The impact of innovation on the relationship between manufacturing flexibility and performance: a structural modelling approach.

• Author: Augusto, Mario
• Position: Report

1. INTRODUCTION

   In the last decade, manufacture flexibility has been emphasised as an operational organisational philosophy to cope with an increasingly competitive global market place. Such a philosophy capitalizes on innovations such as time-based competition, TQM, JIT, business reengineering and management of change. These innovations are shaping the business and operational strategies of leading businesses as they strive towards maintain and sustaining their competitive advantage (Slack, 2005). The different ways by which an organization could acquire manufacturing flexibility is described by Hutchison and Das (2007). Manufacturing flexibility could be defined as the ability of the organization to adapt both its human resources and machinery to changes to meet the demands of customers. However there is no consensus regarding the impact of organizational flexibility on its performance (Vokurka and O'Leary-Kelly, 2000). Therefore, there is a clear need for more research to establish the direct and indirect relationship between manufacturing flexibility and performance.

   Camison and Lopez (2010) attempted to address this issue by examining 159 Spanish organizations. Using a structural equation model, they conclude that manufacturing flexibility by itself does not guarantees performance efficiency. Their study concluded that it is also important to consider the mediate effects of product and process innovation on the relationship between manufacturing flexibility and the firm's performance. While this study provided a valuable contribution towards understanding the role of innovation on the relationship between manufacturing flexibility and the firm's performance, it represented only one more step towards establish the generalization of those important dynamic relationships.

   Two factors which might limit the global utility of the results provided by Camison and Lopez (2010) were the stage of technological development and the culture of the country studied. Kiggundu, Jorgensen and Hafsi (1983) concluded that studies focused on industrial nations might be useful in understanding the problems associated with the technological core of firms in developing countries. However, such studies tend to provide little insight into other cultural organizational settings. In fact, cultural differences could be an important determinant of mangers' decision making styles. Consequently, these cultural differences might indirectly influence the degree of manufacturing flexibility. Organizational changes are usually provoked by changes in the external environment. In turn, they lead to changes in the production process, in the form of organizational structure modifications (downsizing). In the process, they might result in both hierarchical and decision making modifications, which have a direct or indirect impact on the manufacturing production process.

   Using a sample of 229 Portuguese industrial firms, with the aid of a structural equation model to analyse the mediating role of innovation on the relationship between manufacturing flexibility and firm's performance, this paper attempts to examine the concerns discussed above.

   The next section describes the state of the art related to this topic. Section 3 presents the hypotheses to be tested, the methodology, the variables, the sample, and the data. In Section 4, the proposed model is evaluated and estimated. Finally, in Section 5, the results of the proposed model are interpreted and discussed. The main conclusions and theoretical and managerial implications are then presented.

2. BACKGROUND

   Innovation can be viewed as the firm's ability to introduce changes in its production process, products and/or restructure the organization as a response to market changes. A general definition of manufacturing flexibility can be found in Sethi and Sethi (1990). The definition stresses the ability to change in order to be efficient and quality oriented through better utilization of manufacturing resources. It is well established in the literature that innovation indirectly affects manufacturer flexibility of the firms' performance (Bolwjin and Kumpe, 1990; Krause et al, 2001; Pagell and Krause, 2004; Menor et al, 2007, Camison and Lopez, 2010). The role of environmental changes on the manufacturing production process is also stressed by Hyun and Ahn (1992). As such, environmental changes, manufacturing flexibility and firm's performance can be seen as a dynamic multidimensional set of interdependent relations, influencing the different strategic levels of the organization (i.e. corporate level and operational level). As a result of this complexity, the impact of manufacturing flexibility on the performance of the firm can not be evaluated without considering the effective impact of the manufacturing environment (Ahmad et al, 2004), including intangible ethical issues (Drongelen and Fisher, 2003). As a consequence of these complex relationships, manufacturing flexibility "must be carefully examined, planned and managed in order to be successfully implemented" (Boyle, 2006).

   Building on the theoretical model of Camison and Lopez, (2010), this study utilizes a causal model to examine the relationships between organizational innovation and process innovation. The conceptual model in Figure 1 attempts to establish a broader perspective on the causal relationships to be tested. In the process, the impact of manufacturing...