Operations Strategy Processes and Performance: Insights from the

Operations Strategy Processes and Performance: Insights from the Contract Apparel Manufacturing Industry Purpose: This paper explores the significance and dynamics of alternative operations strategy processes towards developing a more complete picture of the strategy process-contextperformance nexus. The findings are based on the statistical analysis of empirical evidence drawn from the contract apparel manufacturing industry in a developing country. Design/methodology/approach: Using a structured questionnaire and the key-informant approach data was collected from 109 contract apparel manufacturing firms in Sri Lanka. Cluster analysis was used to identify alternative configurations of strategy process modes. Findings: The analyses confirmed that the existence of alternative forms of operations strategy development is statistically significant and that the alternative configurations of strategy process modes tested can all lead to superior performance, under certain circumstances. Research limitations/implications: The generalizability of these findings to other industry sectors within developing countries should be treated with caution, mainly due to the fact that the vast majority organisations selected for this study were subsidiaries of large international companies or comparable local counterparts. In order to better understand the linkages between operations strategy and performance, data should be collected from multiple countries preferably using mixed-methods approaches. Originality/value: The findings are expected to contribute to operations management theory as they corroborate, with statistical evidence, the findings of recent qualitative studies. The results also confirm the existence of operations strategy processes in developing countries that are consistent with the conceptual understanding developed in the context of developed countries. Key Words: Operations strategy; cluster analysis; organizational context; operations performance

1. Introduction The operations strategy (OS) concept has been widely researched from a number of perspectives, since its presumptive conception in the late 1960s. However, the vast majority of previous OS research has focused on businesses operating in the manufacturing sectors of developed countries. Despite a significant trend towards the consolidation of certain manufacturing industries in developing countries, and the increasing popularity of outsourcing practices among businesses in developed regions, OS process research in the context of developing countries has been limited. Furthermore, there is no reliable evidence to support whether the conceptual understanding of OS processes developed over the years, through research undertaken in developed countries, has in fact diffused into the businesses operating in developing regions, or even the findings of such research are in fact applicable to the developing country contexts. Given that the traditional manufacturing sectors in developed economies are widely perceived to have become unattractive or infeasible, extending the current understanding of OS concepts to capture developing country contexts is not only timely, but also would be considered as a logical 1

step in the progression of OS research. Studies of this type would be of further significance in the context of recent developments such as globalization of supply chain operations, increasing emphasis on services in the developed region and the rise of emerging economies as low-cost manufacturing bases. The study reported in this paper explored the significance and dynamics of alternative OS processes towards developing a more complete picture of the strategy process-contextperformance nexus. The findings are based on the statistical analysis of empirical evidence drawn from the contract apparel manufacturing sector in Sri Lanka. Sri Lanka is one of the 10 developing economies for which manufacturing accounts for more than 50% of their merchandise exports (Ruwanpura and Wrigby, 2011). The statistical analysis of data gathered from over 100 apparel manufacturing businesses confirmed the significance of alternative OS processes, as well as the presence of multiple process configurations in practice. We believe, these findings, while providing insights into strategy development in an emerging industry sector, would help improve the external validity of the findings reported in extant literature. The insights gained into the dynamics of strategy formation may benefit practicing managers in nurturing appropriate forms of OS processes to suit specific organizational and environmental contexts, as applied to the rapidly expanding contract manufacturing sector in developing countries. The paper is organized into six sections: introduction; literature review; research design; data analysis; discussion; and conclusions.

2. Literature Review Operations managers make a raft of investment and resource allocation decisions that, in the long term, determine the capacity and capabilities of the operations system of an organization. These decisions typically relate to the overall configuration of the operations system in terms of people and other resources, business processes and technology, as well as work routines and organizational culture. Operations performance reflects an operations system’s capacity and capability to support the chosen competitive priorities of an organization such as product or service price, quality and delivery time. As such, consistent patterns in these decisions, which constitute OS, directly affect an organization’s ability to compete against similar products or services available in a particular market. Historically, OS research has focused on conceptualizing how various aspects of OS interact with other functional strategies and influence the performance of an organization. Since the pioneering work of Skinner (1969, 1985), Hays and Wheelwright (1984) and Wheelwright (1978) OS research has progressed significantly over the past several decades. Today, there exists a coherent body of knowledge that has conceptualized key OS constructs (strategy content, process and context), as well as the relationships between those constructs at the aggregate level. This knowledge base, along with the array of quantitative tools that are available in the area of operations management, has served the operations management community well over the years – for example, by way of articulating the OS concept for the benefit of academics, and providing prescriptive guidance for practitioners on how to formulate strategic plans. However, the successful implementation of strategic plans developed as per the prescriptions above has proven to be challenging for many organizations, due to a variety of reasons. Cognitive limitations of decision makers, time and resource constraints and the need to deal with other priorities, such as 2

more urgent operational issues have all been cited as impediments to successfully implementing planned strategies (Pavia et al., 2012; Andreas, 2007; Leseure, 2006;Quintus and George, 2005). Additionally, many organizations have shown to be able to enhance their operations performance through the implementation of various improvement programs and the adoption of best-practice approaches without being guided by a formal planning approach to strategy (Narasimhan, 2005; Swamidass, 2001; Cagliano and Spina, 2000). Some empirical work has also revealed that regularities in middle managers’ direct actions and interventions that address operational issues can have long-term and pervasive effects on an organization’s operations performance (Pun, 2005; Anderson and Atkins, 2001; Swamidass, 2001). These observations have prompted researchers to examine functional level strategy processes through alternative lenses, and at a more detailed level, using qualitative methods such as case studies and action research (Rytter et al., 2007; Verreynne, 2006; Barnes, 2002). We believe this shift in the focus (from macro to micro) and methodological approaches (from quantitative to qualitative/mixed method) marks a significant development in OS process research. Although the findings of these early qualitative studies have provided fresh insights into the dynamics of strategy formation in practice by way of capturing the both top-down and bottom-up organizational processes, their external validity (generalizability) has been limited by the small sample size used. Furthermore, samples used in OS research has historically been drawn from manufacturing sectors in developed countries, thereby raising concerns as to the applicability of their findings to non-manufacturing (e.g. services and retail) organizations and developing country contexts. More recently, an increasing number of studies have attempted to rectify this anomaly by examining the strategy-performance nexus within the services sector organizations and developing country contexts (Pavia et al., 2012; Thomas et al. 2012; Pham and Thomas, 2012; Ibrahim, 2010; Borade and Bansod, 2010; Bheda et al., 2003, Badri et al., 2000). Despite this positive trend, there still seems to be a dearth of literature focusing on OS processes and, in particular, empirical studies aimed at developing an understanding of the influence of individual, organizational and environmental factors on strategy processes and operations performance in the context of developing economies. For example, a cursory search of literature containing the phrases “operations strategy process” and “developing country” in various combinations of title, key words and abstract on four databases (ABI/Info Complete, Business Source Complete, Scopus and Web of Science) resulted in eight articles on OS processes in developing country contexts. We believe that extending OS process research to cover industries in developing countries is ever more important partly due to the increasing trends in outsourcing and the expansion of manufacturing bases into developing countries. To this end, the study reported on in this paper aimed to examine the applicability of the findings of recent qualitative studies of OS processes, referred to earlier, to a developing country context. The most recent empirical studies into OS development have identified significant patterns in strategic decision making and action taking (Kiridena et al., 2009; Sarmiento et al., 2008; Rytter et al., 2007; Verreynne, 2006; Barnes, 2002). These studies have used qualitative methods such as case studies and action research, as well as quantitative methods such as structural equation modelling, to construct or validate process-level regularities in functional strategy development and the influence of certain contextual factors. The findings of these studies have contributed to externalising such dimensions as individual, cultural, political and technical, as well as firm ownership, maturity and organisation structure towards understanding their relationship to strategy processes. Collectively, these research efforts have explicated a 3

more fine-grained structure of OS processes depicting how strategic initiatives progress through distinct phases such as initiation, consolidation, commitment and realization under the influence of an array of individual, organizational and environmental factors, along multiple paths in a rather dynamic fashion. The major patterns or schemas of strategic decision making and action taking elicited through these studies have highlighted the multiple causalities and interdependencies that exist between key variables, as well as organizational contextual factors such as formalization, centralization, leadership style and organization culture. Several studies of OS in developing or newly-industrialized countries have also appeared in operations management journals over the past several years. Following the tradition in general strategy research, most of these studies have examined the relationship between key constructs such as OS content, process, context constructs and organisational performance, primarily using quantitative approaches. For example, a recent article by Kathuria et al. (2010) reported the level of agreement or strategic consensus between senior executives and manufacturing managers on competitive priorities. Using survey data collected from 156 respondents they concluded that managers place a relatively higher level of emphasis on product quality and delivery. In a study of two industry sectors, Mady (2008) investigated the link between competitive priorities and OS and found that the plant size is a useful predictor of operations performance against competitive priorities. Using a multiple case study approach, Brown et al. (2007) claimed that high performing manufacturing plants in the computer industry incorporate both OS content and processes in the business level strategic planning process while low-performing plants do not. As such, these studies are devoid of particular attention to the dynamics of OS formation and the influence of contextual factors on OS development. By comparison, the relationship between strategy and performance has been researched widely and many researchers have attempted to find the impact of business strategy on performance. Depending upon the specific industry sectors investigated, such research has produced mixed results. For instance, Amoako-Gyampah and Acquaah (2007) examined the relationship between manufacturing strategy, competitive strategy and firm performance in a developing economy context and found that quality was the only factor that influenced firm performance among Ghanaian manufacturing firms. In a more recent study, based on data gathered from Spanish ceramic tile firms, Oltra and Flor (2010) concluded that cost and quality priorities have a positive effect on organizational level performance while delivery and flexibility has a negative influence. On their study of 62 Kuwaiti plants in food processing and refractors industries Mady (2008) found that on-time delivery and quality having higher influence than flexibility and innovativeness on organizational-level performance. Other literature indicates efforts towards applying these concepts in areas such as services, ISO implementation, lean operations and e-government applications (Nawanir et al. 2013; Rusjan and Castka, 2010; Spring and Araujo, 2009; Affisco and Soliman, 2006; Leonard and McAdam, 2004). Overall, the above studies have confirmed the significance of the organizational context and selected aspects of the strategy-performance nexus in the developing country context. The findings are broadly consistent with those found in extant literature that has reported on studies of manufacturing sectors in developing countries. However, given that these studies have examined the relationships between OS constructs at a higher level of abstraction than in the recently published qualitative studies, and that the findings have revealed some important relationships between OS processes and organizational level performance, there is a case for 4

testing the statistical significance of the findings of recent qualitative studies (reported earlier in this paper) in the developing country context. 3. Research Design and Methodological Approach Historically, organizational performance has been linked to the cumulative effect of strategies pursued at different levels of an organization. Literature also suggests that the way strategies are formed under the influence of internal and external organizational contextual factors affects the effectiveness of strategies in achieving superior organizational performance (Ramaswamy, 2001; Papadakis et al., 1998; Slevin and Covin, 1997; Dean and Sharfman, 1996; Ketchen et al., 1996; Pettigrew, 1992). Numerous studies have examined the relationships between these constructs at the business unit level from varying perspectives. However, when it gets to the functional level strategies, particularly in relation to OS, the current understanding of the relationship between strategy processes, organizational context and performance is limited. The top–down planning model of OS development has been supported by several empirical studies and various aspects of that model have been tested using statistical techniques by a number of researchers. By comparison, the dynamics of OS formation have been elucidated in the form of descriptive models in several recent studies (Kiridena et al., 2009; Sarmiento et al., 2008; Rytter et al., 2007; Verreynne, 2006; Barnes, 2002). These studies have also identified the tentative associations between organizational contextual factors and alternative OS processes. Collectively, these studies have provided valuable insights into how strategies are developed in practice. However, the external validity of these descriptive models is limited because they have been developed based on a small number of case studies or action research, mainly in developed countries. Furthermore, these studies have not explicitly linked operations performance to OS processes. By comparison, the study reported on in this paper has been designed to address those limitations by way of using a survey-based study of a sample of businesses in a developing country. The paper addresses two related questions: • •

What factors contributed to what OS processes to exist in an organization; and What OS process configurations existed and how they were related to the various internal organizational and external environmental contextual factors, as well as operations performance.

Literature suggest that strategy processes are contingent upon such diverse contextual factors as the nature of the business operations, level of competition, firm size, the stage of firm development, organizational culture and the personal attributes of the decision makers involved (Rytter et al., 2007; Barnes, 2002; Slevin and Covin, 1997; Mills et. al., 1995). In this study, a sample of relatively homogenous group of businesses in a specific manufacturing sector in a developing country was selected to represent a manageable number of contextual variables. Furthermore, as it is not feasible to test an exhaustive list of variables and relationships in a single study or report all analysis and findings in a single paper, this paper has only considered three alternative forms of OS development, in terms of three modes (schemas) as depicted in Figure 1 (adapted from Kiridena et al, 2009), and the four contextual factors listed in Figure 2 (drawn from Rytter et al., 2007; Verreynne, 2006; Barnes, 2002), and will report the findings accordingly. Three widely cited measures of operations performance (quality, delivery and cost) were also drawn from the broader pool of operations management literature. 5

----------------------------------------------------------------------Insert Figure 1 about here ---------------------------------------------------------------------------------------------------------------------------------------------Insert Figure 2 about here -----------------------------------------------------------------------Overall, the theoretical framework underpinning the overall research design was drawn based on a synthesis of the findings of the recent qualitative empirical studies referred to above. In particular, it was guided by the qualitative studies that have focused on examining OS processes as an organisational-level phenomenon, as opposed to individual decision-maker or broader strategy frameworks. The three alternative forms of OS processes that have been reported in Kiridena et al. (2009) are broadly consistent with the findings of previous empirical studies reported in Sarmiento et al. (2008), Rytter et al. (2007), Verreynne (2006), Barnes (2002) and Swamidass et al. (2001). For instance, the forced, opportunistic and evolutionary process modes depicted in Figure 1 reflect the multiple OS processes (i.e. managerial interpretation, rational planning; adoption of best practices; and operations improvement alternatives etc.) cited in extant literature. As such, we believe these three alterative process modes not only represent extant literature but also capture the functional-level strategy development at an appropriate level of detail (abstraction). The organisational and environmental contextual factors that influence OS formation are quite diverse, as reported in literature. Again, the choice of contextual factors was also based on our review of what has been studied in previous qualitative studies, and what in our best judgement was deemed to be the most relevant to the manufacturing sector concerned. The questionnaire was developed based on existing literature and previous qualitative studies. It was refined after a pre-test among 10 Joint Venture managers from 6 organisations in the Sri Lankan apparel industry. The pre-test interviews were carried out by a faculty member of a local university. A sample frame of 158 organisations was drawn from the Sri Lankan Board of Investments (BOI) company directory. Most of the companies were located in the designated Free Trade Zones. An invitation to participate in this study was sent to all companies. However, only 109 companies agreed to participate. Using a structured questionnaire and the keyinformant approach, a faculty member and trained graduate business students from a major Sri Lankan university completed interviews in all 109 companies. Most of the respondents were senior executives (general manager, deputy general managers, or equivalents) and functional/divisional managers (e.g., quality managers). The high response rate of 69% can be largely attributed to conducting on-site interviews in person, as opposed to administering a mail/online survey. The companies selected included most of the prominent subcontractors, as well as small, medium and large companies. The sample covered companies operating in all free trade zones and hence represents a good cross-section of the Sri Lankan textile manufacturing industry. 4. An Overview of the Sri Lankan Apparel Manufacturing Industry The global apparel manufacturing clusters are located in various parts of the world and the total global garment trade generated $490 billion in 2010 (First Research, 2013). An important feature of the industry is the geographic distribution of value-adding operations: i.e. yarn and fabric manufacturing; garment design; and assembly operations. Usually, high-volume 6

manufacturing of fabrics takes place in locations far from where the assembly of garments are undertaken. A large number of relatively smaller plants dispersed across the developing countries assemble the garments using fabrics and accessories supplied by multinational buying companies or their agents under contractual arrangements and tight quality control regimes. In most cases, the design of garments is performed by multinational buyers or their specialist agents as per the requirements of major retail chains operating in developed countries. China accounts for more than 37% of the total global garment exports while South Asian countries including India, Sri Lanka and Bangladesh account for 8 % of global exports (First Research, 2013). With the increasing wages in developed countries, it had been thee common practice for some time that the industry’s production facilities were located in Europe’s low-cost neighbours and developing countries, primarily in the form of sub–contracted manufacturing. Asia, especially south and far-east Asia, had presented greater opportunities for low-cost manufacturing for a considerable time. However, in the context of contract manufacturing, the design of garments has always been under the purview of buyers themselves or their specialist agents and, therefore, the quality of garment assembly processes was a key area of concern for both buyers and suppliers. The garment industry is the biggest industry in terms of the per capita contribution to Sri Lanka’s economy (Wickramasinghe and Wickramasinghe, 2012). Supply of garments for global markets was controlled by the so-called Multi Fibre Agreement (MFA) since 1975 as a quota system until it ended in 2005, following a transition period of 10 years (Wickramasinghe and Wickramasinghe, 2012). The term ‘quota’ refers to the portion or number of garments, allowed to be exported by a developing country to a developed country under the MFA (Kelegama, 2009). Under the quota system, a country could send a specified quantity of garments (or finished products) to each market (e.g. EU or US). Sri Lanka had benefited from the quota system for more than two decades, as the direct competition between countries was masked by the quota system (Kelegama, 2009). Based on the quota allocated to Sri Lanka each year, the statutory body, Textile Quota Board (TQB), determined the allocation to each manufacturing entity based on their past performance. The allocation was overseen by the Ministry of Enterprise Development, Industrial Policy and Investment Promotion. This system often guaranteed a minimum order quantity for each firm and continuation of orders depending on their performance relating to quality, delivery and cost. With the initial success of this system, some companies were subsequently able to establish exclusive agreements with big brand names to produce speciality garments – the quantities produced under these arrangements were on top of their allocated quota. These products were complex and high in variety, and quality and delivery were important performance factors. Since the quota system expired, direct competition between companies, as well as countries, has meant that companies should meet multiple priorities such as high quality products and faster delivery at competitive prices. While the quota system was in operation, Sri Lankan garment industry had established a reputation for maintaining quality standards; however, the industry was not highly competitive in terms of price and their responsiveness to the changing market needs. As such, sustaining its competitiveness was a significant challenge for the garment manufacturing sector in the quota free world and implementation of appropriate strategies to deal with these challenges was seen as critical for the survival and growth of the industry.

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With regards to the competition between countries, Sri Lanka has several advantages, as well as disadvantages. Sri Lanka’s high literacy and education levels have helped the companies to transform from low-cost garment assembly to higher value-added full package supply (Perry, 2012). In addition to the infrastructure provided through Free Trade Zones the government have created a favourable business environment for garment manufacturers by providing tax incentives. These initiatives have helped the contract manufactures in Sri Lanka to gain an advantage over competing firms in other countries, particularly those in South Asia. They have also helped companies to move from low-margin and highly competitive not-knitted or notcrocheted apparel to high margin knitted or crocheted apparel (Kelegama, 2009). The major challenges faced by the Sri Lankan garment manufacturers are the lack of backward integration, high turnaround time, low worker productivity, persistent labour shortages and high production costs (Kelegama, 2009). In particular, Sri Lankan companies are at a major disadvantage in terms of access to cheaper raw materials such as cotton, compared to companies in India and Pakistan who are major cotton producing nations. They also have limited access to fabric manufactures than companies in China (Kelegama, 2009). In order to address these challenges many companies are trying to establish their own fabric mills or enter into exclusive agreements with larger overseas companies. 5. Data analysis and results The sample of companies used in this study represented a good cross-section of the Sri Lankan apparel industry in terms of company size, ownership, maturity and markets served. They ranged from small independent subcontractors to those that had exclusive ties to major global clothing brands. The average age of the firms was 20.5 years with a range of 6 months to 100 years, which indicates that a good majority of companies would be at the established or pioneering stage of development, and therefore can reasonably be expected to have established organizational structures and processes for dealing with issues of strategic significance. As shown in the Table 1, nearly 70% of the respondents worked for large companies with more than 450 employees. These large companies are more established multinational companies either locally-based or internationally-based. Most of these companies have a significant stake in the Sri Lankan garment industry and continue to find ways to improve their competitiveness in the global market. Only 10% of the respondents came from small companies with less than 150 employees – most of these companies are tier-2 subcontractors. ----------------------------------------------------------------------Insert Table 1 about here -----------------------------------------------------------------------The sample used in this study also represented a quite diverse organizational setting, as shown in Table 2. For instance, more than 50% of the respondents worked for multinational companies while 20% of them worked for locally-owned companies. ----------------------------------------------------------------------Insert Table 2 about here -----------------------------------------------------------------------Before empirically testing our propositions, we checked the reliability and dimensionality of the key measures used. Principal component analysis was first used to verify whether the 8

proposed three strategy processes existed in practice. The results revealed three distinct factors with each process mode consisting of two items. We then conducted another principal component analysis on contextual variables of formalization, centralization and industry competitiveness. Each of these variables was measured with two items. Additionally, factor analysis conducted on the dimensions of operations performance confirmed the significance of all four variables used. Tables 3-5 summarize the factor analysis results and descriptive statistics (questions representing the latent variables are presented verbatim for clarity of understanding). ----------------------------------------------------------------------Insert Table 3 about here ---------------------------------------------------------------------------------------------------------------------------------------------Insert Table 4 about here ---------------------------------------------------------------------------------------------------------------------------------------------Insert Table 5 about here -----------------------------------------------------------------------These results clearly established the statistical significance of the three strategy process modes and the four contextual factors identified through the review of extant literature, and their existence in practice. Furthermore, the significance of co-relations between the key factors meant that they can be treated as distinct variables that represent the three key constructs; OS process, performance and context. Table 6 summarizes the correlations between the factors considered. ----------------------------------------------------------------------Insert Table 6 about here -----------------------------------------------------------------------In answering the research questions, we deployed two-step cluster analysis to identify any process configurations. We assumed that these process configurations represent the possible combinations of the three OS process modes. We used three process types to determine the clusters and then used performance and contextual factors to identify the common characteristics of cluster members. The two-step clustering led to the identification of four clusters, each accounting for approximately 27%, 19%, 38%, and 16% of the sample, respectively. ----------------------------------------------------------------------Insert Table 7 about here -----------------------------------------------------------------------As shown in Table 7, the four clusters exhibited distinct features in terms of how each of the three OS process modes was prioritized and weighted. Each cluster represented a unique configuration representing different combinations of the three process modes. A prominent attribute of these configurations is that the four configurations were not discernible in terms of performance differentials, but the performance on all dimensions for all configurations was consistently at a moderate-high level. Cluster solution further indicates that companies in all four configurations were represented by low levels of centralization and formalization, but a moderate-high level of competition. Most of these companies are operating as single business units and most operations decisions are localized. Usually, the general manager makes most of the operations decisions with input from the senior managers responsible for running each factory. The head office provides the initial funding, and the business continuity of each factory depends upon their performance. Most of these firms have a flat organization structure and senior managers are given the responsibility of making strategic operational decisions. The key 9

drivers of competition between companies within the sector are considered to be the heightened exposure under the modified quota system and the specialisation of factories based on core competencies. Detailed analysis using One-way ANOVA , however, showed that one configuration was significantly different from each of the others in regards to the level of competition (F= 2.69 and Sig. 0.039). In order to further analyse the differences we then conducted post hoc tests (LSD). The results are shown in table 8. With regards to competition, the differences between clusters 12 and 1-3 were statistically significant. In both cases companies in cluster 2 and 3 had higher levels of competition compared to companies in cluster 1. However, the difference between clusters 1-2 was higher than clusters 1-3. The results also indicated that there was no difference between the competition levels of companies in cluster 4 and others. 6. Discussion and Inferences In general, our analysis confirmed the presence of the three alternative OS processes. It also confirmed the possibility of multiple configurations of one or more distinctive OS process modes co-existing. These configurations can be related to the all three dimensions of performance and one of the three contextual factors tested. In this section we discuss the inferences drawn from the statistical analysis. First, the factor analysis confirmed the presence of the alterative OS processes tested. The analysis showed that the OS processes did not always follow the formal planning approach as depicted in the ‘opportunistic’ mode of the model. The significance of all performance dimensions and contextual factors were also confirmed. As the organizations surveyed in this study had a large number of employees operating in a contract manufacturing environment, it would be reasonable to expect that decision making within organizations follow strict protocols or undergoes rigorous analysis, as per the doctrines of formal planning advocated in literature. This was clearly not the case however, as the presence of alternative OS processes, which could be partially explained by the contextual factors, was supported by statistical evidence. As revealed in a recent study of lean manufacturing practices in the Sri Lankan apparel sector by Wickramasinghe and Wickramasinnghe (2012), the buyer, or the agent acting on behalf of a major retail chain, in this industry has considerable influence on subcontractors like the manufacturing companies we surveyed in this study. Many large labels and retailers have located their own offices in Sri Lanka. These buyers possess an in-depth knowledge about the industry context in which they operate and the capabilities of the production facilities involved. Therefore, they are well-positioned to develop a low-cost–high-quality supplier base in that country and to further negotiate other terms of supply such as delivery lead time with individual production facilities. They could also negotiate low prices from raw material suppliers and demand that factories accept a lower final price. In general, 10-15 buyers will be placing orders from one factory and it is common practice to buy high volumes (millions of pieces per season) and demand low prices, high quality and faster delivery. Elimination of ‘quota’ restrictions has also led to further strengthening the buyer power, since they can always explore other countries as alternative sources, for example, with less sailing time between China to the US (20-25 days) compared to Sri Lanka (30-40 days). On the one hand, the influence of such external forces on 10

sub-contractor companies may mean strategic decision processes within those organisations can take the form of those captured in the forced mode of our model. On the other hand, factors such as service, quality, compliance and the long-term relationships those buyer organisations have enjoyed during the quota days will also play a significant role when selecting/switching contractors and suppliers. Furthermore, the shifting priorities in the post-quota environment demand rapid responses from all manufacturers. The manufacturing companies therefore explore new ways of pursuing their strategic options, as well. Overall, based on our analysis of the results, and considering the contextual factors discussed above, we provide the following explanation. In general the organisations surveyed were expected to have more structured decision processes in place due to their size and maturity, as well as the monetary value of contracts involved. However, the combined effects of the influence of external forces and the strategic capabilities and preferences of manufacturers concerned lead to the existence of OS processes such as forced and evolutionary modes, as the results suggest. These explanations are broadly consistent with the patterns of OS formation and the influence of contextual factors (on OS processes) revealed in recent qualitative studies, albeit the contextual factors concerned and the way they manifest are industry sector-specific. The cluster analysis brought out four distinct sub-groups within the sample, which represent various combinations of the three modes of OS formation studied. Based on the distinct characteristics of each of these configurations, we label configuration 1 as “Traditional” since these firms rely mostly on the opportunistic mode in strategy development and implementation. The decision making processes seen in the organizations within this cluster closely resemble the rational planning process. The organisations in this group usually focus on moderately complex products with higher variety. By comparison, configuration 2 may be referred to as “Dual-mode” because this group of organisations equally represent both the evolutionary and forced processes, which may be explained by the differences in contextual factors such as size and ownership type of the companies within that cluster. Configuration 3 is largely “Top-down” as the firms have a clear disposition toward the forced approach while much lower emphasis on the other two processes. Finally, configuration 4 might be labelled as “Laissez-faire” since these firms do not rely on any of the three processes in OS development. It may indicate the possibility of either the absence of any patterns in decision making or the existence of a rather different mode of strategy making to that of the three process modes studied, which then warrants further investigation. The results also showed that mean performance in all three dimensions tested (quality, delivery and cost) were moderate-high and that the configurations cannot be differentiated based on those performance factors. By way of explanation, given the nature of the competition within this contract manufacturing sector, it can be argued that the companies operating in this sector must maintain a threshold level of performance to stay in the market, which correspond to the level of performance shown in the results. Furthermore, it can be derived that all four process configurations lead to an acceptable level of performance, meaning that no performance advantage is gained by adopting one configuration over the other. The analysis of variance between clusters also revealed that the four configurations can only be differentiated based on the degree of competition. The descriptive statistics showed that the majority of business units surveyed are part of large companies. Most of them compete with each other on price, quality and on-time delivery. As noted by Tait (2008) and Loker (2011) garment manufacturers in Sri Lanka have a high level of reputation among buyers for high quality, on-time delivery, good 11

customer service and compliance to ethical standards. Factories consistently explore every possibility to offer lower prices to secure and maintain orders and consistently run at full capacity. They often look for ways to add value to their products. Some plants have begun to develop their own sourcing bases and utilising their expertise in areas such as industrial engineering, fabric and garment technologies. As discussed earlier, buyers exercise their authority over design and product development since most of these peripheral production units routinely cater to more than 2-3 brands or labels, with the possibility of leaks in proprietary information on design and development to competitors. As such, adoption of new technologies and processes, moving into different market segments and improvement of quality and productivity have all become key requirements for successfully facing the competitive threats. Moreover, garments manufactured outside the quota system during the quota regime were primarily higher value-added, catering to niche markets and designer and private labels. Building on the capabilities developed though such assignments, in the post-quota environment, many Sri Lankan manufactures moved towards higher-value segments with higher margins catering to customers such as Victoria’s Secret, C&A in USA and other niche brands in the EU such as Marks & Spencer, Triumph International and British Home Stores. This required heavy emphasis on quality and delivery as indicated by the survey results. Price is one of the basic competitive priorities in the quota-free regime. Interviews with the production managers revealed that most companies focusing on reducing the cost of production of the garments to keep their share secured. They employ a suite of strategies to reduce the cost of production and thereby to offer competitive prices. The majority of strategic initiatives have focused on how to minimize raw material costs and transitioning to value-added segments. Overall, these observations are consistent with the findings of the study and hence explain the derived relationship between alternative OS processes and operations performance in relation to the three dimensions tested.

7. Conclusions, Limitations and Directions for Future Research The study reported in this paper examined the significance of alternative OS processes, and by way of deduction, the relevance of the current understanding of strategy process concepts to developing country context. Evidence was drawn from a sample of business organisations within the contract apparel manufacturing sector in Sri Lanka. The analyses confirmed that the existence of alternative forms of OS processes is statistically significant and that the alternative configurations of OS process modes tested can all lead to an acceptable level of operations performance, under differing levels of competition. The findings contribute to OM theory, by way of corroborating with statistical evidence the findings of recent qualitative studies and demonstrating the existence of organisational processes in developing countries that are consistent with the conceptual understanding developed in developed country contexts. For example, the existence of alternative OS process modes, multiple configurations of those process modes and their relationship to operations performance are all consistent with the patterns of strategic decision making and action taking elucidated in the most recent qualitative studies (Kiridena et al., 2009; Sarmiento et al., 2008; Rytter et al., 2007; Verreynne, 2006; Barnes, 2002). The findings, however, did not support the widely held view that a more analytical or rational approach to OS development lead to better operations performance. Instead, the alternative configurations of OS processes were shown to be characteristic of the level of competition faced by companies. The companies in the clusters of which OS process 12

configurations 2 and 3 exist appeared to experience a higher level of competition, compared to those in configuration 1, which, according to the theoretical framework used, represented the rational planning approach to strategy development. Given that there was no performance differential between alternative configurations, this could mean that alternative forms of OS formation can at least be as equally effective as the formal planning approaches in achieving and/or sustaining desired levels of operations performance. These finding may also have implications for practice. First, irrespective of the country context, alternative forms of OS development, as well as multiple configurations of those alternative forms, can exist in industry sectors like the one we studied, subject to the distinct characteristics of such sectors. Second, the relationship between alternative OS configurations and the level of competition we observed in this study provide us with some useful practical insights. In our sample, the two configurations in which the forced and evolutionary modes of OS development were dominant proved to be equally effective to the configuration in which the opportunistic mode was dominant. That is, in environments where organisations experience a heightened level of competition such as the contract manufacturing sector, alternatives to the formal planning approach (to OS development) may lead to comparable operations performance. As such, these findings support our initial assertion that a deeper understanding of OS process dynamics can provide practitioners with a degree of flexibility in pursuing and/or nurturing appropriate forms of OS development to suit specific industry contexts. However, the generalization of these findings to other industry sectors, even within developing countries, should be pursued with caution, mainly due to the fact that the vast majority organisations selected for this study were large international companies, their subsidiaries or comparable local companies. Additionally, the statistical tests we conducted in the analysis of our data are those particularly suitable for theory building research (i.e. exploratory analysis) and, therefore, confirmatory hypothesis testing should be followed in subsequent studies before broader generalisations are made. Furthermore, we have attempted to explain the findings of this study with the help of selected contextual factors, as well as the analysis of secondary data sourced from previous literature and supplementary qualitative descriptions/accounts provided by participants. Our aim there was to provide a more complete picture of the context in which strategic initiatives are developed and/or realised, so that the key patterns in OS decision making and action taking can be interpreted with a degree of contextual understanding. However, these interpretations, explanations, descriptions and accounts are all not unequivocal and therefore should be treated as such. We believe future research which builds on these findings can consequently test more refined hypotheses towards building generalizable mid-range theory.

13

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Tables and Figures Figure 1: Strategy Process Modes PROCESS

INITIATION FORCED:

MODE-3

MODE-2

CONSOLIDATION ENFORCED:

COMMITMENT

REALISATION

AUTHORISATION: EXECUTION:

Parent company Adaptation directives Charismatic influence Top managers’ initiatives Position power Reactions to competition Regulatory compliance

Based on formal authority

Compliance

OPPORTUNISTIC:

NEGOTIATED:

AUTHORISATION: IMPLEMENTATION:

Event triggered Technology-driven Market or customerdriven Entrepreneurially driven

Political manoeuvring Balance of forces Rational choice

Confirmation of dominant view

Interpretative process

AFFIRMATION: Forced (circumstances)

EVOLUTIONARY: MODE-1

Growth-based Improvement needs Operational problems Intrapreneurial behavior

CONSENSUSBUILDING: Collective agreement Learning by doing

AFFIRMATION:

ACTIONING:

Voluntary

Cumulative effect

(aspirations)

Figure 2: Organizational Context: internal and external contextual factors

Internal Organizational Context

External

Formalization (organization structure) Centralization (managerial style)

Mechanistic/Hierarchical

Industry competitiveness

Intense

Organic/Flattened Bureaucratic/centralized Consultative/distributed

Moderate Stable

Market dynamism

Volatile

18

No. of employees

% of respondents

Less than 30

2.8

30-150

7.5

151-450

21.7

More than 450

67.9

Table 1: No. of employees within the whole organization

Ownership Type Locally Based-listed Multinational-Local subsidiary Multinational-locally based Total

Per cent 17.8 7.5 54.2 100.0

Table 2: Ownership Type Component 1 Process Mode 1 : Evolutionary (Items = 2) As part of solving/addressing ongoing problems/issues in operations As the next logical step in its path to grow as a business

2

3

.878

-.040

-.102

.870

.096

.081

.003

.327

.717

-.023

-.161

.852

-.015

.867

-.068

.063

.657

.163

25.6%

22.5%

20.8%

Process Mode 2: Opportunistic (Item = 2) Most of the time, proceed according to a pre-determined plan with formal progress monitoring/assessments carried out at progressive stages before they are finally realized/fully implemented Met with resistance from the employees but completed as planned/intended most of the time with some adjustments Process Mode 3: Forced (Item = 2) Along prescribed paths/routes (with little or no room for major variations/changes) in order to fulfil the requirements of/goals set by senior/top management Executed with little or no prior knowledge/consultation of workers and/or often end up in industrial tribunals Variance Explained

Table 3: Factor Analysis Results (strategy process modes)

19

Component 1

2

3

Formalization (Item = 2) Strong emphasis on following formal rules and procedures (1) / Loose,

.385

.692

.187

-.165

.793

-.163

.847

.330

-.008

.764

-.069

.249

.361

.583

.471

.088

.014

.957

32.2%

20.4%

17.9%

informal control: heavy dependence on informal relationship (5) Strong emphasis on adherence to formal job descriptions (1) / Strong tendency to let the circumstances determine job requirements (5) Centralization (Item= 2) Restricted access to financial/operating information (1) / Free access to and flow of financial/operating information (5) Strong emphasis of top-down control/authority (1) / Emphasis on worker empowerment and team work (5) Competition (Item = 2) Competition is won by price and low profit margins (1) / Price is rarely the prime factor in winning competition (5) There are no major barriers to entry in to the market (1) / Entry into this market is constrained by high capital/technology/regulations etc. (5) Variance Explained

Table 4: Factor Analysis Results (organisational and environmental contextual factors)

Component 1

2

3

.825

.243

.1

.927 .878 .949

.349 .498 .283

.343 .411 .394

.328

.954

.256

.471

.935

.416

.161

.517

.855

.452 54.8%

.150 17.9%

.862 12.3%

Quality (Item =4) Conformance Quality: conformance to product/service specifications Superior/high (functional/aesthetic) product performance Superior/high (functional) reliability of product Superior/high durability of products Delivery (Item= 2) Delivery lead time: production cycle time (from order entry to dispatch) On-time delivery: delivery on or before due date/available to promise Cost (Item = 2) Labour productivity V57 Plant and equipment capacity utilization Variance Explained

Table 5: Factor Analysis Results (operations performance)

20

1 1 2 3 4 5 6 7 8 9

2

3

4

5

6

7

8

9

Evolutionary

1

opportunistic

-.024

1

Forced

-.011

-.018

1

Quality

.004

.025

.050

1

Delivery

-.016

.163

.069

.527**

1

.007

-.002

.015

.399**

.463**

1

Formalization

-.025

.205

-.143

-.115

.079

.027

1

Centralization

-.052

-.123

-.136

.410**

.593**

.503**

.110

1

Competition

-.210

.061

-.089

.350**

.062

.127

.190

.195

Cost

** Correlation is significant at the 0.01 level (2-tailed) Table 6: Correlation Matrix

21

1

Cluster

1

2

3

4

Process Modes

Evolutionary

1.52

3.50

1.58

1.73

(Inputs)

Opportunistic

4.00

2.88

2.48

2.23

Forced

3.11

3.12

3.67

1.73

Performance

Quality

3.42

3.49

3.32

3.41

Measures

Delivery

3.75

3.93

3.50

3.73

Cost

3.61

3.96

3.78

3.83

Contextual

Formalization

2.57

2.30

2.20

2.54

Factors

Centralization

2.27

2.64

2.62

3.00

Competition

2.57

2.30

2.20

2.54

22

16

31

13

Size

Table 7: Cluster Solution

Dependent Variables Competition

Clusters

Mean Difference

1-2 1-3

.96786* .58362*

*The mean difference is significant at the 0.05 level. Table 8: Multiple comparisons in clusters

22

Std. Error .34443 .28730

Sig. .006 .046