Abstract:
Extant research converges in maintaining that the adoption of lean operation practices improves financial performance. A closer look at this literature highlights two potential directions to improve our understanding of the real nature and size of the performance effects of lean. The first is conceptualizing lean systems "holistically" as an enterprise philosophy that a) spans the boundaries of operations and supply chain management to other functions and processes and b) goes beyond the application of lean tools to include other complementary dimensions like lean leadership, culture, implementation, performance measurement, and strategy deployment. The second is the adoption of research designs and methods that can provide better estimates of the financial performance effects attributable to the adoption of lean systems and of their actual size. Leveraging a unique dataset of 189 Italian industrial firms which implemented lean systems "holistically" during the last 18 years and nesting it in a comprehensive dataset about the financial performance of more than 16,000 Italian industrial firms in the same period, this study adopts a quasi-experimental research design and uses different identification and estimation strategies to assess how lean system adoption affects profitability. Our results show that indeed lean systems positively impact on Return on Invested Capital and Net Debt to Ebitda ratio, but not Ebitda margin. We offer a rationale for these results, showing that they vary within and across firms -contingent upon the level of adoption of lean- and that they change over time –contingent on the consistency of adoption. The length of commercial cycle partially mediates these effects, confirming that one of the ways (but not the only one) in which the adoption of lean systems improves financial performance is shorter cash-to-cash cycles.Keywords: Lean systems, Lean implementation, Lean Leadership, Lean Accounting, Continuous improvement
Biography:
Arnaldo Camuffo is professor of management at Bocconi University, Milan, Italy. Author of books (the latest being Lean Transformations for Small and Medium Enterprises, New York, CRC-Productivity Press, 2017), essays and articles, his research has appeared, among others, in Management Science, Academy of Management Journal, Strategic Management Journal, Organization Science, Research Policy, Industrial and Corporate Change, International Journal of Operations and Production Management, International Journal of Production Economics, IEEE Transactions in Engineering Management and MIT Sloan Management Review.