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We examine the content of continuous improvement strategies and identify infrastructure decision areas that are important for continuous improvement initiatives. We present a framework of infrastructure based on the idea that continuous improvement can serve as a dynamic capability when it includes a comprehensive organizational context. Further, we study continuous improvement initiatives in five companies to investigate the practices used by them in each of the decision areas of our framework. This research adds to the conceptual understanding of continuous improvement and results in grounded propositions about critical areas of infrastructure for continuous improvement.

Continuous improvement initiatives such as lean production and Six Sigma have proliferated among manufacturing and service organizations worldwide (Voss, 2005). Due to an increasing pace and complexity of business environments, organizations no longer compete on processes but the ability to continually improve processes (Teece, 2007). At the same time numerous organizations that have deployed continuous improvement initiatives have not been successful in getting what they set out to achieve. Results of a 2007 survey of US manufacturers showed that while 70% of plants had deployed lean manufacturing techniques, 74% of these were disappointed with the progress they were making with lean (Pay, 2008). An earlier study found that only 11% of companies considered their continuous improvement initiatives to be successful (Mendelbaum, 2006). Although operations management executives realize the importance of continually improving processes, they have found that managing continuous improvement is a challenging task (Kiernan, 1996 and Pullin, 2005). The challenge lies in creating an infrastructure to coordinate continuous improvement projects (Choo et al., 2007 and Wruck and Jensen, 1998). This paper seeks to identify the elements of such infrastructure. We present a framework of continuous improvement infrastructure derived from the dynamic capabilities perspective and its underlying theory of organizational learning (Zollo and Winter, 2002). Further, we offer preliminary empirical evidence in support of our framework based on case studies of continuous improvement initiatives in five companies. Thus, we propose a grounded theory framework by combining logical arguments from existing literature with cross-case empirical insights from companies that have deployed continuous improvement initiatives. Continuous improvement is defined as a systematic effort to seek out and apply new ways of doing work i.e. actively and repeatedly making process improvements. We define processes as designed sequences of tasks aimed at creating value-adding transformations of inputs – material and information – to achieve intended outputs (Upton, 1996). For example, raw materials such as wood and iron fixtures go through several operational processes to manufacture a chair; information about the customer and aggregate risk-related data are processed to produce an automobile insurance policy. Process improvements are defined as enhancements in operational processes; e.g. improving a chair manufacturing process so that less raw material is consumed, or reducing the cycle time from proposal to delivery of an insurance policy. Our premise is that continuous improvement can be a dynamic capability when it includes a comprehensive organizational context. Dynamic capability is defined as “a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness.” (Zollo and Winter, 2002, p. 340). The implementation of dynamic capabilities involves repeated cycles of organizational learning (Cyert and March, 1963, Mahoney, 1995 and Schön, 1975). Similarly, process improvement involves organizational learning to make changes in operating routines. As described earlier, the ability to consistently improve current processes and learn new ones is termed continuous improvement capability (Ittner and Larcker, 1997). Organizations aim to achieve continuous improvement capability through the deployment of continuous improvement initiatives such as lean management and Six Sigma (Voss, 2005). A continuous improvement initiative implies bundles of practices, such as prescribed sequences of steps for carrying out projects, and sets of tools and techniques commonly used to execute these projects (Handel and Gittleman, 2004 and Pil and MacDuffie, 1996). Continuous improvement thus fits into Helfat et al.’s (2007, p. 5) notion of dynamic capability as patterned activity, in contrast to “a one-time idiosyncratic change to the resource base of an organization.” When appropriately implemented, continuous improvement initiatives help to integrate operations processes and enhance the organization's ability to make cohesive and quick process changes to improve performance. In this way, continuous improvement initiatives can serve as dynamic capabilities for the organization (Fig. 1 presents a schematic representing the parallels drawn between continuous improvement and dynamic capabilities). For continuous improvement to create and support dynamically changing operational capabilities it is critical that it include a coherent infrastructure (Eisenhardt and Martin, 2000 and Garvin, 1993b).Thus, our proposed framework of infrastructure elements is based on the idea that continuous improvement is meant to be a dynamic capability. Following the development of this theoretical framework, we study continuous improvement initiatives in five companies and gain insight into the practices for each of the elements of their continuous improvement infrastructure. The theoretical importance of the elements that constitute our framework and the preliminary empirical support for the validity of this framework provided by the case studies leads to the proposition that continuous improvement deployments that do not institute practices in each of the areas of continuous improvement infrastructure will be less effective. The remainder of the paper is organized as follows. In Section 2 we relate the organizational context for dynamic capabilities to continuous improvement infrastructure. While this section broadly describes the underlying theory on which our framework is based, conceptual development of each of the elements of the framework is done in Section 4. Section 3 describes our method for developing the framework and for applying it to empirically study its application through five case studies of continuous improvement deployments. In Section 4 we develop a framework of infrastructure decision areas for continuous improvement. As we present each of the elements of this framework and discuss their theoretical origins we also present our observations from the case studies. Section 5 consists of an analysis of our framework. We highlight the limitations of the proposed framework revealed by inconsistencies with some of our empirical observations and discuss the complexities of certain infrastructure decisions for companies. This analysis leads to 10 research questions that we believe are important for further theoretical development in the area of continuous improvement. Section 6 identifies key recommendations for practice, points out some limitations of our empirical study and concludes the paper.

This research makes two broad conceptual contributions to the study of continuous improvement. First, it provides clear definitions for process improvement and continuous improvement initiatives that will be helpful for further studies in the area of CI. Second, the research reveals how organizational learning theory informs a theory of continuous improvement, and enables us to view continuous improvement as a potential dynamic capability. For managers, our research provides two broad lessons. First, it points out the fallacy of implementing CI simply by training people in new process improvement methods without putting in place mechanisms for managing and maintaining CI initiatives. Second, our analysis emphasizes the interdependencies among the elements of CI infrastructure, implying that attempts to manage CI through selected aspects of its infrastructure may be ineffective. Most importantly, our research juxtaposes academic and practitioner viewpoints of continuous improvement, and presents questions that can best be explored by combining both perspectives. In analyzing our proposed framework we have revealed some of its limitations in the form of questions raised when it is applied to empirical settings. These questions emerge from two sources: (1) the absence, in some of our sample companies, of certain CI infrastructure characteristics that were expected in our proposed framework, and (2) the challenges which companies in our sample were grappling with as they tried to implement practices in some areas of the framework. In addition, our analysis should be viewed and applied in the context of four limitations of our empirical study. First, a sample of CI deployments in only five companies was used to assess the applicability and relevance of the decision areas in our framework. Moreover, the sample was selected based on approachability and subjective judgments of success in CI. Thus, although the companies in our sample represented five industries, CI deployments in other industries may warrant additional elements of infrastructure that are missing in our framework. Second, our empirical observations must be interpreted with the caveat that we used two different levels of informants—top level CI executives and project leaders. We did obtain thorough information using in-depth interviews with systematic follow-ups. Third, our study, for scope purposes, investigated infrastructure practices. Our study did not include any structural elements of CI such as decisions regarding capacity of CI (e.g., the number of employees trained in CI methods) and the extent of vertical integration (e.g., parallel line and CI responsibilities, or exclusive CI responsibilities, for CI participants) that may affect the implementation of CI. Although research is needed in both structure and infrastructure areas of CI, we limited the scope to infrastructure decision areas for the sake of manageability. These limitations related to sampling and missing variables may be overcome with additional research in the area for which our study provides a foundation. Fourth, future research should empirically assess longitudinal firm performance under conditions of differential emphasis on the eight CI infrastructure practices and particular combinations of them. Overall, the proposed framework delineates the characteristics of an organizational system that would be conducive to sustained organizational learning—an ideal infrastructure for continuous improvement that can provide organizations the agility and consistency necessary to continually update operational processes. Having a system in place that incorporates coherent CI infrastructure decisions within the eight areas categorized by purpose, process, and people would enable managements to steer their organizations in a unified strategic direction, creating new operational capabilities as and when required (i.e., dynamically). Regardless of the type of CI initiative that an organization chooses, consistent patterns of decisions in these areas can provide the organizational wherewithal for succeeding in the long term against changes in the environment—the dynamic capabilities crucial for the creation and maintenance of competitive advantage. Within the eight decision areas many combinations are available—companies can decide on how to combine choices to fit their needs. What is important is that a CI infrastructure be purposefully constructed to support vital CI efforts.