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Research Article

Factors affecting the organizational performance of manufacturing firms

International Journal of Engineering Business Management Volume 9: 1–9 ª The Author(s) 2017 DOI: 10.1177/1847979017712628 journals.sagepub.com/home/enb

Ahmad Adnan Al-Tit

Abstract Numerous studies have been conducted to explore the individual effects of organizational culture (OC) and supply chain management (SCM) practices on organizational performance (OP) in different settings. The aim of this study is to investigate the impact of OC and SCM on OP. The sample of the study consisted of 93 manufacturing firms in Jordan. Data were collected from employees and managers from different divisions using a reliable and valid measurement instrument. The findings confirm that both OC and SCM practices significantly predict OP. The current study is significant in reliably testing the relationship between SCM practices and OP; however, it is necessary to consider cultural assumptions, values and beliefs as the impact of OC on OP is greater than the impact of SCM practices. Based on the results, future studies should consider the moderating and mediating role of OC on the relationship between SCM practices and OP. Keywords Organizational culture, supply chain management practices, organizational performance, manufacturing firms Date received: 9 November 2016; accepted: 4 May 2017

Introduction Research on organizational performance (OP), either with regard to its financial or its operational aspects, has revealed different factors that have significant effects on OP. Examples of these factors include enterprise risk management,1 multidivisional structures of organizations,2 CEO charisma,3 stakeholders’ involvement and support,4 intellectual capital,5 human capital,6 CEOs’ social networks,7 organizational learning,8 the strategic integration of human resource management,9 managerial practices related to strategies, performance measurement, corporate governance, innovation and development, along with the external environment,10 adoption of green supply chain management (SCM) practices,11 human resource practices,12 knowledge management capacity,13 supportive organizational climate,14 supply chain quality management,15 supply chain innovation,16 human capital disclosure17 and knowledge creation.18 Concerning the relationship between organizational culture (OC) and OP, Yesil and Kaya19 carried out a study to explore the impact of OC (clan, adhocratic, market and

hierarchical cultures) on financial OP using a sample consisting of managers of Turkish companies. Their results indicated that none of these dimensions were related to the financial dimensions of OP. On the other hand, Prajogo and McDermott20 found a positive relationship between OC and OP. In a study on the impact of human resources on SCM and OP, Go´mez-Ceden˜o et al.21 found a direct influence of an SCM implementation on SCM outcomes and an indirect influence on OP of firms from different industries in Spain. Using a sample of manufacturing and service firms from Malaysia, Chong et al.22 asserted the positive impact of SCM practices on OP.

Business Administration Department, College of Business and Economics (CBE), Qassim University, Al Malida, Kingdom of Saudi Arabia Corresponding Author: Ahmad Adnan Al-Tit, Business Administration Department, College of Business and Economics (CBE), Qassim University, Al Malida, Buraidah 15452, Qassim, Kingdom of Saudi Arabia. Emails: [email protected]; [email protected]

Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/ open-access-at-sage).

2 Evidence from China has confirmed the positive impact of supply chain integration (internal, customer and supplier integration) on OP. Li et al.23 investigated the impact of four practices of SCM (supplier and customer partnership, the level and quality of information sharing and postponement) on OP, measured by market and financial performance. Their results pointed to a significant influence of these practices on OP dimensions. Miguel and Brito24 analysed data collected from companies in different industries in Brazil to explore the relationship between SCM and OP. They concluded that SCM practices exert positive influences on OP. Okongwu et al.25 investigated the impacts of quality of information sharing and supplier–customer partnerships on the OP of industrial firms in France. Their results supported the hypothesis that SCM practices positively predict OP. In light of the aforementioned findings, the aim of this study is to explore factors affecting financial and non-financial performance via investigating the impact of OC dimensions and SCM practices on OP. The remainder of the article is organized as follows: ‘Literature review and hypothesis development’ section provides a literature review and hypothesis development; this is followed by the presentation of the conceptual model for the study in section ‘Conceptual model’. The ‘Research methodology’ section addresses the research methodology, and results are presented in section ‘Data analysis and results’. A discussion of the findings and conclusion are provided in the sixth section. The final section highlights the research implications and provides future research directions.

Literature review and hypothesis development Organizational culture Scholars have defined OC as shared values and beliefs held by individuals that form the basis for patterns of behaviour in solving problems.26 Denison27 argued that the core content of OC covers beliefs, values and assumptions held by individuals within organizations. In contrast, Schein28 described OC as a behaviour that determines how an organization grasps and reacts to the external and internal environments, thus embedding the reaction to the organizational environment in the definition of OC. Many attributes concerning OC emerge in the literature. It has been considered to guide individual communications within an organization29 and to be a critical antecedent factor for the success of knowledge management initiatives30 and a predictor of OP.31 In terms of the dimensions of OC, studies such as that of Balthazard et al.32 have used the Organizational Culture Inventory® (OCI), (# 2012 Human Synergistics International) developed by Robert Cooke and J. Clayton Lafferty, which covers three types of OC: aggressive/defensive, passive/

International Journal of Engineering Business Management defensive and constructive cultures. The OCI measures 12 behavioural norms called 1–12 o’clock positions. Chang and Lin33 plotted OC on four axes (flexibility, internal, external and effectiveness), which cover four types of OC: cooperative, innovative, consistent and effective. According to these authors, cooperation, information sharing, empowerment and teamwork distinguish a cooperative culture. Adaptability and creativity are the major features of innovative cultures. Rules and regulations, as well as efficiency, are the dimensions included in a consistency culture. Finally, the main focus of the effectiveness, culture is on competitiveness, goal achievement and effectiveness. In their study of the relationship between OC, total quality management and operational performance, Baird et al.34 used the organizational culture profile to measure OC. The profile consists of six dimensions: teamwork/people respect, outcome orientation, innovation, stability, attention to detail and aggressiveness. For this study, two OC dimensions were adopted: adaptability26 and performance orientation.35 According to Ahmad,26 customers, risks and mistakes drive an adaptable organization. Performance orientation refers to the accountability of members towards results and high levels of performance.35 Table 1 shows examples of the OC dimensions used in the literature.

Supply chain management Chong et al.22 defined supply chain management (SCM) based on two approaches: supply management and logistics management. The focus of the supply management is integration, while the focus of logistics management is inventory reduction. According to Park and Krishnan,38 cited in Chong et al.,22 SCM can be defined as activities aimed at integrating partners in the supply chain to produce the right quantity of a product to be distributed in the right place at the right time. Huang et al.39 classified SCM research into three categories: (i) an operational approach that relates to production, inventory and operational tools; (ii) a design approach that deals with operational systems and information and (iii) a strategic approach that refers to relationships and competitive advantage. Huang et al.40 used information sharing and technological interdependence to measure the level of integration in the supply chain. Okongwu et al.’s25 study explored the relationship between SCM practices and OP. They measured SCM practices in terms of information sharing, supplier partnerships, customer relationships and information quality. Two of these dimensions (supplier partnerships and customer relationships) were adopted to meet the purposes of this study (Table 2).

Organizational performance Performance indicates to the achievement level of the mission at the work place that develops an employee job.44

Al-Tit

3

Table 1. Organizational culture dimensions used in the literature. Dimensions of organizational culture

Researcher (s)

Clan culture Adhocracy culture Market culture Hierarchy culture Cooperativeness Innovativeness Consistency Effectiveness Aggressive/defensive cultures Passive/defensive culture Constructive cultures Adaptability culture Consistency culture Involvement culture Mission culture Culture management Conflict resolution Change disposition Employee participation Goal clarity Identification with the organization Organization focus and integration Authority locus Management style Customer orientation Human resource orientation Task orientation Performance orientation Information flow Involvement Meetings Staff perceptions of teamwork Staff perceptions of teamwork supervision Results-oriented vs. process-oriented cultures Tightly controlled vs. loosely controlled cultures Job-oriented vs. employee-oriented cultures Closed system vs. open system cultures Professional vs. parochial cultures Teamwork/people respect Outcome orientation Innovation, stability Attention to details Aggressiveness

Yesil and Kaya19

Chang and Lin33 and Akhavan et al.30 32

Balthazard et al. Ahmad26

Erwee et al.35

Sikorska-Simmons36

Chang and Lin37

Baird et al.34

Treacy and Wiersema,45 cited in Zack et al.,46 suggested three OP-related capabilities that provide a baseline for competitive advantage: customer intimacy, product leadership and operational excellence. Product leadership refers to competition based on product and service innovation. Customer intimacy relates to the competition in terms of the strength of customer satisfaction and retention. On the other hand, operational excellence relates to competition by virtue of the efficiency of internal processes.44

Table 2. Supply chain management dimensions used in the literature. Dimensions of supply chain management

Researcher (s)

Customer relationship Information sharing Information technology Internal operation Strategic supplier partnership Training Collaborative distribution Distribution flexibility IT-enabled distribution Inventory management Order commitment Transparency in the distribution process Supply chain integration Information sharing Strategic relationships with suppliers and customers Support customer order Information sharing, information quality Supplier partnership Customer relationship Technological interdependence Information sharing

Chong et al.22

Arif-Khan et al.41

Jabbour et al.42

Okongwu et al.25, Al-Tit43 Huang et al.40

In the SCM domain, Arif-Khan et al.41 identified three categories of OP related to SCM: flexibility, output and resource performance. According to these authors, flexibility in performance relates to an organization’s responsiveness, output performance pertains to an organization’s ability to deliver a superior level of customer service and resource performance concerns an organization’s ability to achieve efficiency. Using a sample consisting of 652 firms in Singapore, Chia et al.47 examined performance measurements used by SC managers. They found that the most usable indicators were cost reduction, gross revenue, pre-tax profit and customer satisfaction. Table 3 shows examples of the OP dimensions used in the existing literature.

Relationship between OC and OP On the association between OC and OP, Yesil and Kaya19 provided evidence from Turkey using a sample consisting of 300 companies operating in the textile, food and service industries. Measuring OC in terms of adhocratic, clan, hierarchical and market cultures and OP by sales growth and return on assets, they found no significant relationship between their OC dimensions and OP indicators. Prajogo and McDermott20 examined the relationship between OC and OP using four cultural dimensions adopted from Quinn and Spreitzer50 – group culture, developmental culture, hierarchal culture and relational culture – and four dimensions of performance, namely, product and process quality, product and process innovation. Their findings indicated a

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International Journal of Engineering Business Management

Table 3. Organizational performance dimensions used in prior literature. Dimensions of organizational performance

Researcher (s)

 Sales-based performance – Sales revenue, profitability, return on investment – Return on assets, manufacturing productivity – Product added-value, employee added-value – Sales growth and market share  Organizational-based performance – Product leadership (product and service innovation) – Product and service quality – Customer intimacy (customer satisfaction and retention) – Operational excellence (internal processes efficiency) – Employee development, and job satisfaction  Supply chain-based performance – Flexibility performance – Output performance – Resource performance – Cost reduction – Gross revenue – Profit before tax – Customer satisfaction – Profitability, revenue, sales volume and growth – New customers, customer satisfaction, company reputation

Ismail et al.48, Al-Tit43, Chong et al.22 and Lee and Yu31

positive relationship between developmental culture and three of the OP dimensions (product quality, product innovation and process innovation). Al-Tit51 conducted a study to investigate the mediating role of OC between Human Resource Management (HRM) practices and OP. It was found that OC moderated the relationship between HRM practices and OP. Lee and Yu31 investigated the relationship between OC and OP using a sample of companies from three sectors: high-tech firms, hospitals and insurance companies. Their results confirmed the positive impact of OC on OP. In Jordan, Bashayreh52 investigated the relationship between OC and OP. It was found that there is a relationship between OC (policies and procedures) and OP. Based on 240 valid questionnaires collected from insurance companies, Al-Nsour53 investigated the role of OC in improving employees’ performance in the Jordanian banking sector. The results identified there is a relationship between OC components (expected Organization) and Employees’ Performance. Consequently, the following hypothesis is proposed: H1: OC (cultural adaptability and performance orientation) predicts OP.

Relationship between SCM and OP Chong et al.22 collected data from a sample consisting of 163 manufacturing and service companies in Malaysia to test the relationship between SCM practices and OP (operational and innovative performance). They found a direct influence of SCM practices, on both the operational and the innovative performance of Malaysian companies. Based on 128 valid questionnaires collected from different

Arif-Khan et al.41

Treacy and Wiersema45

Tan and Sousa49

manufacturing companies in India, Arif-Khan et al.41 investigated the relationship between agile SCM practices and OP. The results identified four SCM practices related to the agile supply chain: collaborative distribution, distribution flexibility, inventory management and order commitment. In addition, they confirmed the association between these practices and OP. Using the four dimensions of SCM (information sharing, cooperation, long-term relationships and process integration) and four dimensions for OP (cost, delivery, flexibility and quality), Miguel and Brito’s 24 results supported the positive relationship between SCM and OP. In addition, in a study of the relationship between SCM and OP with a sample of 450 manufacturing companies in France, Okongwu et al.25 found direct and indirect impacts of SCM practices on OP. Therefore, the following hypothesis is proposed: H2: SCM (supplier partnership and customer relationship) predicts OP.

Conceptual model Figure 1 shows the study variables and the relationships postulated between them. The conceptual model consists of three variables: OC, SCM and OP. Two potential relationships between the variables are assumed: OC is significantly related to the OP, and SCM is significantly related to the OP.

Research methodology Research sample and data collection The study population comprises manufacturing firms operating in Amman, the capital city of Jordan. Of these firms, a

Al-Tit

5 Table 4. Measurements used in the study. Variables Dimensions OC

SCM

OP

Researcher (s)

Ahmad26 and Erwee et al.35 Cultural adaptability Performance orientation Okongwu et al.25 and Quinn and Supplier partnership Spreitzer50 Customer relationship Operational Okongwu et al.25 and Al-Tit51 and performance Quinn RE and Spreitzer50

OC: organizational culture; SCM: supply chain management; OP: organizational performance.

(strongly agree). Table 4 summarizes the measurements used to evaluate the study variables. Figure 1. Research model.

Validity and reliability sample of 300 firms was randomly selected. The study sample intentionally involved employees from different departments because OC might differ among organizational units. A questionnaire-based survey was carried out to collect data from the participants. The response rate was 34% (102) due to the low percentage of firms that agreed to participate in the study. Of the questionnaires returned, nine were incomplete. This left 93 questionnaires usable for data analysis.

Measures The OC measure comprises two dimensions: adaptability26 and performance orientation.35 Four items were developed to measure this variable. SCM practices were measured using two dimensions adapted from Okongwu et al.25 and Flynn et al.54: supplier partnerships (information networks, market information sharing, inventory level sharing, demand forecast sharing) and customer relationships (information networks, market information sharing, computer-based orders, customer feedback and complaints). Also based on these authors, mutual collaboration and inventory management were used to evaluate supplier partnerships, while practices directed towards the management of customer complaints and building long-term relationships with customers were used to evaluate customer relationships. Eight items were developed to measure this variable. In addition, following Okongwu et al.25 and Quinn and Spreitzer,50 employee satisfaction, customer satisfaction and the introduction of new products were used to measure non-financial performance, based on Hallavo55 and Quinn and Spreitzer.50 Five items were developed to measure this variable. Therefore, the total number of items in the questionnaire was 17 items. The questionnaire was anchored based on a 5-point Likert-type scale that consisted of from 1 point (strongly disagree) to 5 point

Construct validity was assured as a measure previously developed and validated. Reliability testing is defined as a measure that ensures the stability and consistency of results over time.56 The findings of validity and reliability assessments, as displayed in Table 5, confirm the acceptability of the measurements used in the current study as recommended55,57,58 (Cronbach’s a values above 0.7, w2/df < 2.0, RMSEA < 0.080, and CFI > 0.9).

Data analysis and results Intercorrelation matrix The Pearson’s correlation coefficients in Table 6 indicate that all the study variables are associated with each other. There are significant relationships between OC, SCM practices and OP indicators.

Hypothesis testing The results of the paths postulated for this study, as summarized in Table 7 and portrayed in Figure 2, provide support for H1 and H2. The OC dimensions explain 45% of the variance in OP and have a significant positive impact on OP (Cultural adaptability, b ¼ 0.367, t ¼ 4.897, p value  0.05; Performance orientation, b ¼ 0.321, t ¼ 4.132, p value  0.05). The SCM dimensions explain 40% of the variance in OP and have a significant positive impact on OP (Supplier partnership, b ¼ 0.281, t ¼ 3.897, p value  0.05; Customer relationship, b ¼ 0.275, t ¼ 3.712, p value  0.05).

Discussion and conclusion This study aimed to investigate factors affecting OP by exploring the effect of OC and SCM practices on the OP

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International Journal of Engineering Business Management

Table 5. Reliability and validity of measurements. Construct OC SCM OP

Cultural adaptability Performance orientation Supplier partnership Customer relationship Operational performance

Items

Mean

SD

a

w2/df

RMSEA

CFI

p Value

2 2 4 4 5

3.74 3.80 3.86 3.98 3.81

0.90 0.89 0.88 0.91 0.81

0.83 0.81 0.78 0.78 0.80

1.22

0.061

0.94

0.00

1.63

0.074

0.91

0.00

1.47

0.067

0.96

0.00

OC: organizational culture; SCM: supply chain management; OP: organizational performance. p  0.05.

Table 6. Intercorrelation of variables.

1 2 3 4 5

1

2

3

4

5

1.00 0.42 0.52 0.61 0.66

1.00 0.40 0.39 0.71

1.00 0.46 0.63

1.00 0.69

1.00

1: Cultural adaptability; 2: performance orientation; 3: supplier partnership; 4: customer partnership; 5: operational performance. p  0.05.

Table 7. Hypothesis testing. r2

b

Hypotheses

Dimensions

H1: OC predicts OP

Cultural 0.446 0.367 4.897* Accepted adaptability Performance 0.321 4.132* orientation Supplier 0.397 0.281 3.897* Accepted partnership Customer 0.275 3.712* relationship

H2: SCM predicts OP

T

Result

OC: organizational culture; OP: organizational performance; SCM: supply chain management. *p Value  0.05.

of manufacturing firms from Jordan. The findings of the study indicate that both OC and SCM practices significantly predict OP. Concerning the relationship between OC and OP, the results in the literature are mixed. In a study of the relationship between the same constructs, Yesil and Kaya19 revealed a non-significant relationship between OC and OP. On the other hand, Lee and Yu31 confirmed that OC positively predicts OP. The findings of this study are consistent with Abu-Jarad et al.,59 suggesting that OC is a key dimension in studies intending to investigate OP, particularly in non-Western settings. On the relationship between SCM practices and OP, Chong et al.,22 Arif-Khan et al.,41 Miguel and Brito24 and Okongwu et al.25 found a positive effect of SCM practices and OP. Consistent with Quinn and Spreitzer,50 this study found a significant relationship between customer partnership and operational performance. The results of Quinn and Spreitzer 50 rejected the hypothesis that supplier

Figure 2. Final model.

partnerships are related to operational performance. However, they explained that this was due to the introduction of internal integration in the model. In this study, the ultimate aim of which was to investigate factors affecting OP, the results show that both OC and SCM practices are examples of such factors. Overall, the study concludes that organizations driven by customers, partners, risk and mistakes and oriented towards high levels of employee performance will experience more enhanced levels of OP.

Implications and future research directions Despite the significant contribution of SCM practices to OP,41,22,24,25 the findings of this study indicate that the impact of OC on OP is greater than the impact of SCM practices on the same construct. Therefore, both researchers and managers should give importance to organizational beliefs, values and assumptions along with other variables. Hence, future research should examine the moderating and mediating role of OC on the relationship between supply chain practices and OP. The aim of this study is to explain the direct relationship between SCM, OC and OP in the absence of previous studies conducted in Jordanian settings. However, the intended direct relationship is

Al-Tit considered an initial point to develop new models on direct–indirect relationship between these variables in the same context. Hence, neither mediating nor moderating effects were studied in the current study. As recommended, future research is required to examine such casual effects of mediating and moderating variables. The sample used in this study is limited to manufacturing firms in Amman, the capital city of Jordan. This study is limited by its low response rate due to firms’ refusal to participate in the study, since they regarded the required data, as secrets should be preserved from competitors. Consequently, the findings should be considered with caution based on the declined response rate. According to Holbrook et al.,60 a lower response rate will only affect the survey estimates. Future studies should assess the impact of OC and supply chain practices on the OP of other manufacturing firms in other countries. Finally, the research model should include additional variables that contribute to OP level to explore more factors that may affect OP in Jordanian settings. Acknowledgement The author would like to thank the Jordanian firms who participated in this research. He would also like to thank the Deanship of Scientific Research in Qassim University, Saudi Arabia.

Declaration of conflicting interests The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding The author(s) received no financial support for the research, authorship, and/or publication of this article.

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