Markets are increasingly more competitive and global, so quality standards and product or service efficiency is crucial to the survival of any organization. In this context, the lean production concept has been increasingly advocated beyond manufacturing (e.g. in services: Abdi et al., 2006, Abernathy et al., 2000 and Swank, 2003; in the public sector and healthcare: Kollberg et al., 2007). The spread and interest that it has attracted are possibly due to claims of cost and waste reduction, superior performance and competitive advantage that have been consistently made by academics and practitioners alike (e.g. Chandler and McEvoy, 2000, Dennis, 2002, Hart and Schlesinger, 1991, MacDuffie, 1995, Powell, 1995, Womack and Jones, 1994, Womack et al., 1990, Wood et al., 2004 and Youndt et al., 1996). Despite controversies about the precise meaning of lean production (Li et al., 2005 and Shah and Ward, 2007), it has commonly been taken to involve techniques concerned with production, work organization, quality management, logistics, supply chain, customer satisfaction, efficient delivery and continuous improvement methods. In other words, the adoption of lean production implies integration in the use of operation (OM) and human resource management (HRM) practices.
The quality management literature, which can be traced back to 1949 when the Union of Japanese Scientists and Engineers formed a committee to improve Japanese productivity (Powell, 1995), also offers competing definitions for total quality management (TQM). Some authors argue that it is a managerial philosophy (e.g. Martinez-Lorente et al., 1998), whose principles imply an integration of operations and people management (Wickens, 1987). Yet Deming (2000) focused on an organizational system that promotes cooperation and learning for facilitating process management, resulting in the constant improvement of processes, products and services, as well as employee fulfillment and customer satisfaction. This system, then, becomes critical to the survival of organizations (Anderson et al., 1994). Juran (1993) emphasized not only team and project work, participation and recognition, but also highlighted the need to achieve the best return on investment. According to him, the primary responsibility of management is to minimize the total cost of quality and to decide when quality management efforts should be stopped. Deming also argued that the improvement of the work process reduces cost because of less re-work, fewer mistakes or delays and less waste in manpower and materials, but (in contrast to Juran) prescribed constant improvements.
In this context, important questions for managers and scholars are: How do different managerial practices impact on performance? Which practices have greater impact on performance outcomes? Does the integration of operations management and human resource management practices pay off? Are expectations of long-lasting gains fulfilled? For several decades the link with performance has mainly been investigated by addressing the first two questions. However, not only do results and measures vary within studies but the focus has generally either been on individual practices or sets of practices that are presumed to result in superior performance. For example, a common view is that HRM practices – for instance those that empower or involve the employee – support specific OM practices; jointly they have a higher, possibly nonlinear, effect on performance (Kufidu and Vouzas, 1998, Lawler et al., 1995 and MacDuffie, 1995). Longitudinal studies remain rare and tend to rely either on subjective assessments of practice implementation (Easton and Jarrell, 1998 and Fullerton et al., 2003) or on relatively short periods (e.g. Callen et al., 2000 and Capelli and Neumark, 2001).
In this paper, we concentrate on the integration of HRM and OM practices and its potential impact on performance, by reviewing the empirical literature and developing a set of propositions, which we then test. In our analysis, we assume that there is a philosophy or culture underlying the integration of OM and HRM practices, whose principles are not only concerned with eliminating waste and adding value for customers but also entail the pursuit of continuous improvements. The latter cannot be achieved without worker participation, such as quality at source inspections that imply responsibility for checking one's own work. Learning and cooperation thus facilitates process management, and integration should continue to pay over time; those organizations that adopt this managerial philosophy should outperform those that do not.
We use secondary data of 448 British firms (Birdi et al., 2008) on seven management practices that are the most extensively employed in British manufacturing (Wood et al., 2004), and company records for the period 1980–2003. Of the seven management practices, the OM practices are total quality management, just-in-time procedures (JIT), integrated computer-based technology (ICT, also known as advanced manufacturing technology), and supply-chain partnering. The first three are central to the lean manufacturing system and the last adds the customer–supplier relationships that are necessary for the delivery of desired standards at a minimum cost. HRM practices included are learning culture (or extensive training), empowerment and teamwork. The first two have consistently been associated with quality management, as shown by the criteria of the 1992 Baldrige Award (George, 1992) and can be easily traced back to two of Deming's 14 points (Walton, 1986). Empowerment has been described as critical to successful JIT initiation and implementation (Koufteros and Vonderembse, 1998), whereas teamwork is core both to high involvement (Bailey, 1993 and de Menezes and Wood, 2006) and quality managements (Wickens, 1987). Together, we would expect that these HRM practices will allow employees to enhance their knowledge of the company, work more flexibly, and take more responsibility in quality management and decision-making.
By focusing on the philosophy that underlies the co-existence (correlation in the use) of different types of practices, we also address the measurement problem that has been identified in the academic literature (e.g. Shah and Ward, 2007). This is done not in terms of what should be included in the measure, but in terms of how it should be constructed. If the lean production concept implies a managerial philosophy, culture or way of thinking, as advocated in the literature (Womack and Jones, 1994), the co-existence of OM and HRM practices that are traditionally associated with this concept should reflect this philosophy. Moreover, if this philosophy is geared towards improving performance, the direct link between the philosophy and performance should be investigated rather than the association between its elements and performance. If practices co-exist, the longitudinal nature of our data also permits an assessment of the overall evolution of practices and the association with performance. Our longitudinal study thus investigates whether: (1) the integrated use of core OM and HRM lean practices is associated with higher performance; (2) there are performance gains from being an early adopter of such an integrated approach.
In the following sections, we review the empirical evidence on the link with performance as well as the literature on the evolution of management practices, which set the background to the propositions that are tested. We then describe the data, the methodology that we use and report our results. Finally, we assess our contribution and conclude.
This is the first longitudinal study on the integration between OM and HRM practices and firm performance in British manufacturing. It contrasts with previous work, which tended to investigate potential effects of either individual practices or specific combinations, and focuses on the association between practices and its link with productivity.
We argued that the integration of practices would reflect a managerial approach that combines OM and HRM, as advocated in the quality management and lean production literatures. Consequently, it is the integration of practices that would have the ability to achieve multiple goals and result in superior firm performance. We used ordered restricted latent class models to identify homogeneous clusters of firms and established a positive link with performance. In addition, our analysis of the diffusion of each practice resulted in an alternative classification that describes three stages of adoption, and we found that earlier integration is indeed associated with performance. Overall, the benefits appear to be sustainable. An integrated managerial philosophy is potentially a source of competitive advantage, highlighting the importance of continuous improvement and learning that is often allied to the lean production concept.
We lack information as to the extent of the use of practices and rely on single-item measures, but generally our results are quite positive and give us insights into the potential evolution of lean production in British manufacturing. Moreover, we rely on just one measure of performance – productivity – though it may be more reliable than financial performance indices, which are more likely to reflect several economic factors that cannot be controlled by any individual company and thus lead to far more complex models. We regret not having access to data on quality and lead-time, which in our view are key outcomes.
An additional limitation is the focus on core practices that are the most used in British manufacturing and as such by the end of the study period are widespread in the sample. Yet our results of a positive link between an integrated use of OM and HRM practices and performance are consistent with more recent findings by academics and consultants based on a cross-section of 730 manufacturing firms in France, Germany, the UK and the US (Bloom et al., 2005). An index of 18 practices (OM and HRM) was positively associated with productivity, return on capital employed, sales per employee, sales growth and growth in market share. These findings should encourage future work on more detailed data that would allow for multi-item measures of a wider range of practices and implementation.
In all, this research introduces a framework and statistical models that are not traditionally used in empirical analysis of potential performance effects, but are fit to address the integration of management practices in large samples. It gives evidence into the evolution of core OM and HRM practices in British manufacturing and shows that integration, early adoption and continuous improvement may be linked to organizational performance.
