
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• Consistency
• Predictability
• Timeliness
All other aspects are derived from notions necessary to trust the data and to
strengthen one’s belief that the information integrity is assured. Consistency has a
variety of meanings, such as coherent, consistent, cohesive, connected, connective,
sequacious, and so on. So, it is important to be specific about what is to be understood in
the context of data accuracy. In this chapter, we choose a mathematical logical defini-
tion, which fits its purpose [21]. On the other aspects, we will elaborate in due course.
Definition 1.22 Consistency: A set X is called consistent if and only if for no finite
subset Y of X at most one of A and A belongs to X, but not both. Meaning A cannot be
both true and false.
As we can see, there is a strong relationship between the contract with the supplier
and the purchase order of the goods here tomatoes. The contract specifies the condi-
tions the organization and the supplier agreed upon. So, we have data about the price,
quantity ordered, and quality norms applicable to the tomatoes. The same is true for
the contract agreed upon with the customer and the sales order. Remark that next
there is a strong relationship between ordering goods and money outflow due to
paying the invoice. The same is true with respect to the sales of tomatoes and receiv-
ing the money. The type of controls to re-perform the relations are called reconcilia-
tion controls [27]. These types of controls follow directly from paragraph 2.1.2—
extended graph bilateral contract—organizational view and Figure 8 control flow
extended.
4.3.3 The nature of controls: A classification
Before we extend our evaluation data integrity procedure, we have to

elaborate on the nature of internal controls to be distinguished from processing
controls, such as quality controls and quality audits. Internal controls are subsumed
in processing controls as data integrity is subsumed in information integrity
(Table 1).
As we see, there are two categories of controls making up five types of controls.
A. Access controls are what we coin as identity access controls (IAC) also known as
segregation of duties controls. We prefer the term IAC. There are three elements
Type controls Data integrity Information integrity
Internal controls Access controls Accessibility controls
Application controls
Reconciliation controls
Processing controls Availability controls Usability
Process logic controls
Table 1.
Typing controls.
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that buttress IAC. First identity control think of your user-ID. Secondly, there is
authentication control, think of your password or passport. Thirdly, there is
access control, think of authorization entering a theater or some office building
where the porter lets you in. IAC enables an organization to safeguard assets or
data of an organization. Remember, data integrity in itself is defined as “the state
that exists when data are unchanged from its source and has not been
accidentally or maliciously modified, altered or destroyed” [16].
B. Application controls come in a large variety. The there main purpose is to

enforce that data is entered in the correct way. Well-known examples are field
check, sign check, limit check, range check, size check, completeness check,
validity check, and closed loop verification. Application controls make sure that
the right syntax is used and make it possible to implement business rules and
constraints that fit the authorization level of an employee.
C. Reconciliation controls are simply a comparison of the amounts that appear on

the company’s balance sheet general ledger accounts to the details that make up
those balances, while also ensuring that any differences between the two are
adequately and reasonably explained.
D.Availability controls are part of what is coined as information technology general

controls (ITGC), which are the basic controls that can be applied to IT systems,
such as applications, operating systems, databases, and supporting IT
infrastructure. The objectives of ITGCs are to ensure the integrity of the data and
processes that the systems support.
E. Process logic controls are controls that determine whether the process is
executed in the sequence that must be executed. For example, a procurement
activity can not start in the case the contract with the supplier is not signed by an
authorized employee.
When we map the data integrity controls onto the properties of data accuracy, we
get the following result (Table 2).
Remark that the listed data integrity controls instantiate of what we have
addressed as guards in our process-model language to be considered as preconditions
Type controls Data integrity Property Completeness Validity
Internal controls Access controls Consistency X X
Application controls Consistency X
Completeness X
Reconciliation controls Completeness X
Processing controls Availability controls Techn. data integrity X X
Process logic controls Timeliness X
Process logic controls Predictability X
Table 2.
Typing controls.
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and postconditions. Now, we are able to extend our evaluation data integrity proce-
dure computationally.
4.4 Evaluation procedure assessment data integrity
We have seen that by typing controls in terms of internal controls and processing
controls, we are able to clarify the property of the control subsumed in completeness
and validity. We see that access controls and availability controls both underpin
completeness and validity. Availability controls can be characterized as technical
preconditions defining the types of attributes enabling us (human or machine) to
register data in the preferred format, ensuring data integrity and data processing
integrity, so no data get lost (in the information system). Considering the control
flow depicted in Figure 8, and we analyze the data given in our example as given in
paragraph 4.3.1, we come up with a specification of the attribute types specified in
Table 3. We have listed the attributes and definition of its syntax, making up the
alphabet as described earlier in this chapter. This completes our description of the
alphabet we need.
The combination of unique number of ContractID, ActivityID, EmployeeID,
RoleID, ProductID, and MachineID with the units ∘ Bx, kg, €, and PH preserves the
Attribute definition Description Attribute definition Description
ContractID =:: <integer> Unique NetTotalInvoice =:: Total invoice excl.

number <00000,00> VAT
AgentType=:: <integer> Unique € valuta r

number
AgentTypeDescription =:: Supplier, TotalInvoice =:: < 00000,00> Total invoice incl.
<text> Buyer VAT
NameAgentType =:: <text> Description MinAcid =:: <00,00> Minimum PH
ActivityID =:: <integer> Unique MaxAcid =:: <00,00> Maximum PH

number
ActivityDescription =:: <text> Buy, Receive,
Sell, Deliver,
Collect, Pay PH Unit PH
ActivityDate =:: Date activity Brix =:: < 000000000,00000 > Brix ratio
<dd-mm-yyyy>
∘
SigDate =:: <dd-mm-yyyy> Date signature Bx Unit Brix
EmployeeID =:: <integer> Unique QuantityWeighted =:: Weighted kilos

number <00000,00>
NameEmployee =:: <text> Name Kg Unit kilogram
RoleID =:: <integer> Unique MachineID =:: <integer> Unique number

numberr
RoleDescription =:: <text> Description MeasuredAcid =:: <00,00> Real measured PH

Role
ContractPrice =:: <00,00> Decimal price MeasuredBrix =:: Brix ratio real
< 0000,00000 > measure
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Attribute definition Description Attribute definition Description
€ Valuta ExpAcitviityDate =:: Expectation

<dd-mm-yyyy>
VAT =:: <00,00> Perinuage
ProductID =:: <integer> Unique

number
ProductDescription =:: <text> Description
Quantity=:: < Quantity

000000000,00>
Kg Unit kilogram
Table 3.
Attribute types description.
identity, which is elementary for data integrity in itself and the processing of data, so
no data are lost. Put in other words. It is expected that the system is consistent. This
notion as concept is fundamental to understand from a mathematical logical point of
view but also to understand the notion of uncertainty.
Earlier we addressed that we make a distinction between the object language
and metalanguage. In our pseudo code, the metalanguage is expressed as com-
ments on the algorithm for its purpose. The logic is we have input data; we get
output data for some purpose to be interpreted by a machine, human, or both. The
algorithm specifies the rules fulfilling some computational task realizing the goal
function [28].
4.4.1 Evaluation procedure: Availability
The first step is to create our alphabet in the database. The procedure describes the
creation of the attributes in the reference model attribute database which serves as a
reference to asses the data integrity of external data sets.
Algorithm 2: Create definition attribute types
The procedure describes the creation of the attributes in the reference model
attribute database which serves as a reference to asses the data integrity of external
data sets.
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4.4.2 Evaluation procedure: Application controls
Next, we give the upload procedure data files for assessment reference
attribute syntax in data file with reference to reference model definition attribute types.
Algorithm 3: Syntax data quality attributes of data files
The result can be presented as a tree. On top, coined as the root, we see the
data. Our algorithm checked the syntax of the data with the reference
attributes as defined. The result is a clear insight per attribute into whether the
syntax is correct or not. Hence, that empty attributes are distinguished from
wrong types.
Remark 23 (Granularity): Remember that syntax type information is stored, so the

syntax type can be specified in the details of the reference attribute types.
4.4.3 Evaluation procedure process logic controls: Some examples
The next step is to verify whether the process is executed as expected.
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Algorithm 4: Process logic quality timeliness and predictability of processes
As we have seen, we can present the result as a tree. On top, coined as the root, we
see the data. Our algorithm checked the syntax of the data with the reference attri-
butes as defined. Now, you see that on the right-hand side, some dates of buying and
selling transaction are not timely.
Remark 24 (Granularity): Remember that the date buy and the date sell can be
specified in the details of the reference attribute types.
4.4.4 Evaluation procedure application and reconciliation
Now, we start to look at the content matter of the data.
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Algorithm 5: Contents of the process is complete and consistent
When we look at tree result, then we see that the interpretation of the
algorithm result gives us, on the right-hand side, the truth conditions about the
unique ID, the unique measure of the quality Bx and the quantity received from the
supplier.
23
187
Remark 25 (Model consistency): Remember that all transactions in the database

which do not have the interpretation of being TRUE, under de conditions specified
in our algorithm, are ¬ TRUE registered in the database as F. So, we can switch if
we are interested in the counterpart of the data set under consideration. This can
be understood as a direct result of the compactness Theorem for ordered trees
using Konig’s Lemma see Ref. [21]. Mind that for unordered trees we need the
axiom of choice.
5. Evaluation procedure data integrity
As we stated in paragraph 4.1, the accuracy of a data file under consideration is

said to be accurate when the following proposition hold:
Proposition 26 (Accuracy): The data is accurate is TRUE if and only if:
(1) the data is VALID is TRUE is TRUE ∧ the data is COMPLETE is TRUE is TRUE.
Algorithm 6: Decision procedure interpretation
The result of our algorithm can be depicted as:
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The types of controls give us the information about the property of some control
preserving the data integrity. So, the outcome of our algorithms can be mapped onto
our decision procedure. The result can be depicted as a tree:
The proof of our proposition is to be found in the mathematical theory as devel-

oped in chapter 2, the application of propositional Linear Logic [15] and analytical
tableaux [21]. For now, we have decided to leave this formal proof out of this chapter
for clarity reasons en left it for future research.
6. Re-performance as evidence in quality control audits
In general, there are six ways of obtaining audit evidence: (1) inspection, (2)
external confirmation, (3) observation, (4) re-performance, (5) analytical procedures
and (6) inquiry [29], see also the ISA 500 standard on audit evidence [30]. Re-
performance refers to the practice where the auditor makes essential calculations and
verification are again based on raw evidence. Automated forms of control, such as
controls built into business processes, are more difficult to manipulate and can in
principle cover the whole relevant population, not just a sample. These various ways
of obtaining audit evidence can be ranked in a kind of hierarchy of evidence reliabil-
ity. Inspection (1), external confirmation (2), and re-performance (4) are considered
stronger because they produce relatively direct forms of evidence without the inter-
ference of the auditee, whereas observation (3), analysis (5), and inquiry (6) are
considered relatively weaker depending on the sources (human or automated),
expectations, procedures, and audit planning. Note, moreover, that evidence collec-
tion types (1), (2), and (4) are also the most time-consuming for the auditor and
therefore the most expensive for the client. Audit fees are born by the company being
audited and make up a large part of the costs of control [31]. Our decision procedure
combines two strong forms of obtaining audit evidence. These two forms are external
conformation and re-performance. The procedure fits in the current modern compu-
tational idea data-driven assurance, which is consistent with quality 4.0 concepts in
quality control and quality audit practices. The computational approach as developed
in this chapter combines the logic of product and process audits, which ensures that
the uncertainty inherent to data integrity can be known as a distribution. It follows
from the computational approach that auditors can apply dual-purpose testing which
25
189
fits a data-driven, that is, fact-driven approach to decision-making of management

and the stakeholders of organizations.
7. Conclusions
In this chapter, we have proposed a computational approach as a computational

model to learn the inherent uncertainty to data integrity subsumed in a claim or claims
made by stakeholders inside or outside the organization. Knowing the measurement
uncertainty contributes to one’s belief whether the measurement result as a count
represents the quantity one has measured traced back to (SI) standards. Our compu-
tational model makes counting objects, persons, buildings, and so on traceable to the
(SI) standard. The novelty in our approach is that the notion of equality has two
different properties as being bilinear and linear. Our canonical model of the bilateral
contract ensures that all characteristics of an object can be uniquely identified and
thus be measured so that the particular measurement results are by design tractable to
the (SI) standards. The result of our evaluation procedure of the data integrity is in
fact an ordered dyadic tree whose presentation is understandable by humans and
gives good insights into where to start the audit investigations in QCS.
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Chapter 1

Total Quality Management of

Keywords: electrical engineering, critical collectibles, research articles, total quality

The macrostructure of RA in science stream has been described by Harmon in [1].

3. Restriction of TQM studies to RA

A. Disagreements among founder

B. Unclear interpretations and hypothetical definitions of TQM

The definitions of TQM has been unclear or misinterpreted in literature. The

C. Similarities of TQM with other management tools

Acronym Journal title Publisher

EC *Energy Conversion IEEE

IE *Industrial Electronics IEEE

CAD-ICS *Computer-Aided Design of Integrated Circuits and Systems IEEE

SG *Smart Grid IEEE

MTT *Microwave Theory and Techniques IEEE

PA-MI *Pattern Recognition and Machine Intelligence IEEE

CC Computer Communications Elsevier

ESA Expert Systems with Applications Elsevier

PD *Power Delivery IEEE

EPSR Electric Power Systems Research Elsevier

MAP IET Microwaves, Antennas and Propagation IET

VLSI *Very Large Scale Integration Systems IEEE

JSSC *Journal of Solid State Circuits IEEE

PR Pattern Recognition Elsevier

qualitative techniques, RA unavailable in complete text or RA in languages other

Checklist Description Satisfaction score, n (in %)

4 Analytical approach transparency

5 Analysis plan preregistration

6 Design & analysis transparency

As per the assessment of reviewers’ comments, Level 6 of TQM is addressed. If the

Journal Outline score Journal Outline score

EC (10) 4.9 ESA (9) 4.2

IE (13) 3.2 PD (12) 3.5

CAD-ICS (8) 5.4 EPSR (11) 2.9

SG (5) 2.8 MAP (5) 2.8

MTT (7) 3.6 VLSI (9) 4.8

C (3) 3.1 JSSC (4) 5.8

PA-MI (2) 4.6 PR (1) 2.7

6. Discussion on findings and limitations of study

The quality assessment of RA in this chapter established that the research

The RA published in EE literature scored reasonably on a recognized platform

This research was supported by Project and Research Laboratory of Electrical

[5] Orr T. Genre in the field of computer [13] Kanoksilapatham B. Distinguishing

Fail, Management Review. American without an End. Abingdon: Carfax

[25] Tenner AR, DeToro IJ. Total Quality

[26] Kanji G. Quality and Statistical

[27] Dahlagaard JJ, Kristensen K,

A Renewed Perspective on Lean

Keywords: lean, six sigma, healthcare, performance, employee well-being, HRM,

2. A brief history of lean six sigma in healthcare

3. Lean six sigma in healthcare: unbalanced?

LSS practices that are part Description Special aspects in a

Well-being Description Special aspects in a healthcare

Health The physical or health dimension encompasses Healthcare professionals perceive

Happiness The psychological or happiness dimension refers Professionals highly value

HR practices that are part Description Special aspects in a healthcare

Employment security Employees have an employment Increasing expenditures create

In the above paragraphs, we discussed different lines of thought on supporting

6. Managerial and practical implications

Many healthcare organizations that struggle with both challenging efficiency