Nabavieh, S. Mohammad (2016) Exploring the relationships between operational practices and financial performance for UK manufacturing companies. PhD thesis, University of Warwick.

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Abstract

Since the late 1980s many business performance measurement (BPM) frameworks have been developed. These frameworks suggest users to choose their own measures or define different aspects of a company’s operational practice to be measured to improve competitiveness and give an early indication of its future financial performance. However using a framework does not help identifying which operational practices have a direct positive impact on which financial performance indicators. Thus a key challenge for company managers is to find which of their operational practices directly lead to an improvement in which of their financial performance measures. Many studies have examined the impact of different operational practices on financial results in different countries. The findings of those studies are thus context-specific (country, legal, market) and often have limitations in the study methodology. The goal of this study was to develop a BPM framework for UK manufacturing companies based on a positive relationship that the recommended key operational practices have on measures of their financial performance.

Initially twenty hypotheses based on the findings from forty earlier studies were formulated. The applicability of these relationships to UK manufacturing companies was tested on a sample of seventy-nine UK manufacturing companies. The sample companies had participated in the Institute of Mechanical Engineers (IMechE)’s manufacturing-excellence (MX) Awards between 2006 and 2011 and consists of thirty-one SMEs and forty-eight large firms. To test the hypotheses, the performance scores for the sample in ninety of their operational practices were analysed against eighteen financial ratios, collected from two financial databases (FAME and Amadeus). A longitudinal study compared financial data for five financial years; the year of application for the award and one financial year before and three years after the IMechE assessment. Thus the time delay between having a strong operational practices and realisation of financial benefits could be investigated. In addition if the impact of operational practices on the financial results is persistent over time could be judged. The company data in the ninety operational practices was used as explanatory variables against improvements in each of the eighteen financial outcome variables. To analyse the relationships between these variables, the dataset of the study was split into two parts. The data from companies that have participated in the MX Awards between 2006 and 2010 were used as estimation sample for statistical predictions. Then the data from companies that have participated in the MX Awards in 2011 were used for validation.

Initially the Fisher’s exact test was used to find the correlated pair of operational practices and financial ratios. For each of the identified correlated pairs, the exact logistic regression analysis was used to find the dependence of the financial ratios on their correlated operational practices. As a result of these analyses, eleven relationships for SMEs and forty-nine relationships for large companies were identified. These relationships were used to develop BPM frameworks for UK SMEs and another for large UK companies. The framework linked specific operational practices to specific financial measures. To further refine the findings, three supporting studies were used to find potential causal explanations for relationships or lack of relationships identified between the operational practices and financial results in the derived BPM framework. Approach one was based on reviewing earlier studies for causal relationships they had noted. In approach two, key researchers from earlier studies were contacted for their opinion about the findings of this study. In approach three, the BPM relationships identified were discussed with ten manufacturing academics/business consultants in two focus groups sessions and two individual interviews to explore the possible causal reasons behind the relationships identified. This process resulted in the removal of lack of relationships in eight categories of operational practices from the BPM frameworks, as there were insufficient possible explanations to support them.

The adopted methodology addressed the key research questions of the study by providing BMP frameworks for large businesses and SMEs in the UK. This study has three main limitations. First, compared to some of the earlier studies, the sample size is smaller and the operational measures used were driven by the needs of the IMechE’s MX-Awards. This can reduce the generalisability of the findings. Secondly, because of this dataset the impact of each of the operational practices was separately analysed. This has two problems including ‘Confounding-bias’ and ‘Multiple comparisons’ which could have influence the identified relationships. Eight categories of operational practices did not have any direct positive impact on financial performance. The data analysis conducted only looked for positive impact, exploring the dataset for negative impact may have revealed more useful information. Thus there is a need for future studies to verify the representativeness of the IMechE dataset and to look for negative correlations.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Library of Congress Subject Headings (LCSH):	Performance -- Measurement, Organizational effectiveness -- Management, Manufacturing industries -- Great Britain, Manufacturing industries -- Finance
Official Date:	October 2016
Dates:	Date Event October 2016 Submitted
Institution:	University of Warwick
Theses Department:	Warwick Manufacturing Group
Thesis Type:	PhD
Publication Status:	Unpublished
Format of File:	pdf
Extent:	xi, 307 pages : illustrations
Language:	eng

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