Impact of lean manufacturing and environmental management on business performance: An empirical study of manufacturing firms

Abstract

This paper explores relationships between lean manufacturing practices, environmental management (e.g., environmental management practices and environmental performance) and business performance outcomes (e.g., market and financial performance). The hypothesized relationships of this model are tested with data collected from 309 international manufacturing firms (IMSS IV) by using AMOS. The findings suggest that prior lean manufacturing experiences are positively related to environmental management practices. Environmental management practices alone are negatively related to market and financial performance. However, improved environmental performance substantially reduces the negative impact of environmental management practices on market and financial performance. The paper provides empirical evidences with large sample size that environmental management practices become an important mediating variable to resolve the conflicts between lean manufacturing and environmental performance. Additional contextual analyses suggest that differences exist in terms of the strengths and statistical significance of some of the proposed relationships. Thus, for effective implementation of environmental management, firms need to measure environmental performance through which the impact of environmental management on other business performance outcomes is examined.

Introduction

With an increasing social demand of environmental sustainability, firms embrace the strategic importance of environmental management practices for competitive advantage (Porter and van der Linde, 1995, Sroufe, 2003, Kleindorfer et al., 2005, Pagell and Gobeli, 2009, Yang et al., 2010). In spite of the ongoing debate on the relationships between environmental management and financial performance, the previous research is often inconsistent and ambiguous (Russo and Fouts, 1997, Jiménez and Lorente, 2001, Rao and Holt, 2005). The business press also reflects this debate among practitioners regarding the compatibility of environmental objectives with economic viability (Hayward, 2009, Stavins, 2009, Totty, 2009). In light of these divergent views, while organizations recognize that environmental sustainability has implications for their competitive positions, firms are unclear about the implementation details of environmental management practices (Montabon et al., 2007).

Good research requires rigor, relevance and clarity (Palmer et al., 2009, Suddaby, 2010). Building sound theory may start with the obvious and then move into more unclear, controversial and fuzzy areas (Handfield and Melnyk, 1998). In this paper, we start with the relationship between lean manufacturing and environment management practices. We then present an integrated framework that includes lean manufacturing, environmental management practices, and environmental and business performance. In the next section we provide a research model conceptual framework that presents key variables based on relevant literature review. In the hypotheses development section the inter-relationships between variables are defined and explained. In the subsequent section we discuss the research design, analysis and results. The final section presents the theoretical and managerial implications, and concludes with a summary of limitations and future research directions.