Impact of Technical and Social Lean Practices on SMEs performance in Automobile

Industry
- A Structural Equation Modelling (SEM) Analysis

Abstract

The successful utilisation of organisational resources and adopting the best practices are

essential to attain the level of excellence in all process. Prior studies revealed that several

firms discontinued lean initiatives due to various causes. In the perspective of socio-technical

system theory, a comprehensive conceptual model was framed to verify the significance of

lean social practices and importance of human aspects in the execution of lean practices to

increase the success rate of lean transformation. To validate the theoretical model, Partial

Least Square - Structural Equation Modelling (PLS-SEM) was used with a sample of 132

responses from auto components manufacturing Small and Medium Enterprise (SMEs) in

India. Utilising the application of PLS-SEM modelling, the study constructed three higher-

order constructs, namely Lean Social Practice (LSP), Lean Technical Practices (LTP) and

Organisational Performance (ORP). The study also analysed the direct and indirect effects

applying the procedure of the bootstrapping approach to test if any mediation effect exists.

The results explained that LSP, LTP positively influences ORP. The connection among LTP,

LSP and ORP is found to be significant and also LSP mediates the established link between

lean technical practices and organisational performance.

Keywords: Lean; Small and Medium Enterprises; Socio-Technical System, Partial Least

Square –Structural Equation Modelling, Performance.

Page 1 of 29
1. Introduction

In today’s dynamic environment, most of the manufacturing enterprises seek to increase their

level of competitiveness. To improve their competitive advantage, they need to adopt and

implement best practices from the industry. Implementation of new best practices in

manufacturing usually has consequences of anticipating some benefits based on enhanced

organisational performance (Davies and Kochhar, 2002). While implementing any best

practices, the amount of effort and commitment in a particular method would result in

improvements in various aspects of the organisation. The International Quality Study (1992)

confirmed the above argument and quoted as “The ultimate result of management practices of

an organisation is to increase the level of performance.” Lean Management (LM) is

considered as a best practice which always transforms the organisation from worst to the best

state, which is the preferred position of any organisation.

Lean management is an umbrella concept which incorporates various best practices to attain

the goal of excellence in all aspects of an organisation. If an organisation plan to implement

lean management practices, it should focus to continually improve their processes (Knol et

al., 2018). Recently, Hines et al. (2020) raised the question, whether the lean journey is going

on right path and also discussed the evolution of lean change as tool based, system based and

cultural based. Loyd et al. (2020) studied the significance of Toyota culture while

implementing lean with expecting better results and sustained performance. Grigg et al.

(2020) also studied the sustainability of lean in New Zealand SMEs and found the importance

of leadership, behaviour, strategy and alignment based on sustainable lean ice berg model

(SLIM) by Hines (2010). Globally, SMEs have a significant position in contributing to

economic growth and accepted as the engine of development. More than 90% of total

enterprises in developed as well as developing economies are SMEs. SMEs create the highest

employment opportunities and account for a significant contribution to industrial production

Page 2 of 29
and exports. However, manufacturing SMEs are facing many challenges to compete in the

international market situation. To overcome the above scenario, SMEs are looking for best

practices in their industry to increase and sustain the level of performance. Many researchers

documented that lean implementation within SMEs would benefit the company (Filho et al.,

2016).

Previous literature grouped lean practices into bundles such as Total Quality Management

(TQM), Total Productive Maintenance (TPM), Just In Time (JIT), and Human Resource

Management (HRM) (Bortolotti et al., 2015b). In this study, a comprehensive approach

towards the lean practice bundles is considered. Furthermore, the higher-order grouping with

the help of statistical techniques, i.e., PLS-SEM was carried out. Lean practices were grouped

as LTP and LSP (Hadid & Mansouri, 2014). A complete literature review has been done and

developed a set of the hypotheses presented in section 2. Further, methodology, hypothesis

testing, results, discussion and implications based on statistical techniques are presented in

sections 3, 4 and 5. Section 6 narrates the conclusion, limitation and future research

directions of the study are explained.

2. Literature Review and Hypothesis Development

The literature review part is organised as follows: Section 2.1 presents the review on

literature with the theme of Toyota Production System (TPS) and Lean Management

Practices (LMP) with socio techno system theory to increase the performance of SMEs.

Section 2.2 identifies the research gaps, objectives and explains a conceptual model. Finally,

section 2.3. emphasizes the development of the hypothesis.

2.1.1 Toyota Production System (TPS) and Lean Management Practices

Existing literature narrates the lean term in two perspectives. First one is lean as a term

referring to any business practice utilised by Toyota and the second one is lean as a term

Page 3 of 29
referring to a set of specific principles and tools (Laureani & Antony, 2017). Liker et al.,

(2012) also found that lean operates on two main principles: continuous flow and people

development. Furthermore, the root of the above agreement contributed by Ohno, (1978) as

the two pillars of TPS. First one is Just-In-Time (JIT), and the second one is autonomation.

The concept JIT can be explained as a flow process that ensuring the right parts at the right

time and required amount. An enterprise establishing this flow throughout can attain the level

of zero inventory. Most researchers argued that those social aspects are critical to the

implementation of lean, where people are an essential element in operations. In TPS,

employees are considered as an asset to the organisation where employee involvement and

attitude are significant to decipher difficulties and develop processes (Zhou, 2012). Womack

et al., (1990) explained five core principles of lean in the book “The machine that changed

the world”. Those principles are: value based on customer perception, value stream, flow,

pull, pursue perfection. They popularised the term lean manufacturing in that book to define

the new way of work culture by Toyota. In Toyota, most managerial and operational

practices, meetings and discussions about lean used to happen on the shop floor, at the real

place work environment, in front of the actual situation, with the people involved. This

approach would be supported and motivate the employees on the shop floor, where the value

is added. Shetty et al. (2012) contributed a validated measuring instrument based on the

above principles to assess the degree of lean transformation. Laureani & Antony, (2017)

clearly explained the history of lean and concluded that the right perspective of lean thinking

is based on TPS, but having a unique identity from Toyota.

2.1.2 Socio -Techno System Perspective

Trist and Bamforth, (1951) developed a theory and named as Socio-Technical System (STS)

theory. “The technical system comprises equipment, tools, techniques and processes, and the

social system includes people and relationships among them” (Trist, 1981). The social and

Page 4 of 29
technical sides are distinct but has symbiotic relationship which enhancing one side would

necessitate improving the other hand in the path of attaining the best performance. Cherns

(1976) detailed the theory of socio-technical system as a vital integration of technological and

human factors in work environment which implies successful outcome. Shah and Ward

(2003) grouped lean practices into bundles with consideration of the socio-technical system

and argued the importance of human resource management bundle. Hadid & Mansouri

(2014) classified lean practices into lean technical and supportive practices and also justified

that lean supportive practices can mitigate the inhibitors for lean technical practices. Paez et

al. (2004) reviewed previous models of lean practices. They presented the architecture of lean

as a socio-technological system which enables an amalgamation with concerning interactions

of human and technological entities. Hadid et al. (2016) renamed the term lean supportive

practices to lean social practices and empirically proved its association with lean technical

practices and its influence on operational and financial performance. Muraliraj et al. (2019)

also confirmed the above findings of lean technical and social practices with others constructs

of potential absorbing capacity and actual absorbing capacity.

2.1.3 Lean Practices Implementation and SMEs performance

Most of the SMEs implemented lean to increase their organisational performance to reach the

level of global standards in all aspects. Lean practices based on lean thinking to continuously

improve and generates customer value and avoid non-value-added activities (Shah and Ward,

2007). Filho et al., (2016) found that even though SMEs implement lesser degree of lean

practices also resulted in improved performance. Leadership for lean transformation is the

essential factor in the case of SMEs. Lean leadership is critical to the transformation of lean

within SMEs. But, the effectiveness of lean leadership is not in the desired level and leaders

are regularly accused when lean shop floor activities are not remarkable. Leadership and

complete understanding of lean might increase the degree of leanness (Gelei et al., 2015).

Page 5 of 29
Furthermore, the owners of SMEs are often taking the role of managers who have to initiate

responsibility and leadership in various phase of business decision. Leadership skills make

them readier to understand the importance of lean knowledge and to share throughout the

organisation. Further, a lean leader’s value systems towards work are presumed to impact

their team members’ behaviour (Van Dun and Wilderom 2016). The ultimate authority of

decision is usually centralised, and the definitive command and control with top management.

But it provides a benefit to the managers to confidently realise the importance of lean

knowledge and to share the learnings of the same with other employees of the organisation. It

indicates that the top management of SMEs might be the core for desired transformation to

enhance the performance of SMEs (Resnik, 2013). Many past works of the literature

confirmed the above argument and contributed various new constructs of human and social

aspects to further improve the SMEs performance (Yadav et al. 2018; Ramadas and Satish,

2018).

Sajan et al., (2017) found that lean implementation would result in improved sustainability

performance characterised as financial, environmental, and social performance of SMEs.

Lean is prevailing and growing as best practice to the level of organisational excellence. Lean

management principles had the origin from best practices which was established by Toyota

Motor Corporation to enhance the performance. The social pillar of lean emphasises the

employee reactions to lean transformation in expression of attitude, behaviour, and

performance (McMackin & Flood, 2019).

2.2 Research Gaps and Objectives

Even though some research studies investigated the lean social practices in SMEs, a

comprehensive model for lean technical, social practices and its effect on SMEs performance

to be deeply studied. It is evident that various research studies identified specific research

Page 6 of 29
gaps to be addressed in the theme of lean and SMEs performance. Muraliraj et al. (2019)

found the relationship among lean technical, social practices, and absorptive capacity, but it

needs to be correlated with organisational performance in the context of SMEs. Yadav et al.,

(2018) suggested that it is essential to study and create a statistical model connecting lean

practices adoption with organisational performance. Management practices on lean must be

communicated throughout the organisation, and most of the lean conversions were not able to

deliver the expected performance. Basu et al., (2018) studied the importance of human

aspects for lean implementation, but SMEs performance in which operational, finance and

employee performance to be studied.

Ramdass and Satish (2018) studied various barriers of lean execution in SMEs, but it can be

classified as technical, social barriers to find the most affecting barriers on SMEs

performance. Past researches reported that influencing factors to create lean training,

leadership, attitude and cultural aspects to be focused to enhance organisational performance

within SMEs. Lean leadership and appropriate management behaviour are recommended and

required to be studied (Van Assen, 2018). Sony et al., (2019) suggested that to mitigate the

failure level of lean practices, it is essential to find the critical performance indicating factors

to enhance organisational performance and exploring the way to increase the success rate of

lean practices. Knol et al., (2018) found the relationship of lean with improvement routines

on a Dutch sample and also suggested that the individual improvement routines with lean

attitude be considered in the context of different countries and industries. It is essential to

perform the study of lean transformation within SMEs focus in developing countries. Further,

particularly countries in Asian region SMEs and also to explore further on how lean practices

could be efficiently incorporated into SMEs and relationship between in-house capability,

lean practices, and SMEs performance to be studied (Hu et al., 2015).

The focus and aim of this study are fivefold:

Page 7 of 29
1) To find the relationship and significance of Lean Technical Practices (LTP), Lean Social

Practices (LSP), and its impact on organisational performance

2) To evaluate the intervening role of LSP on the established relationship among LTP and

organisational performance

3) To evaluate the total effect of both LTP and LSP on various measurement levels of

operational, financial, and employee performance

4) To investigate the role of consultants to transfer the lean knowledge with SMEs

5) To find the most influencing element of lean social practice which enhance SMEs

performance?

< Figure 1 to be inserted here >

2.3 Hypothesis Development:

2.3.1 Lean Technical Practices

Lean management consists a set of professional practices which escalate the strength of

processes by eliminating wastes in all forms like low level of set-up times and stocks and so

on. Assuring the internal stability, ensures the quality of the product, focused on-time

delivery, demands on right workplace conditions and introducing standard work procedures.

To improve quality, every process should have a built-in quality inspection and control in the

processes, minimizing defective products, and rectifications. Ensuring the right flow of an

organization which starting from the supplier, internal processes and customer or till end user

of the product. Bortolotti et al. (2015b) grouped lean tools as lean bundles and named as

fitness bundle which includes “5S”, TPM and manufacturing strategy. From a technical

perspective, most of the researchers consider JIT, TQM and TPM as an essential tools of lean

Page 8 of 29
management (Shah & Ward, 2007). JIT ensures on-time delivery of products. To work on a

JIT process, a sequence of standard operating procedures to be framed on every work process

and it must be followed. Moreover, every process should have integrated with all subsequent

process to ensure the flow of material, information on JIT approach. JIT process must also

consist of a process map which is the pictorial representation of input and output supplies

flow to keep the inventory at adequate quantity to avoid redundancy stocks (Shah & Ward,

2003)

From SMEs standpoint, “5S” or work organisation and housekeeping is the essential bundle

which must be trained before implementing other lean technical bundles. 5S is considered the

most commonly practiced lean techniques in most SMEs. Filho et al. (2016) studied the

Brazilian SMEs which executed lean with basic practices like TPM, 5S, and quality practices

results in enhanced operational performance. Each category of industry and organisation

adopting a specific set of lean tools to achieve an enhanced level of production and improved

organization performance (Sajan et al. 2017). In the researcher’s perspective, 5S is a hygienic

factor that motivates workers to change their perception, but, most of workers perceived as it

is just an organisation tool. However, most of the researchers and practitioners accept that 5S

is one among well-known method to enhance processes and basis for successful lean

implementation. Hence, hypotheses are as shown below:

H1a: TPM definitely correlated with Lean Technical Practices (LTP)

H1b: TQM definitely correlated with LTP

H1c: JIT definitely correlated with LTP

H1d: 5S definitely correlated with Lean Technical Practices (LTP)

H1e: Lean Technical Practices (LTP) definitely correlated on Organisational Performance

(ORP)

Page 9 of 29
2.3.2 Lean social practices

Many of the lean implemented firms believe that lean practices increase productivity. There

is no difference between large companies and SMEs on this perception of lean tools. But the

reality is that implementing lean technical practices contributes nearby twenty percent of the

impact in lean transformation. Therefore, organisations demand complete change with the

support of lean practices could be achieved if the focus is on balance 80 percent of the work

(Mann, 2009). This major part of 80 percent effort must involve changing Lean leaders’

attitude, behaviour and ultimately their mind-set. Apart from lean techniques and tools, there

are lean challenges mainly due to human elements such as lack of understanding on lean

concepts, most importantly employee attitude towards change in behaviour is critical for

complete lean transformation (Mann, 2009).

Filho et al., (2016) found employee involvement is critical for SMEs performance. How well

employees are associated with working for a common goal, and eventually, how well

employees perceive lean related changes in their work routines is the key to organisational

change. Most importantly, employees’ attitude and organisational culture are essential for

successful lean transformation. Management commitment is also very critical to implement

lean management practices. The lean leadership of management was the most significant

factor to gain lean benefits (Gelei et al., 2015). Top and middle management have a critical

role in building the conditions to support eighty percent of contribution to succeed (Mann,

2009). Employees acquire lean leadership when the organisations provide the opportunity to

learn Lean knowledge. Lean leadership would originate if the organisation only focus on all

levels of management, including top, middle as well as from lower level in the organisation.

SME’s lacking on expertise in lean best practices because of the dependency of external

sources to gain lean knowledge with lean training. Holmemo et al., (2018) suggested that lean

knowledge transfer from the external consultants was intended to focus on top and middle

Page 10 of 29
level employees. The lean consultant can play as a facilitator part at the operative level to

spread the lean knowledge throughout the organisation. Hence, SMEs can learn lean

management practices, and lean leadership is so appropriate in influencing the transfer of lean

knowledge. Hence, below-mentioned hypotheses are framed:

H2a: Lean Attitude (LAT) definitely correlated with Lean Social Practices (LSP)

H2b: Lean Leadership (LLP) definitely correlated with LSP

H2c: Lean Training (LTG) definitely correlated with LSP

H2d: Lean Culture (LCR) definitely correlated with LSP

H2e: There is a positive effect of Lean Social Practices (LSP) on Organisational Performance

(ORP)

2.3.3 Lean Practices and Organizational performance

In STS theory, while considering a social system, it is essential to accomplish some functions

for survival. Hence, it indicates the need of integration with a technical system to be essential

for a comprehensive system. Furthermore, to construct a strong and effective comprehensive

system of lean management practices, the social part and technical part of systems is essential

to be incorporated by merging the technical and social part of a complex system. Ramadas &

Satish, (2018) studied the importance of training while implementing lean. An ideal practice

of comprehensive STS grounded on basic lean philosophy and principles enabling lean

execution of the SMEs and enhances its performance.

Yadav et al., (2018) studied the level of lean adoption and their effect on organizational

performance. The findings of their research showed that lean implementation process was not

in a continuous way and lack of holistic view of lean execution. Holmemo & Ingvaldsen,

(2016) highlighted the importance of middle management attitude and leadership for

Page 11 of 29
successful lean transformation. Hadid et al., (2016) found the outcome of lean execution

resulted in Operational Performance (OP) and Financial Performance (FP). Moreover, Sajan

et al., (2017) argued that for a sustainable performance, Employee Performance (EP)

indicators must be studied. To find a superior solution to improve the organizational

performance, lean value and culture is essential. Therefore, it is needed to study the social

practices of lean management practices and its effect on organizational outcomes. Hence,

below mentioned hypotheses are framed:

H3: LSP are definitely correlated with LTP

H4: LSP mediating the association among LTP and ORP

H5a: ORP definitely correlated with OP

H5b: ORP definitely correlated with FP

H5c: ORP definitely correlated with EP

Figure 2 shows the model with hypotheses.

< Figure 2 to be inserted here >

Table 1 shows the literature review of lean impact on performance with SEM modelling.

< Table 1 to be inserted here >

Page 12 of 29
3. Research Methodology:

Primarily, a survey instrument was created with inputs from industry and academic experts.

Contributions from the expert opinion from industrial practitioners and academic experts

were incorporated into the survey instrument by conducting a pilot study. The survey content

was designed as four sections: the first one is focused on the basic information about the

company and profile of respondents. Next section is focused on the data relevant to the level

of lean technical practices implemented. Third part was devoted to measurement of lean

social practices, and finally, the fourth section described various performances of the

organization. Further, information about management type, nature of ownership, number of

employees working, and type of SMEs. The respondent’s profile added with the department,

years of experience in the company, position, and the role played in lean implementation. As

suggested by the past literature (Shah & Ward, 2007), four lean technical practices were

identified as 5S, TPM, TQM, and JIT practices. Likewise, four lean social practices (Zhan et

al. 2018; Losonci et al. 2017; Marin Garcia and Bonavia, 2015; Farris et al. 2009) were

identified: lean attitude, lean leadership, lean training, and lean culture. To measure

organizational performance, three performance bundles were identified: operational

performance, financial performance, and employee performance (Li et al 2006; Shah &

Ward, 2007).

The companies included in the survey were identified from the database of NPC and QCI

(National Productivity Council and Quality Council of India). In the year 2010, the

government of India launched Lean Manufacturing Competitiveness Scheme (LMCS) for

SMEs under NMCP (National Manufacturing Competitiveness Programme). NPC and QCI

functioned as the implementing agency of the LMCS scheme. Since, last 10 years, many

SMEs successfully completed the lean execution process. Hence, the above SMEs database

was chosen for the study. Then, it was planned to collect data from the automobile

Page 13 of 29
component manufacturing industry, which is decided based on the guidance of academic

experts to focus on one sector. Around 455 auto component manufacturing SMEs were

identified as the targeted population. The survey questionnaire was circulated to the lean

implemented auto parts manufacturing SMEs. Finally, 145 responses were received with the

respondent profile of owner/director, plant-level managers, and middle-level managers. Out

of 145 responses received, 13 responses were discarded for suspicious response patterns and

not having adequate years of experiences with lean execution in that particular company.

The adequacy of sample size is tested based on the approach recommended for PLS-SEM by

Kock & Hadaya, (2018). The study recommended that Inverse square root and Gamma –

exponential as the best approach. The above approach applied, and found samples of 99 and

86 shows respectively, and the study include 132 samples which fulfilled the criteria for

minimum sample size. Moreover, prior literature (Marodin et al. 2019; Bento et al.2019;

Muraliraj et al. 2019) also studied lean implementation with similar sample size.

Further, to test the hypotheses model, using SEM methodology, the dataset was properly

investigated, SEM is an advancement of first generation statistical multivariate techniques

and also called as second-generation multivariate method (Hair et al., 2017).SEM tests the

proposed causal relationships of theoretical model; hence it is also called causal modelling.

Hair et al., (2019) explained that two significant approaches to estimate the association of

structural equation model. First one is Covariance-Based SEM (CB-SEM), the next one is

Partial Least Squares SEM (PLS-SEM). It is essential for predicting key target constructs or

finding key “driver” constructs (Hair et al., 2019). To empirically examine the model, survey

responses were incorporated into an excel file for further analyses using statistical software.

In this study, the data is examined using PLS-SEM approach with the process suggested by

Hair et al., (2019). Further, PLS models with higher-order constructs is exhibited. The

research has a small sample size, and also non-normally distribution of data supports to use

Page 14 of 29
this PLS-SEM method. Smart PLS Version 3 software is used to examine the hypothesised

model. PLS-SEM could be an ideal method where the study has the objective of prediction

(Hair et al., 2019).

4. Results and Analysis

The details are presented in the following subsection:

4.1 Measurement Model

To evaluate higher-order construct models, the same method of evaluation criteria can be

applied commonly as for any PLS-SEM analysis (Sarstedt et al ., 2019). But, two

measurement model evaluations are needed, one for lower order constructs and second one

for higher order constructs which includes the lower order constructs as components.

Hair et al., (2019) explained a four-step approach for measurement model.

Step 1- Examining the indicator loadings: In reflective measurement model assessment.

(If formative measurement model – outer weights has to be examined).

Step 2- Assessing internal consistency and reliability – assessed with the measurement of

Composite reliability (CR) and Cronbach Alpha (CA).

Step 3- Convergent Validity: “Convergent validity is the extent to whose the construct

converges in order to explain the variance of its items”. Analysed with the measurement of

Average Variance Extracted (AVE).

Step 4- Discriminant Validity: “Discriminant validity is the extent to which a construct is

empirically distinct from other constructs in the structural model”. Analysed with

measurement of Fornell Larcker criterion and also verified the Heterotrait-Monotrait ratio

(HTMT), which value should be below 0.85.

Page 15 of 29
Table 2 narrates the specification and actual values of indicator loadings, composite

reliability, Cronbach Alpha, and AVE results. Likewise, Tables 3 and 4 presents the value of

Fornell Larcker criterion and HTMT results.

< Table 2 to be inserted here >

< Table 3 to be inserted here >

< Table 4 to be inserted here >

4.2 Structural Model

As suggested by Hair et al., (2019), collinearity was examined and all values of Variance

Inflation Factor (VIF) were in accepted specification which was below three. In this study,

lean technical practices, lean social practices, and organizational performance are higher

order latent variables. As all constructs created using a reflective model. According to Hair et

al., (2019), coefficient of determination (R2) values and path coefficient values are critical to

report the structural model. Analysing the results of R 2 values of this research, construct

Employee performance, 5S and, lean culture has a R 2 value of 0.454, 0.565, and 0.613, which

implies moderate coefficient results. Apart from that, all constructs have R 2 value more than

0.70 which indicates reliable coefficient results as presented in Table 5. Hair et al., (2017)

suggested to run bootstrap method for validate path coefficient value. “Bootstrapping is a

resampling technique that draws a large number of subsamples based on original data (with

replacement) and estimates models for each subsample”. Bootstrapping with 5000 sub

samples, significance level of 5% and confidence level of 95 % given in the input settings of

PLS –SEM software and the results of path coefficient, and t values are presented in Table 6.

Lizarelli et al. (2019) and Filho et al. (2016) constructed the higher order component model

and the same metrics of PLS-SEM adopted the above research is also reported in this study.

Page 16 of 29
Sarstedt et al., (2019) and Hair et al., (2019) recommended that apart from assessing VIF

value, path coefficient and R2 values, the study can consider Q2 value.

Q2 is a measure of a model’s predictive power value. It evaluates whether a model precisely

predicts data which is not used in the estimation of model parameter. The calculation of Q 2

value based on the blindfolding procedures in PLS-SEM software’s. Q 2 value calculated by

cross-validated redundancy approach. Q2 value above zero has predictive relevance, 0.25 and

0.50 represent medium and larger predictive relevance of the particular endogenous construct

in the PLS-SEM model (Hair et al. 2020). Table 5 shows Q 2 value of all endogenous

construct and it seems larger than zero and above 0.25 implies all construct has good

predictive relevance in the model.

< Table 5 to be inserted here >

Furthermore, this study adopted the model fit measure of Akaike Information Criterion (AIC)

as recommended by Garson (2016). Filho et al. (2016) also constructed the higher order

model and adopted the model fit measure as AIC. AIC is considered as a goodness-of-fit

metrics of higher order SEM model. AIC has no intuitive value, but an AIC value of one

model, can be compared with another model’s AIC value, on which, lower AIC value model

as good fit model Garson (2016). Based on, Garson (2016) recommendations, higher order

model AIC value compared with regular model, and found higher order model has low AIC

value and identified as good fit model.

5. Discussions and Implications

5.1 Discussions

5.1.1 Lean Technical Practices and Organizational performance

Page 17 of 29
First, the results showed that the hypotheses (H1a, H1b, H1c, H1d, H1d, H1e) which were

developed to know the relationship of lean technical practice and organizational performance

are very significant, and it confirms the existing literature results (Chavez et al. 2015; Sajan

et al. 2017). The value of R2, path coefficient for lean technical practices are also accepted,

and it seems TPM, TQM practices which are focusing on productivity and quality are

considered very significant position compared to other lean practices. Hence, SMEs have

concern and struggled to improve their product quality and less productivity.

Furthermore, JIT practices also have moderate to strong R 2 values that emphasize the flow of

material and handling material related methods like Kanban, and so on are considered

essential for SMEs performance. Review of 5S practices is necessary and fundamental for all

lean practices. Results confirmed 5S practices positively associated with Lean Technical

Practices. Second, hypotheses (H5a, H5b, H5c) are developed to find the association of

operational, employee, and financial performance towards organizational performance. The

result extending the findings of previous studies (Sajan et al., 2017; Yadav et al. 2018).

Operational performance has a high R2 value, and significant path coefficient with

organizational performance confirmed with prior research result (Uhrin et al., 2017). To

examine employee and financial performance, the results shown in Table 6 provide further

support to the established relationship with overall firm performance.

5.1.2 Lean Social Practices

Apart from lean technical practices, the social aspect of lean practices implementation

considered in previous literature (Bortolotti et al., 2015), but this study has the contribution of

lean attitude, lean leadership, lean training, and lean culture which altogether formed the new

combination and termed as lean social practices. Among four social practices, lean attitude

scores the top R2 value confirms the argument of prior studies (Mamat et al.2015). Lean

Page 18 of 29
leadership has been considered essential components for lean transformation especially for

SMEs where authority and responsibility are lying with their leaders, and this confirms the

findings of Li et al., (2015). Lean training studied by several researchers, notably Chaplin et

al., (2016) contributed by suggesting a framework named as “lean lite” for lean

implementation within SMEs. They recommended training the workforce as one of the

critical criteria which are also reflected in these research findings. Finally, the fourth

construct of lean culture is also positively associated with lean social practices as the result of

analysis and R2, path coefficient values are accepted and substantial compared to prior

studies. Therefore, hypotheses (H2a, H2b, H2c, H2d, H2e) are accepted as it fulfils the

criteria of statistical indicators specifications.

< Table 6 to be inserted here >

Hines et al., (2004) argued that human dimensions must be considered for lean

implementation to reap the enhanced organizational performance. Hypothesis (H1e)

confirmed the above argument with significant results. Lean technical practices and lean

social practices relationship studied through hypothesis (H3). The results of hypothesis

testing are substantial level with the value of R 2 (0.857) is more significant than all other

constructs. This result indicated that the purpose of the research is successfully attained.

Hence, for effective execution of lean practices within SMEs, it is essential to consider lean

social practices.

5.1.3 Mediation Analysis

Hypothesis (H4) which is developed to study the mediation of lean social practices with the

established relationship among lean technical practices and organisational performance is

accepted with mediation analysis results as recommended by Baron and Kenny (1986).

Page 19 of 29
Figures 3c and 4 explained the effects of the mediation analysis. To study the mediation

existence, the direct path, lean technical practices influence the organisational performance

confirmed by the path coefficient value 0.868. Then, the indirect path of lean social practices

impacts the established relationship among lean technical practices and organisational

performance studied. It is confirmed that the partial mediation is existing with the reduction

of direct path coefficient value from 0.868 to 0.472. Moreover, the relationship among lean

technical practices and social practices is powerful with the path coefficient value of 0.826

and R2 value 0.857. Furthermore, verified with bootstrapping values to confirm the mediation

effect (Hair et al., 2019).

Figures 3a, 3b, 3c shows the direct path relationship, Figures 3c & 4 shows the indirect path

relationship results of PLS-SEM analysis with and without mediation. Figure 5 shows the

results of bootstrapping procedure.

< Figures 3a, 3b, 3c, 4, and 5 to be inserted here >

5.2 Implications of the Study

5.2.1 Theoretical Implications

This study contributed to the present literature in three ways. First, using statistical

modelling, this study empirically examined the comprehensive model, which was developed

with reference to the results of the present literature. Yadav et al., (2018) found that SMEs

have not implemented all technical and social practices of lean management. In this study, it

is also found that SMEs can implement few lean practices, which is basic practice like 5S and

also focused on specific practices based on organisational needs. In comparing with previous

Page 20 of 29
literature (Sajan et al., 2017; Pearce et al., 2018), the results of this study clearly explained

the importance of 5S practice which is essential to create a strong platform for all lean

practices in the context of SMEs. However, the limited number of practices positively effect

on SMEs performance (Filho et al., 2016). Second, the study also focused on how lean social

practices mediates the established relationship among lean technical practices and

organisational performance like prior studies (Marin-Garcia and Bonavia, 2015; Li et al.,

2015). Finally, based on previous literature (Bortolotti., 2015; Muraliraj et al., 2019), lean

practices were grouped into various bundles. The authors considered two higher-order

bundles of lean practices as lean technical and social practices in a comprehensive manner to

derive a conceptual model to enhance SMEs performance. This research confirmed the

findings of prior studies (Paez et al., 2004; Sajan et al., 2017). Moreover, along with technical

practices, the significance of lean social practices with the construct of lean attitude

confirmed the findings of Mann (2009) arguments and explained the importance of lean

attitude for successful lean transformation. Loyd et al. (2020) studied the importance of

Toyota Way (TW) as a work culture to execute lean and to sustain the performance like

Toyota. The study also discussed the difference between TPS and TW, on which former

focus on technical aspects and latter insists on the social aspects, which is also highlighted in

this study as the primary theoretical contribution.

5.2.2 Practical Implications

SMEs perspective

Globally, the automobile manufacturing sector is in a transformation towards clean energy

from conventional resources. Newmarket opportunities for auto parts manufacturing SMEs

would be challenging, and it enhances competition. SMEs in emerging countries must

consider adopting best practices like lean management to perform well in all aspects of the

Page 21 of 29
business. This research highlighted four lean technical practices to enhance SMEs

performance.5S, TPM practices increases productivity with zero breakdowns in machines and

TQM practices ensure the level of quality standards in SMEs. JIT provides the flexibility to

produce various application of products, on-time delivery and reduce inventory level in

SMEs. But earlier studies have reported that many SMEs discontinued lean initiatives due to

various causes. Most of the studies highlighted that lack of lean social practices lead to lean

failure and delayed lean transformation. The four social practices of lean attitude, leadership,

training and culture would be helpful for SMEs to enhance the performance of its employees.

The lean attitude of learning lean practices and believe the system of lean is essential for

SMEs growth and improved performance. Many SMEs are facing various challenges in

implementing lean practices. The findings of the study might be to support the owners and

top management of SMEs in preparation and accomplishment for an effective lean

transformation.

Consultant perspective

As SMEs lack on lean knowledge expertise, the significance of lean training and consultant

contribution on lean knowledge transfer to employees for creating internal lean experts in

SMEs would be the primary concern for external lean consultants. The variables of lean

technical and social practices are essential for lean consultants who are looking for guidelines

to implement lean practices within SMEs. Selection of right lean tools with the requirement

of particular SMEs is a challenging task for consultants. Hence, this study provides lean

technical bundles with the focus on the productivity, quality, on-time delivery, and basic

housekeeping might be a road map for lean consultants to execute lean transformation.

Moreover, lean social bundles focusing on reducing the failure rate of lean and motivate

employees to adopt lean practices comprehensively. Most of the lean consultants are

Page 22 of 29
struggling to sustain lean practices in SMEs. Hence, creating a lean culture in SMEs would

be a better solution to maintain lean practices to enhance SMEs performance.

Policymaker Perspective

Globally, more than 90% of the companies in the manufacturing sector are SMEs and to

enhance competitiveness in SMEs, it is essential to survive in the volatile market situation.

All over the world, respective government introduced many schemes to support SMEs for

updating their level standards pertaining to global standards. To reduce the financial burden

of SMEs, many governments provide subsidy on the expenditure of knowledge acquisition

from external lean consultation. But the policy of respective government schemes only

focused on lean technical practices. The significance of lean social practices was not given

due consideration from respective government policymakers while framing the lean

implementation subsidy schemes. Moreover, policymakers can also consider involving

academic institutions to study the lean transformation process which would ensure the

success and actual benefits of particular subsidised lean implementation schemes. Hence, the

academic institution having well-versed knowledge resources and research facilities would

support SMEs to enhance its performance.

6. Conclusion

In today’s competitive environment, manufacturing SMEs have to compete with global

manufacturers with a high standard of quality for low cost to the product. Hence,

manufacturing SMEs have to focus on the way to increase productivity to deliver product

right time with less cost could be possible. For this scenario, SMEs adopted lean practices to

improve their various dimension of organisational performance. But many SMEs failed to get

Page 23 of 29
the desired results from lean practices because its implementation method only focused on

lean technical practices and also aiming for short-term benefits. Furthermore, human-related

aspects not given adequate importance during implementation. To address the above

situation, this research focused on empirically examining, how Lean technical and social

practices relate to organisational performance in the context of SMEs. The results showed

that two constructs of lean technical and social practices have resulted in enhanced

organisational performance. Further, the results explained that Lean Social Practices (LSP)

and Lean Technical Practices (LTP) definitely influence organisational performance. The

relationship between Lean technical and social practices is found to be significant and also

lean social practices mediates the established link between lean technical practices and

organisational performance.

Limitations and future research recommendations

This research identified eight research gaps, but this research investigated five research gaps,

and rest of the three gaps can be explored in future research. First, various barriers to lean

implementation in SMEs and classification as technical, social barriers with the objective of

finding the most affecting barriers to execute lean on SMEs performance can be focused in

future research. Second, the relationship among lean practices, improvement routines and

SMEs performance could be explored in future research. Finally, various leadership styles for

implementing lean and its impact on SMEs performance also to be investigated in future

research. Future studies may focus on various manufacturing industries and also can explore

in service sector to further validate the study findings. To further confirm the influence of

lean social practices, detailed case study approach and longitudinal study may be conducted

in emerging economies. This research considered only top four lean bundles of practices on

each lean technical and social practice based on literature. Hence, future studies may explore

Page 24 of 29
the rest of the lean bundles, which may relate to specific industry and countries. Advanced

statistical models may be used to explore various performance indicators of SMEs.

References:
AL-Tahat, M. D., & Jalham, I. S. (2015). A structural equation model and a statistical
investigation of lean-based quality and productivity improvement. Journal of Intelligent
Manufacturing, 26(3), 571–583.
Baron, R.M. and Kenny, D.A. (1986), “The moderator-mediator variable distinction in social
psychological research: conceptual, strategic, and statistical considerations”, Journal of
Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-82.
Basu, P., Ghosh, I., & Dan, P. K. (2018). Using structural equation modelling to integrate
human resources with internal practices for lean manufacturing implementation.
Management Science Letters, 8(1), 51–68.
Belekoukias, I., Garza-Reyes, J. A., & Kumar, V. (2014). The impact of lean methods and
tools on the operational performance of manufacturing organisations. International
Journal of Production Research, 52(18), 5346–5366.
Bento, G. D. S., & Tontini, G. (2019). Maturity of lean practices in Brazilian manufacturing
companies. Total Quality Management & Business Excellence, 30(sup1), S114-S128.
Bevilacqua, M., Ciarapica, F. E., & De Sanctis, I. (2017). Lean practices implementation and
their relationships with operational responsiveness and company performance: an Italian
study. International Journal of Production Research, 55(3), 769–794.
Bortolotti, T., Boscari, S., & Danese, P. (2015a). Successful lean implementation:
Organizational culture and soft lean practices. International Journal of Production
Economics, 160, 182–201.
Bortolotti, T., Danese, P., Flynn, B. B., & Romano, P. (2015b). Leveraging fitness and lean
bundles to build the cumulative performance sand cone model. International Journal of
Production Economics, 162, 227–241.
Boyle, T. A., Scherrer-Rathje, M., & Stuart, I. (2011). Learning to be lean: The influence of
external information sources in lean improvements. Journal of Manufacturing
Technology Management, 22(5), 587–603.
Chaplin, L., Heap, J., & O’Rourke, S. T. J. (2016). Could “Lean Lite” be the cost effective
solution to applying lean manufacturing in developing economies? International Journal
of Productivity and Performance Management, 65(1), 126–136.
Chavez, R., Yu, W., Jacobs, M., Fynes, B., Wiengarten, F., & Lecuna, A. (2015). Internal
lean practices and performance: The role of technological turbulence. International
Journal of Production Economics, 160, 157–171.
Cherns, A. (1976). The principles of sociotechnical design. Human relations, 29(8), 783-792.
Davies, A. J., & Kochhar, A. K. (2002). Manufacturing best practice and performance
studies : a critique. International Journal of Operations & Production Management,
22(3), 289–305.

Page 25 of 29
Ernst & Young, & American Quality Foundation. (1992). Best practices report: an analysis
of management practices that impact performance. Ernst & Young.
Farris, J. A., Van Aken, E. M., Doolen, T. L., & Worley, J. (2009). Critical success factors
for human resource outcomes in Kaizen events: An empirical study. International
Journal of Production Economics, 117(1), 42-65.
Garson, G. D. (2016). PARTIAL LEAST SQUARES (PLS-SEM): Regression and Structural
Equation Models. North Carolina: Statistical Publishing Associates.
Gelei, A., Losonci, D., & Matyusz, Z. (2015). Lean production and leadership attributes - the
case of Hungarian production managers. Journal of Manufacturing Technology
Management, 26(4), 477–500.
Godinho Filho, M., Ganga, G. M. D., & Gunasekaran, A. (2016). Lean manufacturing in
Brazilian small and medium enterprises: implementation and effect on performance.
International Journal of Production Research, 54(24), 7523–7545.
Grigg, N. P., Goodyer, J. E., & Frater, T. G. (2020). Sustaining lean in SMEs: key findings
from a 10-year study involving New Zealand manufacturers. Total Quality Management
& Business Excellence, 31(5-6), 609-622.
Hadid, W., & Mansouri, S. A. (2014). The lean-performance relationship in services: A
theoretical model. International Journal of Operations and Production Management,
34(6), 750–785.
Hadid, W., Mansouri, S. A., & Gallear, D. (2016). Is lean service promising? A socio-
technical perspective. International Journal of Operations & Production Management.
Hair, J.F., Hult, G.T.M., Ringle, C.M. and Sarstedt, M. (2017). A Primer on Partial Least
Squares StructuralEquation Modeling (PLS-SEM). In SAGE publications, Inc.
https://doi.org/10.1108/EBR-10-2013-0128
Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report
the results of PLS-SEM. European Business Review, 31(1), 2–24.
Hair Jr, J. F., Howard, M. C., & Nitzl, C. (2020). Assessing measurement model quality in
PLS-SEM using confirmatory composite analysis. Journal of Business Research, 109,
101-110.
Hines, P., Holwe, M., & Rich, N. (2004). Learning to evolve: A review of contemporary lean
thinking. International Journal of Operations and Production Management, 24(10),
994–1011.
Hines, P. (2010). How to create and sustain a lean culture. Development and learning in
organizations: An International Journal.
Hines, P., Taylor, D., & Walsh, A. (2020). The Lean journey: have we got it wrong?. Total
quality management & business excellence, 31(3-4), 389-406.
Holmemo, M. D. Q., & Ingvaldsen, J. A. (2016). Bypassing the dinosaurs? – How middle
managers become the missing link in lean implementation. Total Quality Management
and Business Excellence, 27(11–12), 1332–1345.
Holmemo, M. D. Q., Rolfsen, M., & Ingvaldsen, J. A. (2018). Lean thinking: Outside-in,
bottom-up? The paradox of contemporary soft lean and consultant-driven lean

Page 26 of 29
 implementation. Total Quality Management and Business Excellence, 29(1–2), 148–160.
Hu, Q., Mason, R., Williams, S. J., & Found, P. (2015). Lean implementation within SMEs:
A literature review. Journal of Manufacturing Technology Management, 26(7), 980–
1012.
Jabbour, C. J. C., De Sousa Jabbour, A. B. L., Govindan, K., Teixeira, A. A., & De Souza
Freitas, W. R. (2013). Environmental management and operational performance in
automotive companies in Brazil: The role of human resource management and lean
manufacturing. Journal of Cleaner Production, 47, 129–140.
Jeffrey K. Liker and Gary L. Convis. (2012). Toyota way to lean leadership.
https://doi.org/10.1017/CBO9781107415324.004
Knol, W. H., Slomp, J., Schouteten, R. L. J., & Lauche, K. (2018). Implementing lean
practices in manufacturing SMEs: testing ‘critical success factors’ using Necessary
Condition Analysis. International Journal of Production Research, 56(11), 3955–3973.
Kock, N., & Hadaya, P. (2018). Minimum sample size estimation in PLS‐SEM: The inverse
square root and gamma‐exponential methods. Information Systems Journal, 28(1), 227-
261.
Laureani, A., & Antony, J. (2017). Leadership and Lean Six Sigma: a systematic literature
review. Total Quality Management & Business Excellence.
https://doi.org/10.1080/14783363.2017.1288565
Li, B., Nahm, A. Y., Wyland, R., Ke, J. Y., & Yan, W. (2015). Reassessing the role of
Chinese workers in problem solving: a study of transformational leadership, trust and
security in ‘lean’ manufacturing. Asia Pacific Business Review, 21(4), 464–481.
Li, S., Ragu-Nathan, B., Ragu-Nathan, T. S., & Rao, S. S. (2006). The impact of supply chain
management practices on competitive advantage and organizational performance.
Omega, 34(2), 107-124.
Lizarelli, F. L., Toledo, J. C. D., & Alliprandini, D. H. (2019). Relationship between
continuous improvement and innovation performance: an empirical study in Brazilian
manufacturing companies. Total Quality Management & Business Excellence, 1-24.
Losonci, D., Kása, R., Demeter, K., Heidrich, B., & Jenei, I. (2017). The impact of shop floor
culture and subculture on lean production practices. International Journal of Operations
& Production Management.
Loyd, N., Harris, G., Gholston, S., & Berkowitz, D. (2020). Development of a lean
assessment tool and measuring the effect of culture from employee perception. Journal
of Manufacturing Technology Management.
Mamat, R. C., Md Deros, B., Ab Rahman, M. N., Omar, M. K., & Abdullah, S. (2015). Soft
lean practices for successful lean production system implementation in malaysia
automotive smes: A proposed framework. Jurnal Teknologi, 77(27), 141–150.
Mann, D. (2009). The Missing Link: Lean Leadership. Frontiers of Health services
management, 26(1), 15–26.
Marin-Garcia, J. A., & Bonavia, T. (2015). Relationship between employee involvement and
lean manufacturing and its effect on performance in a rigid continuous process industry.
International Journal of Production Research, 53(11), 3260–3275.

Page 27 of 29
Marodin, G. A., Frank, A. G., Tortorella, G. L., & Fetterman, D. C. (2019). Lean production
and operational performance in the Brazilian automotive supply chain. Total Quality
Management & Business Excellence, 30(3-4), 370-385.
McMackin, J., & Flood, P. (2019). A theoretical framework for the social pillar of lean.
Journal of Organizational Effectiveness, 6(1), 39–55.
Muraliraj, J., Kuppusamy, S., Zailani, S., & Santha, C. (2019). Lean, Six Sigma and its
influence on potential and realized absorptive capacity. International Journal of Lean
Six Sigma, ahead to p(ahead t0 print). https://doi.org/10.1108/IJLSS-03-2018-0020
Ohno, T. (1978). Toyota Production System:Beyond Large-Scale Production.

Paez, O., Dewees, J., Genaidy, A., Tuncel, S., Karwowski, W. and Zurada, J. (2004), “The
lean manufacturing enterprise: An emerging socio technological system integration”,
Human Factors and Ergonomics in Manufacturing, Vol. 14 No. 3, pp. 285–306.

Pearce, A., Pons, D. and Neitzert, T. (2018), “Implementing lean - Outcomes from SME case
studies”, Operations Research Perspectives, Elsevier Ltd, Vol. 5, pp. 94–104.

Ramadas, T., & Satish, K. P. (2018). Identification and modeling of employee barriers while
implementing lean manufacturing in small- and medium-scale enterprises. International
Journal of Productivity and Performance Management, 67(3), 467–486.
Resnik, D. A. (2013). The role of reflection in leader identity formation in small- and
medium-sized enterprises (SME). https://search.proquest.com/docview/1438178739?
accountid=49696
Sajan, M. P., Shalij, P. R., Ramesh, A., & Biju, A. P. (2017). Lean manufacturing practices in
Indian manufacturing SMEs and their effect on sustainability performance. Journal of
Manufacturing Technology Management, 28(6), 772–793.
Salhieh, L., & Abdallah, A. A. (2019). A two-way causal chain between lean management
practices and lean values. International Journal of Productivity and Performance
Management, 68(5), 997–1016.
Sarstedt, M., Hair, J. F., Cheah, J. H., Becker, J. M., & Ringle, C. M. (2019). How to specify,
estimate, and validate higher-order constructs in PLS-SEM. Australasian Marketing
Journal, (xxxx). https://doi.org/10.1016/j.ausmj.2019.05.003
Shah, R., & Ward, P. T. (2003). Lean_Manufacturing_Shah Ward. Juornal of Operations
Management, 21(2), 129–149.
Shah, R., & Ward, P. T. (2007). Defining and developing measures of lean production.
Journal of Operations Management, 25(4), 785–805.
Shetty, S., Gholston, S. E., & Componation, P. J. (2012). A Stepwise Method of Using
Exploratory Factor Analysis in Creation of a Lean Survey. Journal of Management &
Engineering Integration, 5(2), 10.
Shrafat, F. D., & Ismail, M. (2019). Structural equation modeling of lean manufacturing
practices in a developing country context. Journal of Manufacturing Technology
Management, 30(1), 122–145.
Sony, M., Naik, S., & Therisa, K. K. (2019). Why do organizations discontinue Lean Six

Page 28 of 29
 Sigma initiatives? International Journal of Quality and Reliability Management, 36(3),
420–436.
Trist, E.L. (1981). The evolution of socio-technical systems: a conceptual framework and
action research program. (Occasional paper No. 2), Ontario Quality of Working Life
Centre, Ontario.
Trist, E.L. and Bamforth, K.W. (1951). Some Social and Psychological Consequences of the
Longwall Method. Human relations, 4, 3-38
Uhrin, Á., Bruque-Cámara, S., & Moyano-Fuentes, J. (2017). Lean production, workforce
development and operational performance. Management Decision, 55(1), 103–118.
Van Assen, M. F. (2018). The moderating effect of management behavior for Lean and
process improvement. Operations Management Research, 11(1–2), 1–13.
Van Dun, D. H., & Wilderom, C. P. (2016). Lean-team effectiveness through leader values
and members’ informing. International Journal of Operations & Production
Management.
Vinodh, S., & Joy, D. (2012). Structural Equation Modelling of lean manufacturing practices.
International Journal of Production Research, 50(6), 1598–1607.
Womack, J. P., Jones, D. T., & Roos, D. (1990). The machine that changed the world,
Rawson Associates. New York, 323.
Yadav, V., Jain, R., Mittal, M. L., Panwar, A., & Lyons, A. (2018). The impact of lean
practices on the operational performance of SMEs in India. Industrial Management and
Data Systems, 88(2), 317–330.
Yang, M. G., Hong, P., & Modi, S. B. (2011). Impact of lean manufacturing and
environmental management on business performance: An empirical study of
manufacturing firms. International Journal of Production Economics, 129(2), 251–261.
Zhan, Y., Tan, K. H., Ji, G., Chung, L., & Chiu, A. S. (2018). Green and lean sustainable
development path in China: Guanxi, practices and performance. Resources,
Conservation and Recycling, 128, 240-249.
Zhou, B. (2012). Lean principles , practices , and impacts : a study on small and medium-
sized enterprises ( SMEs ). Annals of Operations Research, 241(1–2), 457–474.

Page 29 of 29