international journal of

production
economics
ELSEVIER Int. J. Production Economics 52 (1997) 161-172

A study of competitive strategy, organisational innovation and

organisational performance among Australian manufacturing
companies
S h a h i d Y a m i n a'*, F e l i x M a v o n d & , A Gunasekaran b, J a m e s C. S a r r o s a

aFaculty of Business and Economics, Monash University, Churchill, Victoria. 3842. Australia
bBrunel University, United kingdom

Abstract
This paper is part of a larger study of competitive advantage, organisational innovation and organisational perfor-
mance. The paper is based on preliminary tests performed on Australian manufacturers participating in the Best Practice
Program. The main aim is to provide a conceptual model and establish critical constructs for operationalisation of the
main concept as seen by company executives. The purpose was to establish what managers consider the important items
for various scales in order to facilitate a common understanding between academics and practitioners. The findings are
interesting in that they indicate what practitioners believe to be important elements of the research constructs. The results
also indicate possible future findings by pointing out the relationships among the constructs.

Keywords: Competitive strategies; Organisational innovation; Organisational performance and Best practice

1. Introduction now provides a value added dimension that has

An important tenet of economic theory is that
production inevitably moves to zones of competi-
tive advantage. The classic factors of competitive
advantage have included the cost/availability of
skilled labour, natural resources, capital and ready
access to markets. However, over the last 3 0 y r
a major change has occurred. An accelerating rate
of investment in both innovation and automation
* Corresponding author. Tel.: 99026623; fax: +61399026524;
e-mail: Shahid.Yamin@buseco.monash.edu.au.
mitigated and often overwhelmed most other fac-
tors. Therefore to gain and maintain competitive
advantage and sustained performance, organisa-
tions have to develop an environment of continu-
ous change,
Take the example of Sandvik, a Swedish high
technology industrial group founded in 1862 which
now has 160 companies in 50 countries. Sandvik's
annual world turnover is around $3.65 billion
(Australian) of which $125 million is from Austra-
lia. Each year four percent (AS 66 million) of world
turnover goes into Research and Development.
Sandvik's overriding goal is to contribute to

0925-5273/97/$17.00 Copyright © 1997 Elsevier Science B.V. All rights reserved

PII S 0 9 2 5 - 5 2 7 3 ( 9 6 ) 0 0 1 0 4 - 1
162 S. Yamin et al./Int. J. Production Economics" 52 (1997) 161 172
improved productivity and reduce production costs
in manufacturing. In order to obtain this competitive
advantage, Sandvik pursues three main strategies:
1. Modular tool systems allow advanced machine
shop automation.
2. Inbuilt quality from the start, with around 1000
new product variations annually.
3. Direct distribution (DD) computer network that
links production units to central warehouses in
Sweden and Holland. Each order, no matter
where in the world it originates, is transformed
in seconds into a packing slip, and the goods are
shipped out within 24 h in Europe and 36 48 h
in the rest of the world. Sandvik is one example
where competitive advantage and performance
are linked through various technological and
administrative innovations. Our study looks at
these linkages from an Australian perspective.
2. Purpose
The research on organisational performance as
an outcome of specific organisational structures is
well documented [1-4]. However, a relatively new
field of discourse is in the analysis of productivity as
an outcome of competitive strategies. Furthermore,
much of this research remains exploratory in
nature [5-8]. These previous researchers have in-
vestigated singular elements that enhance competi-
tive advantage and therefore, result in incremental
increases in organisational performance. Our study
was undertaken to address some of these gaps in
the present research base. The purpose of this study
was to:
1. Identify the nature of competitive strategy
organisational innovation and organisational
performance, in Australian manufacturing com-
panies participating in this study.
2. Describe the relationships among organisa-
tional performance, organisational innovation
and competitive strategy in these companies.
3. Establish whether companies participating in
the Best Practice Program understand the
Australian Manufacturing Council Best Practice
criteria.
In order to lay the groundwork for the study,
a review of the appropriate literature follows.
3. Literature review and theoretical foundation
3.1. Competitive advantage/strategies
Porter [9] considered that in the long term, the
extent to which a firm is able to create a defensible
position in an industry is a major determinant of
the success with which it will out perform its com-
petitors. He proposed generic strategies by which
a firm can develop a competitive advantage and
create a defensible position. These strategies are
(i) cost leadership, (ii)differentiation and (iii)
focus. Porter argued that by adeptly pursuing the
cost leadership, differentiation, or focus strategies,
businesses can attain significant and enduring com-
petitive advantage over their rivals [9, pp. 11-15].
Cost leadership is not based on offering the
lowest price, but having the lowest cost and hence
increasing the potential for greater profit margins.
Cost leadership strategies require the exploitation
of any economies of scale, or resources offered by
technology and experience to reduce the overall
cost of business. Cost leadership strategies do re-
quire increased market share to enhance overall
profitability.
Differentiation is a strategy based on offering
a unique product, either by design, branding, tech-
nology, features, or customer service. Depending
on the level and degree of uniqueness provided by
differentiation, price sensitivity of demand and the
risk of substitution can be reduced. Differentiation
can also increase the loyalty of customers towards
the product brand. Since differentiation focuses
upon unique market needs, gaining maximum
marketing share may be an overriding objective.
However, an in-depth understanding of the market
dynamics is necessary to produce the right prod-
ucts for sustained competitive advantage through
differentiation.
A Focus strategy aims to satisfy the needs of
a specific group of customers. Organisations that
decide to follow a focus strategy should gear their
resources to increase their market share within
their specific segment, and thereby achieve lower
cost or differentiation within that segment. Speed
[10] argues that in order to pursue focus strategies,
a distinction can be made between segmentors
and nichers. He suggests that segmenting can be
 S. Yamin et al./Int. J. Production Economics 52 (1997) 161-172
considered as "simple focus" where a segmentor
selects a group of customers within the market
whose needs can be met by a smaller section of the
industry. In comparison, a nicher selects a group
within a market whose needs may be met economi-
cally by only one company.
3.2. Conceptualisation of competitive strategies
Two schools of thought have emerged regarding
the conceptualisation and adoption of competitive
strategies. These are summarised as Porter's gen-
eric strategies of cost leadership, differentiation and
focus. The first school of thought supports Porter
in his assertion that the organisation has to choose
one of the generic strategies and devote total com-
mitment of resources to it [11, 12].
On the other hand, several other authors have
argued against Porter's assertion [9], and suggest
that organisations should focus on a combination
of strategies that best suit their circumstances
[10, 13-17].
The first school of thought maintains that viable
companies can seek either efficiency or differenti-
ation. The more efficiency is sought by manage-
ment, the less differentiated the company would be,
while greater differentiation would be associated
with a less efficient company. Porter, representing
this school of thought, has conceptualised low cost
versus differentiation in terms of a continuum, with
low cost at one end and differentiation at the other
end.
According to Porter [9, p 18]:
A company will ultimately reach the point
where further cost reduction requires a sacrifice
in differentiation. It is at this point that generic
strategies become inconsistent and a company
must make a choice.
This school of thought reasons that the value
chain required for a low-cost strategy is qualitat-
ively different from the value chain required for
a differentiation strategy. The emphasis of a differ-
entiation strategy is on achieving (even at consider-
able cost) superior quality and image throughout
the value chain, while the emphasis of a low-cost
strategy is on lowering cost wherever possible.
163
Because of different thrusts of strategies, profitable
companies tend to compete with one strategy only.
Porter [9] has argued that the benefits of optimis-
ing the company's strategy for a particular target
segment (focus) cannot be gained if a company is
simultaneously serving a broad range of segments
(cost leadership or differentiation). Other authors
[-11, 12] support a similar line of reasoning.
An opposing perspective proposes that both low
cost and differentiation strategies may be simulta-
neously and profitably adopted by an enterprise.
According to this notion, the adoption of a differen-
tiation strategy would entail promoting higher
product quality and involve bearing higher costs
across a number of functional areas in order to
support the differentiation strategy. However,
higher quality products would presumably channel
greater market demand, allowing the company to
adopt a low-cost strategy through the attainment
of higher market shares facilitated by learning
effects. Miller and Friesen [18, 19] derived an empi-
rical taxonomy of business level strategies to deter-
mine if Porter's [20] generic types would emerge in
consumer durable industries. The authors found
that the cluster of business units that show distinc-
tive competencies in the areas of differentiation,
cost leadership and focus dramatically outperform
all the others. In fact, Miller and Friesen ['18, 19]
found that success seems to be caused by the pos-
session of strategic advantages, the more the better,
rather than strict adherence to Porter's [20] types.
They argued that this issue certainly warrants fur-
ther study as failure and success appeared to be
systematic with poor performers exhibiting many
weaknesses and virtually no strengths, while good
performers show the opposite. This line of reason-
ing receives support from other researchers
[13, 16, 21-25].
Miller [23] argues that there are number of
dangers associated with the exclusive pursuit of
a single generic strategy. He claims that strategic
specialisation may leave serious gaps or weaknesses
in product offerings, ignore important customer
needs, be easy for rivals to counter, and in the long
run cause inflexibility and narrow the vision of the
organisation.
In support of Miller, Wright et al. [17] study of
90 companies selected randomly from Dunn and
164 S. Yamin et al./lnt. J. Production Economics 52 (1997) 161-172
Bradstreet's Million Dollars Directory evaluated
the performance of companies using multiple strat-
egies against those using singular strategic foci.
They concluded that companies which adopt mul-
tiple strategies such as low cost and differentiation
outperform businesses that compete mainly with
either one or the other.
3.3. Organisational innovation
Many organisations are facing competitive chal-
lenges due to the rapid pace of technological
change. Industries dependent on highly sophisti-
cated technologies or competing globally are parti-
cularly vulnerable to the need for continuous and
rapid alterations in organisational activities
[26, 27]. These conditions have led management
theorists and practioners alike to call for more
creativity and innovation in product lines, manage-
ment practices, and production processes [28 39].
It is important to acknowledge from the outset that
organisations do not always have the luxury of
selecting a design for innovation that provides
a tight fit with all the contingencies they face. The
poorer the fit, the larger the number and magnitude
of potential problems, thus requiring a firm to
develop new capabilities. A tight fit is obviously
a desirable goal, however the environment is
dynamic, hence constant effort and investment
is required to maintain congruence with the envi-
ronment [40].
3.4. Manufacturing perspectives of innovation
The years since 1960 have seen a long list of
developments and approaches that were identified
as key solutions to problems in various manufac-
turing industries. Applications of classification
and coding and group technology systems emerged
in 1970. These greatly improved batch manu-
facturing efficiencies by taking advantage of
synergy, and by defining the most cost-effective
methods of producing each and every part. Some of
the technologies developed for manufacturing in-
cluded CAD, CAM, MRP, MRPII, JIT, CIM etc.
[41-43].
Organisational innovation in this paper has been
conceptualised as having three dimensions namely,
administrative, product and process innovations.
These forms of innovation have been shown to
relate to work redesign and work systems [44-46],
skills enhancement [47], management systems
[48-51 ], change in incentives and design of innova-
tions [52], Total Quality Control (TQC) [28] and
just in time manufacturing (JIT) [30]. Innovation
appears to have great impact on work productivity
and the overall performance of the organisation.
3.5. Organisational performance
Organisational performance has been tradition-
ally defined in narrow terms reflecting financial
performance. In this article we have broadened the
conceptualisation so that overall organisational
performance consists of an organisation's ability to
meet short-term debt (liquidity), withstand short-
term losses, meet its interest payments, and cover
fixed costs (leverage), generate regular cash flow
through inventory turnover, and total assets turn-
over (activity), and achieve overall profitability
through profit margin on sales and return on in-
vestment (ROI). Chancy et al. [53] studied the
relationship between innovation and performance
using financial indices such as stock prices and
earnings. They concluded that product innovation
has a positive effect on performance. Cohen and
Levinthal [54] have found similar results for pro-
cess innovation. Other researchers [33,34,45]
have found that improved technology reduces cost
per unit and therefore improves performance.
These findings suggest that organisational perfor-
mance is related to organisational innovation.
However, the relationship between each of the vari-
ables of organisational innovation and competitive
strategy is little understood or examined.
4. Conceptual framework
Evidence of the relationships among organisa-
tional innovation and competitive strategy and or-
ganisational performance are rather problematic,
although several authors have studied these
 S. Yamin et aL/Int. J. Production Economics 52 (1997) 161-172
relationships using different indices. Often how-
ever, limited relationships among these variables
have been studied [27, 33, 39, 55-58]. Our research
was undertaken in order to examine these relation-
ships in more detail, particularly from an Austra-
lian perspective. A conceptual model for this
research in shown in Fig. 1.
From our conceptual model the following are the
principal features. Organisational performance de-
pends on the ability of the organisation to achieve
a position of competitive advantage. A position of
competitive advantage could be achieved through
many routes but for our purposes we choose to
investigate two of these. Competitive advantage
may be achieved through the use of an appropriate
competitive strategy. In this sense appropriate
means congruent to the needs of the industry (or
macroenvironment) and in line with management
predispositions and capabilities. The competitive
Administrative
Innovation
Product ") ___._~ Organisational
Innovation Innovation
Process
Innovation
Fig. 1. Conceptual model of the relationship among research constructs.
165
strategies chosen are those developed by Porter
[-20]. We also note that some organisations can
gain competitive advantage through organisational
innovation. In line with the literature cited above,
organisational innovation could be of three distinct
origins that is, administrative innovation, product
innovation, or process innovation. In addition, or-
ganisational performance has many aspects but we
also choose to operationalise only four of these
namely, liquidity, leverage, activity and return on
investment. These are the principal construct exam-
ined in this preliminary research.
5. Methodology
The data reported in this paper were obtained
from 39 manufacturers drawn from the total of 279
Australian companies involved in the 1991 Best
Competitive ~ Organisational
Advantage Performance
166 S. Yamin et al./lnt. J. Production Economics 52 (1997) 161-172

Practice program and selected on the basis of Table 1

willingness to contribute to the pilot study. The Means and coefficient alpha of items within the competitive
research questionnaire comprises four (4) sec- advantage, organisational innovation, and organisational pro-
ductivity/performance scales
tions:
Section 1. General Information Rank Item Mean Alpha
Section 2. Competitive Strategy Scale (CSS) order if item
2.1. Cost leadership deleted
2.2. Differentiation
Competitive advantage
2.3. Focus Ccst leadership (~ = 0.69)
Section 3. Organisational Performance Scale (OPS) I. Improvement in skill base 4.09 0.73
3.1. Performance indicators (e.g. liquidity, 2. Improvement and utilisation of 4.45 0.72
leverage, activity, ROI) assets
Section 4. Organisational Innovation Scale (OIS) 3. Customer relationships 4.45 0.70
4. Adaptability 3.68 0.70
4.1. Administrative innovation 5. Value-added components 3.59 0.67
4.2. Product innovation 6. Component of value chain 3.41 0.66
4.3. Process innovation 7. Inventory turnover 3.36 0.66
The questionnaire was sent to these 39 selected 8. Supplier-vendor relationships 3.68 0.61
manufacturing companies, and a total of 22 re- Differentiation (~ = 0.71)
sponses were received, a 56% response rate. The 1. Input/output resources 3.59 0.85
CSS consists of 17 items selected from Miller and 2. Unique skills 3.55 0.72
3. Unique assets 3.36 0.49
Friesen's [18, 19] research with additional items
4. Unique technology 3.27 0.46
from Porter [9] and White [16]. The OPS consists
of four items, many of which have been examined Focus (~ = 0.67)
1. Resource alignment 3.32 0.72
previously [-33, 34,45]. The OIS consists of 19
2. Specialist products 3.36 0.48
items which have been drawn from various studies 3. Market segmentation 3.82 0.42
[25-39].
Organisational innovation
Administrative innovation (~ = 0.84)
1. Participative decision making 3.3 l 0.84
6. Development of scales 2. Communication 4.09 0.82
3. Bench marking 3.50 0.82
Since this is a preliminary study, one of the main 4. Changes in organisational 3.23 0.82
purposes was to establish the realiability of scales. structure
5. Training and development 4.18 0.81
There are several reasons why this is desirable: it 6. Rewards and compensation 3.13 0.81
permits economising on the size of the question- 7. Customer focus 4.18 0.80
naire by removing the items that do not fit the 8. Technology application 3.81 0.80
principal constructs; it allows for a preliminary 9. Changes in human resource 2.73 0.80
identification of important relationships among the policy
selected set of constructs; and, it identifies the items Product innovation a(~ = 0.63)
or concepts that are not adequately captured by the 1. Other sources of market 0.14 0.50
information
proposed questionnaire. Given the limited sample
2. Operations and marketing 0.27 0.48
size, it was decided that any items that would give cooperation
a construct with a Cronbach alpha greater than 3. Impact of new product on 1.18 0.47
0.60 would be acceptable on the assumption that competitive advantage
on a larger sample these should yield an alpha of 4. R&D from parent companies 0.14 0.46
0.70 or better. Items conceptualised to fit a specific 5. Contribution of new products 0.82 0.45
to performance
construct were deleted if the deletion of such an 6. Research and development 1.36 0.43
item improves the reliability of the construct. 7. Frequency of new/modified 1.80 0.37
Details are presented in Table 1. products development
 S. Yamin et al./Int. J. Production Economics 52 (1997) 161-172 167

Table 1 (Continued) scales". The resulting reliabilities of the constructs

indicates some confidence in the nature of the con-
Rank Item Mean Alpha
structs. The same procedure was followed in identi-
order if item
deleted
fying the nature of organisational innovation
(adminstrative, product and process).
Technical innovation (ct = 0.82) Another basic assumption of this study is that
1. Total quality m a n a g e m e n t 3.73 0.79 organisational performance has m a n y aspects to it,
2. C o m p u t e r aided design 2.59 0.79
none of which are entirely satisfactory as a proxy
3. C o m p u t e r aided manufacturing 2.46 0.79
4. Just in time 2.36 0.79
for assessment of overall organisational perfor-
5. Holistic manufacturing 3.27 0.76 mance. However, developing organisational perfor-
6. Flexible manufacturing 3.23 0.75 mance as a scalar measure, may overcome the
Organisational productivity/performance (~ = 0.84) problems of selecting the dependent variables.
1. Activity 4.00 0,82 Choices can be made in defining the dependent
2. Leverage 2.91 0,82 variables, but we believe a scalar measure would be
3. Return on investment 4.14 0,80 most reliable Pelham and Wilson [59].
4. Liquidity 3.91 0.80
Paired t-tests were performed on the items of
Scale: 1 = not important, 2 = minimally important, 3 = moder- each construct to examine the significance of items
ately important, 4 = considerably important, 5 = very impor- in each construct. The main reason for performing
tant. this test was to gain an appreciation of what man-
agers believe to be the most important contributors
to their competitive strategy. The results are pre-
sented in Tables 2 and 3. The findings reveal that in
7. Findings relation to cost leadership, managers appear to
believe that the most important items are customer
Research Problem 1. To identify the nature of relationships, improvement in utilisation of assets
competitive strategy, organisational innovation and and improvement in the skill base of the company.
organisational perJormance in Australian manufac- These items of cost leadership are significantly dif-
turing companies. ferent to other items (in decreasing order). The
remaining items of cost leadership are considered of
Results in Table 1 indicate the most important equal but lesser importance. All the items of differ-
items in capturing the construct of cost leadership. entiation were considered approximately equal,
These are arranged in ascending order of import- and the same appears to be the case for focus.
ance on the basis of their impact on the Cronbach
Alpha. Research Problem 2. To describe the relationships
Supplier-vendor relationships emerges as the among organisational performance, organisational
most important on this criterion since if deleted, the innovation and competitive strategy in these com-
C r o n b a b c h alpha for the remaining scale would panies.
come down to 0.61. On the basis of this argument,
the least important is improvement in skill base The results in Table 4 summarise the findings
which if deleted the Cronbach alpha would increase related to research problem two. Correlations were
to 0.73. All the items on this scale are retained for performed for the main constructs in order to see if
the subsequent major survey since all are accept- any significant relationships existed a m o n g the
able at the level of 0.60. The same procedure was main constructs. As would be expected, the correla-
adopted to identify the apparent underlying con- tion between cost leadership and differentiation
structs for differentiation and focus strategies. Any were found to be not significant. Interestingly it was
item that was found to be not critical in capturing not negative, suggesting that even those organisa-
the construct was deleted. All items and the con- tions that seek differentiation also control their
structs appearing in Table 1 reflected the "purified costs. The correlation between focus and cost
168 S. Yamin et al./int. J. Production Economics 52 (1997) 161 172

Table 2
t-Tests for paired differences among items of competitive strategy

Items Mean t-values

1 2 3 4 5 6 7 8

Competitive strategy
Cost leadership
1. Customer relationship 4.55 x
2. Improvement and utilisation of 4.46 0.44 x
assets
3. Improvement in skill base 4.09 1.86 2.16" x
4. Suplier-Vendor relationships 3.68 3.60** 3.40** 1.52 x
5. Adaptability 3.68 4.56*** 3.15"* 1.75 0.00 x

6. Value added components 3.59 3.95** 2.91"* 1.59 0.35 0.32 x

7. Components of value chain 3.41 3.83*** 3.80*** 2.10" 1.14 0.84 0.68 x
8. Inventory turnover 3.36 3.95*** 4.29*** 2.59** 1.37 1.10 0.93 0.20
Differentiation
1. Input/output resources 3.59 x
2. Unique skills 3.55 0.11 x
3. Unique assets 3.36 0.71 0.72 x
4. Unique technology 3.27 0.91 0.97 0.49 x
Focus
I. Market segmentation 3.82 x
2. Specialist products 3.36 1.60 x
3. Resource alignment 3.32 0.11 1.59 x

*p < 0.05, **p < 0.01, ***p < 0.001 Scale: 1 = not important, 2 = minimally important, 3 = moderately important, 4 = considerably
important, 5 = very important.

leadership was found to be significant. This prob-
ably suggests that in business to business relation-
ships, a focus strategy is most likely to be effective if
it is also based on low cost.
The correlation between focus and differenti-
ation strategies was highly significant. Porter
[20] did not specifically identify differentiated
focus as a separate strategy, although many
other authors have suggested it [60]. The implica-
tions are that a focus strategy is most likely to be
effective if it targets specific needs of the market
segments.
Cost leadership and administrative innovation
were found to be positively correlated. This sug-
gests that administrative innovation may be critical
to a low cost strategy. This implies that such activ-
ities as re-engineering, downsizing (right sizing) or
re-organisation of tasks are neccessary to support
for a low cost strategy. As would be expected from
theory, there was no significant relationship be-
tween low cost strategy and product innovation.
The correlation between low cost and process in-
novation was high, but not significant. This result is
in the right direction, while the non-significance
may be due to limited sample size. The only other
significant relationships were process innovation
with adminstrative and product innovation, which
were significant at the p < 0.01 level. Overall, or-
ganisational performance was highly correlated
with low cost strategy, administrative innovation,
and process innovation. The relationship between
organisational performance and differentiation was
high but not significant due to small sample size,
the same can be said of product innovation. In
general, all the constructs were actually or poten-
tially significantly related to organisational perfor-
mance. As suggested from Fig. 1, these results seem
to indicate that competitive strategies and organ-
isational innovation are positively related to organ-
isational performance.
 S. Yaminet al./Int. J. Production Economics 52 (1997) 161-172 169

Table 3
t-Tests for paired differences among items of organisational innovation

Items Mean t-values

1 2 3 4 5 6 7 8 9

Organisationai innovation
Administrative innovation
1. Customer focus 4.18 x
2. Training and development 4.18 0.00 x
3. Communications 4.09 0.29 0.42 x
4. Technology applications 3.81 1.70 1.25 0.90 x
5. Bench marking 3.50 3.81"** 2.10" 1.77 1.37 x
6. Participative decision making 3.31 2.24* 3.47** 2.99** 1.21 0.43 x
7. Changes in organisational structure 3.23 2.67* 4.11"** 2.99** 1.71 0.72 0.40 X
8. Reward and compensation 3.13 3.51"* 4.69*** 4.28*** 2.73** 1.32 0.61 0.38 x
9. Changes in human resource 2.73 6.20*** 5.57*** 4.81"** 5.90*** 2.94** 1.77 1.80 1.90
policy
Technical innovation
1. Total quality control 3.73 x
2. Holistic manufacturing 3.27 1.27 x
3. Flexible manufacturing 3.23 1.35 0.13 x
4. Computer aided design 2.59 2.87** 1.61 1.81 x
5. Computer aided manufacturing 2.46 3.41"* 2.81" 2.15" 0.44 x
6. Just in time 2.36 3.63** 2.34* 2.35* 0.60 0.23 x

*p < 0.05, **p < 0.01, ***p < 0.001 Scale: 1 = not important, 2 = minimally important, 3 = moderately important, 4 = considerably
important, 5 = very important.

Table 4
Correlation matrix for major constructs

Variable COSTLD DIFF FOCUS ADMINOV PRODINOV PROCINOV PERFORM

Competitive strategy
Cost leadership (COSTLD) 1.00
Differentiation (DIFF) 0.08 1.00
Focus (FOCUS) 0.35* 0.57** 1.00
Organisational innovation
Administrative innovation (ADMINOV) 0.43* 0.19 0.30 1.00
Product innovation (PRODINOV) 0.02 0.14 -0.25 0.22 1.00
Process innovation (PROCINOV) 0.34 0.12 0.18 0.64*** 0.51"* 1.00
Performance (PERFORM) 0.52** 0.30 0.18 0.51"* 0.34 0.44* 1.00

*p < 0.05, **p < 0.01, ***p < 0.001.

R e s e a r c h P r o b l e m 3. Establish whether companies w h i c h h a v e b e e n s u b c a t e g o r i s e d i n t o e l e v e n ele-

participating in the Best Practice Program under-
stand the Australian Manufacturing Council Best
Practice criteria.
The Australian Manufacturing Council has iden-
tified six b r o a d l y s t a t e d b e s t p r a c t i c e e l e m e n t s
ments for the purpose of this study. Details of these
e l e m e n t s a r e p r o v i d e d i n T a b l e 5. I n s e e k i n g t o
establish the degree of understanding of the criteria
w e w o r k e d o n t h e a s s u m p t i o n t h a t all t h e s c o r e s f o r
the criteria items had to be significantly greater
t h a n z e r o . T h i s w o u l d s u g g e s t all p a r t i c i p a t i n g
170 S. Yamin et al./lnt. J. Production Economics 52 (1997) 161 172

Table 5 both methods lead to identical ordering, in part,

Australian manufacturing council (AMC) criteria for best prac- explaining the high Cronbach alphas.
tice as percieved by managers of the Australian manufacturing
The Focus strategy was probably capured by
firms in the sample
fewer variables, but the reliability appears to be
A M C best practice criteria Mean Standard t-Values acceptable.
deviations

l. Customer focus 4.59 1.14 4.03*** 8.1.2. Organisational innovation components -

2. Integrated m a n a g e m e n t 4.55 0.80 5.69*** Administrative innovation
3. Utilisation of assets 4.45 0.60 7.42*** The most important components of this con-
and technology struct are customer focus, training and develop-
4. C o m m u n i c a t i o n 4.27 0.55 7.76***
ment, communication, technology application and
5. Improvement in skill base 4.09 0.81 5.05***
6. World class performance 3.91 0.87 4.49*** bench marking. Process innovation: the most
7. Participative decision 3.82 1.10 3.47*** important items were total quality management,
making holistic (integrated) manufacturing and flexible
8. Changes in organisa- 3.77 1.15 3.28*** manufacturing. Product innovation was captured
tional structure
using the seven items available.
9. Adaptability 3.68 0.99 3.72***
10. Supplier-vendor 3.68 1.13 3.26***
relationships 8.1.3. Organisational performance
11. Total quality m a n a g e m e n t 3.59 1.14 3.15"**
To measure organisational performance indi-
***p < 0.001. cators of ROI, leverage, activity, and liquidity were
used. We have argued that a scalar and summary
measure of organisational performance would be
firms understand the criteria on which they are far more informative than individual items.
judged. We considered the understanding satis- The four items selected for the scalar measure
factory if the the probablity of the mean score all appear to perform well as suggested by their
was at least p < 0.01. Our findings appear to indi- high loadings on the overall performance measure,
cate that all the means for the criteria were highly and the resulting high reliability of the construct
significant. This in part, confirms that the sample (Cronbach alpha 0.84).
represents aspirant companies for Best Practice
Awards.
8.2. Research Problem 2

8. Discussion The relationships among competitive strategy,

8.1. Research Problem 1
8.1.1. Competitive Strategy Components
Our results suggest that the most important
components of cost leadership are improvement in
skill base, improvements and utilisation of assets
and customer relationships. However, in terms of
consistency of measuring the construct, the most
important are supplie~vendor relationships, in-
ventory turnover and components of value chain.
Since these two methods do not lead to the same
selection all the items are to be included in the final
scale. For the constructs of differentiation strategy
organisational innovation and organisational per-
formance showed that cost leadership, admin-
strative innovation and process innovation are
more closely related to organisational performance
than other constructs. These findings suggest that
organisational innovation has as much an impact
on organisational performance as does cost leader-
ship or competitive strategy. The implications
of these findings for practice will be explored
further by analysing the multiple relationships
among competitive strategy, organisational in-
novation and organisational performance through
a structural model once the full survey is com-
pleted.
 s. Yamin et al./Int. ,1. Production Economics 52 (1997) 161-172
8.3. R e s e a r c h P r o b l e m 3 [3] Rodgers, R. and Hunter, J.E., 1991. Impact of management
T h e A u s t r a l i a n M a n u f a c t u r i n g C o u n c i l has iden-
tified eleven criteria t h a t l e a d to Best P r a c t i c e in
manufacturing organisations. Our study found that
the p a r t i c i p a t i n g c o m p a n i e s are a w a r e of these cri-
teria, a n d t h a t the thrust b y A u s t r a l i a n m a n u f a c -
turers to be w o r l d c o m p e t i t i v e is t h r o u g h focused
strategies on c u s t o m e r service, t e c h n o l o g i c a l initi-
atives a n d t o t a l q u a l i t y m a n a g e m e n t . H o w e v e r , the
success of these strategies in achieving o r g a n i s a -
t i o n a l p e r f o r m a n c e in w o r l d best p r a c t i c e has yet to
be d e t e r m i n e d .
9. Conclusions
This s t u d y describes the n a t u r e of c o m p e t i t i v e
strategy, o r g a n i s a t i o n a l i n n o v a t i o n a n d o r g a n i s a -
t i o n a l p e r f o r m a n c e in the A u s t r a l i a n m a n u f a c t u r -
ing industry. O u r results suggest t h a t there is
a s t r o n g r e l a t i o n s h i p between cost leadership, a d -
m i n i s t r a t i v e i n n o v a t i o n , process i n n o v a t i o n a n d
p e r f o r m a n c e . Because of s a m p l e size, a differenti-
a t i o n s t r a t e g y a n d p r o d u c t i n n o v a t i o n a p p e a r to be
closely c o r r e l a t e d with p e r f o r m a n c e , b u t n o t signifi-
cantly. It w o u l d be expected t h a t in a l a r g e r s a m p l e
these will be strongly, positively correlated. A focus
s t r a t e g y is significantly related to b o t h cost leader-
ship a n d differentiation, suggesting a possible exist-
ence of cost focus a n d differentiation focus as
distinct strategies. A m o n g o r g a n i s a t i o n a l i n n o v a -
tion scales, a d m i n i s t r a t i v e i n n o v a t i o n is s t r o n g l y
r e l a t e d to b o t h p r o d u c t a n d process i n n o v a t i o n
suggesting an i m p o r t a n t role for s e n i o r m a n a g e -
m e n t in i n n o v a t i o n . O u r results suggest t h a t Aus-
t r a l i a n c o m p a n i e s p a r t i c i p a t i n g in the Best P r a c t i c e
P r o g r a m are a w a r e of the criteria b y which they
will be j u d g e d .
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