Operations capability, productivity and business performance. The moderating effect of environmental dynamism
| DOI | https://doi.org/10.1108/IMDS-02-2017-0064 |
| Date | 05 February 2018 |
| Published date | 05 February 2018 |
| Pages | 126-143 |
| Author | Wantao Yu,Ramakrishnan Ramanathan,Xingyu Wang,Jiehui Yang |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
Operations capability, productivity
and business performance
The moderating effect
of environmental dynamism
Wantao Yu
School of Business, Henan University, Kaifeng, China and
Kent Business School, University of Kent, Chatham, UK
Ramakrishnan Ramanathan
Department of Business Systems, University of Bedfordshire Business School,
Luton, UK, and
Xingyu Wang and Jiehui Yang
School of Business, Henan University, Kaifeng, China
Abstract
Purpose –The purpose of this paper is to investigate the relationships between operations capability,
productivity, and business performance in the context of environmental dynamism.
Design/methodology/approach –A proposed conceptual framework grounded in the resource-based view
(RBV) and dynamic capability view (DCV ) is analyzed using archival data from 193 automakers in the UK.
Findings –The results show that operations capability, as an important dynamic capability, has a
significant positive effect on productivity, which in turn leads to improved business performance. The results
also suggest that productivity fully mediates the relationship between operations capability and
business performance, and that environmental dynamism significantly moderates the relationship between
operations capability and productivity.
Practical implications –The research findings provide practical insights that will help managers develop
operations capability to gain greater productivity and business performance in a dynamic environment.
Originality/value –Addressing the two important issues of moderation (i.e. environmental dynamism) and
mediation (i.e. productivity), this study makes important contributions to the field of operations management
by applying the RBV and DCV.
Keywords Dynamic capability, Productivity, Data envelopment analysis (DEA), Environmentaldynamism,
Operations capability, UK automotive industry
Paper type Research paper
1. Introduction
A firm’s survival depends on its ability to create, access, and utilize new resources, build on
its capabilities platform, and make the capabilities more inimitable to achieve competitive
advantage (Peteraf, 1993; Yu et al., 2014; Barrales-Molina et al., 2015; Yu and Ramanathan,
2016). The resource-based view (RBV) of the firm further suggests that heterogeneity in
firm performance is due to ownership of resources that have differential productivity
(Makadok, 2001; Phusavat et al., 2009). Although it has been argued that the productivity
and efficiency gains from organizational capabilities such as operations are critical in
ensuring that firms maintain their competitive advantage (Krasnikov and Jayachandran,
2008; Phusavat et al., 2009), our understanding of the association between operations
capability, productivity, and performance is still very limited. There are still two important
issues that have not been addressed in the literature.
First, despite increasing research interest in productivity gains and the factors that lead
to higher productivity, there has been comparatively little empirical study in this area,
especially the mediating role of productivity in the relationship between capability and
Industrial Management & Data
Systems
Vol. 118 No. 1, 2018
pp. 126-143
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-02-2017-0064
Received 15 February 2017
Revised 19 May 2017
Accepted 26 June 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
126
IMDS
118,1
performance (Lieberman et al., 1990; Smith and Reece, 1999; Talluri et al., 2003). Productivity
is a measure of “the efficiency with which physical inputs are converted to physical outputs”
(Lieberman et al., 1990, p. 1195). Productivity has been gradually introduced into efficiency
analysis (Huang et al., 2016), and productivity analysis plays an important role in strategic
planning and competitive analysis, which can provide a useful tool for improving the
quality of operations and production management (Lieberman et al., 1990; Sudit, 1995).
Several scholars have focused on the impact of productivity on business performance,
especially in the service industry (e.g. Schefczyk, 1993; Smith and Reece, 1999; Tsikriktsis,
2007), but they investigated the impact of productivity on business performance without
examining the potential role of organizational capabilities. Capabilities have been broadly
defined as “complex bundles of skills and accumulated knowledge that enable firms to
coordinate activities and make use of their assets”(Day, 1990, p.38). Operations capability is
focused on performing organizational activities efficiently and flexibly, with the minimum
wastage of resources (Krasnikov and Jayachandran, 2008). The role of superior operations
capability as a source of competitive advantage has long been widely recognized
(e.g. Skinner, 1969; White, 1996), and investigated in previous empirical studies (e.g. Nath
et al., 2010; Terjesen et al., 2011; Yu et al., 2014; Chavez et al., 2017). However, none of these
studies examined the effect of operations capability on productivity. With these deficiencies
in mind, this study employs financial measures to indicate business performance and seeks
to investigate both the direct effect of productivity on performance (Smith and Reece, 1999),
as well as its indirect effect with operations capability.
Second, as an alternative explanation, consideration of environmental context is also
important to the analysis of firm resources and performance, since different environments
imply different valuations of resources (Miller and Shamsie, 1996; Priem and Butler, 2001;
Terjesen et al., 2011). Firms’resources and capabilities have value only in the industry
environment context (Lieberman and Dhawan, 2005). The success associated with the
possession of operations capability can be affected by the various environmental factors
within which the firm operates (Terjesen et al., 2011). Environmental dynamism, which
refers to the rate and unpredictability of change in a firm’s external environment (Dess and
Beard, 1984), has been identified as a contextual factor which may affect the effectiveness
and productivity of a best practice (Miller and Friesen, 1983; Venkatraman, 1989).
Furthermore, the salience of the environmental factors that may influence the effectiveness
of operations capability is demonstrated through the case of automakers. The automobile
industry was hit hard by the global financial crisis of 2008-2009 (Oliveira et al., 2015), and is
increasingly becoming one of the most dynamic and competitive markets in the UK
(Holweg et al., 2009). Therefore, there is a need to empirically test the moderating role of
environmental dynamism to account for potential changes to productivity of operations
from changes in operations capability valuations.
By addressing the two important issues that have not been explored in previous
research, our study contributes to the advancement of both theory and practice. From a
theoretical perspective, we draw upon the dynamic capability view (DCV ) (Teece et al., 1997;
Eisenhardt and Martin, 2000) to develop a hypothesis regarding the moderating effect of
environmental dynamism. According to the DCV, operations capability is regarded as an
important dynamic capability of a firm operating in dynamic environments (Winter, 2003;
Terjesen et al., 2011). The DCV helps to highlight the most critical capabilities management
needs to sustain for competitive advantage (Cetindamar et al., 2009; Rungi, 2014;
Barrales-Molina et al., 2015). Since traditional RBV misidentifies the locus of long-term
competitive advantage in dynamic markets (Eisenhardt and Martin, 2000), scholars have
extended the RBV to dynamic markets (Teece et al., 1997). The DCV could enhance the
understanding of the benefits of operations capability, because this perspective aims to
explain how the firms can strengthen their operations systems and processes to survive in a
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Operations
capability,
productivity and
performance
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