Date of Graduation

8-2017

Document Type

Dissertation

Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level

Graduate

Department

Supply Chain Management

Advisor/Mentor

Hofer, Christian

Committee Member

Rossiter Hofer, Adriana

Second Committee Member

Scott, Marc A.

Keywords

Manufacturing Strategy; Operational Excellence; Operations Strategy; Process Management

Abstract

Operational excellence is an executional competency that reflects a firm’s ability to run its day-to-day operations efficiently, effectively, and profitably. Differing views have been expressed regarding the inner dynamics and value creation potential of operational excellence. From an inner dynamics perspective, the competency’s dimensions of efficiency and effectiveness are viewed by some as conflicting and difficult to reconcile (the tradeoff model), and by others as synergistic and mutually supportive (the cumulative model). From a value creation perspective, operational excellence is portrayed by some as an effective cash-flow generator and a potent enabler of firm growth, and by others as a source of excessive routinization that hinders strategic adaptation and limits long-term value creation. The present dissertation revisits these conflicting views.

Drawing on Porter’s profit maximization prescription, essay 1 empirically examines the individual and collective effects of operational efficiency and operational effectiveness on firm profitability. In so doing, it assesses the respective merits of the tradeoff and cumulative perspectives. Empirical findings based on a multi-industry panel of 595 public US manufacturing firms provide relative support for the cumulative perspective; concurrent improvements in efficiency and effectiveness are shown to have a compounding positive effect on firm profitability. The findings also show that the individual benefits of isolated improvements to either efficiency or effectiveness tend to be curvilinear with diminishing returns.

Addressing the value creation question, essay 2 draws on signaling theory to empirically examine the stock market’s ex-ante assessment of operational excellence as an instrument for long-term value creation. Contrary to the productivity dilemma narrative, empirical results show that market participants tend to have a positive outlook on the value creation potential of operational excellence. The positive outlook is, however, found to be dampened by the stock market’s expectations of firm short-term revenue growth and amplified by firm R&D efforts.

In a third exploratory essay, I discuss environmental and organizational learning factors that have the potential to cause firms to grow over-invested in operational excellence at the expense of strategic foresight and market adaptation. Essay 3 is conceptual in nature and provides theoretical propositions for future empirical investigation.

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