Dynamic capabilities linking lean practices and sustainable business performance

Highlights

• •In highly dynamic environments, lean management practices are static routines (or ordinary capabilities) and seem to be insufficient for sustainable business performance

• •Higher-order or dynamic capabilities are transformers of lean management practices into sustainable business performance

• •“Lean duplicators” and “lean adopters” are distinguished based on the firm's capability to constantly develop and modify existing lean management practices to keep them relevant for sustainable business performance

• •The main findings of this study encourage firms to adopt lean as a full package (not separate practices in isolation) and promote “lean-related dynamic capabilities” for economic, environmental, and social gains

Abstract

This study empirically investigates the relationships between lean management practices, dynamic capabilities, and sustainable business performance (including economic, environmental, and social performance). Based on the dynamic capabilities approach, known also as a theory of sustainable competitive advantage, we explain why many adopters of lean management fail to sustain positive outcomes over time. More concretely, first, this study conceptually identifies systematic problem-solving, agile manufacturing (or change proficiency), and continuous improvement as higher-order or “lean-related dynamic capabilities” that seem to be effective for sustainable benefits. Then, a survey questionnaire on a sample of 99 Italian manufacturing firms is carried out and results of partial least square structural equation modelling indeed reveal that “lean-related dynamic capabilities” can serve as mechanisms through which lean management contributes to sustainable business performance. The main findings help to distinguish between “lean adopters” achieving sustainable outcomes and “lean duplicators” obtaining only short-term outcomes and quick wins. For firms to become “lean adopters”, they are required not only to consider lean as a full package but also to constantly establish and develop higher-order or “lean-related dynamic capabilities”. This study is an innovative empirically-informed attempt to conceptualize “lean-related dynamic capabilities” and embed them into a framework through which lean management practices result in sustainable outcomes.

Introduction

Sustainable development represents a contemporary issue in management practice and a significant field of research. Several aspects of operations management (OM) and supply chain management (SCM) such as product design, risk management, logistics, reversed, and closed loop supply chains are tightly linked to the sustainability perspective (e.g., Walker et al., 2014; Carter and Easton, 2011; Kleindorfer et al., 2005). Importantly, the focus of operational excellence initiatives and continuous improvement methods (such as lean management) can also be expanded to embrace sustainability. However, often sustainability seems not to be an explicit element of such improvement initiatives (Bateman, 2005; Lucey et al., 2005).

From a purely economic point of view, research shows that despite many initial attempts to implement process improvement initiatives (by, e.g., lean management), many firms struggle to sustain their outcomes over time (e.g., Sony, 2019; Anand et al., 2009; Jørgensen et al., 2007). Pay (2008), for example, reports that 74% of US manufacturing firms fail to reap the full benefits of a lean management approach. Therefore, the main challenge for management lies in a smart implementation of lean practices in order to achieve superior outcomes over time. However, this issue not only applies to economic but also to social and environmental goals.

In particular, the concept of lean management is not only economically driven to maximize profit. There is growing pressure from stakeholders involved in the value chain (e.g., customers, suppliers, and government agencies) that lean management should not come at the expense of the natural environment and human factors. In other words, sustainable business performance is not just limited to economic performance, and process improvement programs should include environmental-friendly actions to support the harmony with nature and socially responsible activities for human rights and working conditions (e.g., Bhattacharya et al., 2019; Hong et al., 2018). Walker et al. (2014) define sustainability as “the pursuit of social, economic, and environmental objectives within operations of a specific firm and operational linkages that extend beyond the firm to include supply chain and communities” (p. 2). Indeed, sustainable business performance is conceptualized as consisting of three dimensions: economic, environmental, and social, across the so-called triple bottom line (TBL; Gimenez et al., 2012; Elkington, 1997). This study focuses on how to implement lean management so that the outcomes from economic, environmental, and social perspectives will be sustained over time.

Existing studies focusing on the relationship between lean management and sustainability suffer from two limitations. First, despite the effectiveness of lean management for operational performance, relatively less attention is paid in the literature to how lean management can simultaneously embrace the triple dimensions of sustainable business performance (economic, environmental, and social performance). In other words, although existing studies show that lean management practices improve operational performance through eliminating different forms of waste (Agyabeng-Mensah et al., 2020a, Agyabeng-Mensah et al., 2020b; Yang et al., 2011; Shah and Ward, 2003; Cua et al., 2001) and hence presumably reduce cost and enhance economic performance in the short-term, there is some ambiguity on whether and how those practices can equally contribute to environmental and social sustainability as well as to long-term economic outcomes. Indeed, among existing studies, some contradictory results are reported regarding the effect of lean management on different pillars of sustainable business performance. For example, with the focus on environmental performance, Rothenberg et al. (2001) show that lean management is negatively associated with the reduction of air emissions of volatile organic compounds, whereas Chiarini (2014) concludes that lean practices (in that case, total productive maintenance) can reduce several environmental impacts of machines such as oil leakage and emission of dusts and chemical fumes into the atmosphere. Also, with respect to social performance, while some studies consider a positive association between lean management and social performance due to healthy and safe workplaces (Chavez et al., 2020; Ng et al., 2015; Piercy and Rich, 2015), some others claim that lean implementation brings more stress and less autonomy (Green, 1999; Forrester, 1995) and thus negatively affects social performance.

Second, existing studies mostly fail to consider lean management as a full package and a thorough managerial system with inter-related practices and take only some limited aspects (such as only technical or production-related practices) in isolation and analyze the impacts of those practices on individual dimensions of TBL. Therefore, results are not conclusive and the extant literature fails to provide a comprehensive picture regarding how lean management as a system can relate and simultaneously contribute to the triple dimensions of sustainability performance. These inconsistencies in the literature are supporting our claim that more research is required to see whether, or not, and how lean management results in economic, environmental, and social gains.

One potentially neglected reason of mixed results for the lean-sustainability relationship could be that lean management practices per se are not sufficient for sustainable outcomes and there might be a mechanism by which lean management can appropriately explain sustainable business performance. However, a lean-sustainability link or the mechanism through which lean management simultaneously leads to balancing economic, environmental, and social performance is missing in the literature. Motivated by this gap, this study adopts the dynamic capabilities (DCs hereafter) approach, known also as a theory of sustainable competitive advantage. DCs, which have been characterized as the firm's ability to sense, seize, and reconfigure organizational resources and capabilities in pursuit of sustainable competitive advantage (Teece, 2007, 2014, 2007), can also indicate why initial gains of lean management are high but later these outcomes (not only economic outcomes but also social and environmental benefits) are difficult to be maintained. Starting from the central premise that sustainability is a competitive advantage (Kumar et al., 2018; Alves and Alves, 2015), DCs as sources of sustained competitive advantage (Pavlou and El Sawy, 2011; Teece, 2007; Eisenhardt and Martin, 2000) seem to be necessary in high-velocity environments to adjust lean routines and achieve sustainable business performance. Lean management practices can be treated as “ordinary” capabilities or static routines: practices that although they add value to an organization, they only allow a firm to “make a living” in the short-term (Winter 2003). For example, Toyota's lean production model can be imitated by other manufacturers and, hence, per se no longer is considered as a source of sustainable competitive advantage (Teece, 2014). Rather, the firm's ability to develop “higher-order” capabilities (or DCs) can bring sustainable outcomes. Indeed, developing DCs, especially in the face of dynamically changing business environments, should help to distinguish between “lean adopters” achieving sustainable outcomes and lean “duplicators” obtaining only short-term outcomes and quick wins.

Overall, based on the dynamic capabilities approach, this study investigates how to implement lean management so that the outcomes will be sustained over time. More specifically, this research seeks to achieve two objectives: (1) to identify and conceptualize relevant DCs (“lean-related DCs”) that seem to be effective for long-term competitive advantage (i.e., sustainable business performance) (2) to empirically investigate whether, or not, those identified capabilities can function as key mechanisms through which lean management results in sustainable business performance in the form of economic, environmental, and social benefits. As for the empirical setting, we focused on Italian manufacturing companies. The motivation is twofold. First, Italy is the second largest manufacturing country in Europe with growing attention to the sustainability issue.¹ Second, despite increasing attention to lean management in Italian firms, the results are rather diverse and not always positive (Furlan, 2018). Therefore, in line with our research focus, this setting seems to be ideal to investigate why lean management does not necessarily improve firm performance thus including sustainability performance. The findings of our empirical study based on partial least square structural equation modelling (PLS-SEM) and a sample of 99 Italian manufacturing companies indicate that DCs can be considered as transformers of lean management practices into sustainable business performance.

This study contributes to the OM and SCM literature in several ways. First, coupling lean management with the DCs theory, this paper identifies and conceptualizes higher-order capabilities, i.e., “lean-related DCs”, that are relevant for lean outcomes to be sustained. Then, our study embeds “lean-related capabilities” into a lean-sustainability framework through which sustainable economic, environmental, and social outcomes can be achieved. This can shed light on why many firms, despite their initial attempts for lean implementation, experience difficulties sustaining these outcomes. Also, unlike most studies in the lean management literature that just focus on operational performance as a key outcome, we consider sustainable business performance by analyzing economic, social, and environmental dimensions. Also, from a managerial perspective, our research provides insights for practitioners. We suggest managers to not only adopt lean as a full package (with all relevant practices), but also constantly establish and develop higher-order capabilities to gain sustainable outcomes.

This paper is organized as follows. The theoretical framework and the conceptual model with the main hypotheses are provided in Section 2. The research methodology is laid out in Section 3. Section 4 describes the empirical results and Section 5 summarizes the main findings. Finally, the paper ends with the conclusion in Section 6 with the main contributions and managerial implications along with shortcomings and directions for future studies.