Advances in Economics, Business and Management Research, volume 145

8th International Conference on Entrepreneurship and Business Management (ICEBM 2019) UNTAR

The Moderating Effect of Kaizen Culture on the

Relationship Between Innovation and Operational
Performance
Kong Siew Mui 1 Rajendran Muthuveloo 1
Graduate School of Business, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia
1

Corresponding author. Email: [email protected]

*

ABSTRACT
Kaizen culture and Innovation are key competitive factors deeply imbued into the organizational products and
processes to achieve optimal operational performance sustainably. Literature suggested that manufacturing
companies needing to differentiate themselves adopt a culture of continuous improvement (Kaizen). Kaizen
culture in this paper enables a change process in a seamless manner supporting innovation to optimize
operational performance. This study aims to support theory and practice. Firstly, this study findings can be
applied to improve operational performance which is pivotal to business sustainability among Malaysian
Manufacturing Companies (MMC). Secondly, it also contributes to extend the Socio-Technical Systems (STS)
theory. Thirdly, this study has the potential contribution towards the society as resources are scarce and waste
elimination is imperative. Lastly, this study may provide some understanding on why these companies are more
successful in securing operational performance from innovation implementation than other seemingly similar
companies.
Keywords: Kaizen culture, innovation, operational performance, Malaysian Manufacturing Companies (MMC)
the 11th Malaysia Plan (2016 – 2020) to revive Malaysia’s
1. INTRODUCTION economy and support the nation’s vision of becoming a high
income nation by 2020 and incidentally Malaysia is the
The vital question for Malaysian Manufacturing Companies seventh-largest E&E exporter in the world nowadays. This
(MMC) of the E&E industry is how they can increase global means the E&E industry has the greatest potential to exert
competitiveness and become the engine of growth to the biggest change across the widest portions of the
support the nation’s vision of becoming a high income manufacturing sector in the country, which in turn will
nation by 2020. In order to stay competitive and survive in create the biggest positive impact on the country’s economy
the rapid pace of advancing technology and growing [1].
customer demands, companies must continually seek new
ways of improving value through operational performance Problem Statement
by cost optimization, increasing the quality of the products
and meeting the ongoing hyper changes in the market. Labor productivity performance is lacking in Malaysia.
Manufacturers need to adopt a continuously improving World Competitiveness Yearbook, 2018 had placed
variety of innovative technological and process-based Malaysia last out of seven countries and Productivity
solutions in order to obtain and sustain competitive Report by Malaysia Productivity Corporation, 2018 stated
advantage over their competitors. Organizations have to that the overall growth of Malaysia labor productivity at 3.5%
reinvent, learn new knowledge of applications and acquire is still low compared with that of emerging countries, such
new skill sets to create, adapt and integrate distinctive as People’s Republic of China (7.1%), Thailand (4.0%) and
technological solutions to transform the workforce and India (5.6%) reflecting reduced competitiveness in the
industries. global market [2]. As at 2015, Malaysia has spent 46 years
Kaizen culture practices are crucial in enabling a sustainable in the middle-income country category. By comparison,
competitive advantage for organizations. This study in South Korea, which joined the middle-income group of
exploring operational performance highlights the human countries in the same year as Malaysia, reached the upper
dimension; kaizen culture that nurture values, behaviors, middle-income level within 19 years in 1988. From that
attitudes, beliefs and a learning environment that support point, South Korea took only another seven years to attain
innovation to flourish and thrive continuously to deliver high-income status in 1995. Not only has Malaysia
optimal operational performance that meet or exceed experienced significant growth deceleration post-Asian
customers’ requirements. This study is very important to the financial crisis, the country has yet to reach the level of
country as the Electrical & Electronics (E&E) industry has labor productivity achieved by the US in the 1970s and is
been designated as one of the three “catalytic subsectors” in

Copyright © 2020 The Authors. Published by Atlantis Press SARL.

This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 12
 Advances in Economics, Business and Management Research, volume 145

currently lagging 20 years behind Japan and 25 years behind 2. LITERATURE REVIEW
Singapore.
Despite having some of the top technological The literature described below covers the key variables of
manufacturing companies in Malaysia for the past four this study which comprises of kaizen culture, operational
decades, nowadays sadly the nation has fallen behind the performance and innovation.
curve in terms of innovations and productivity.
Organizations can invest a lot of time and money in 2.1. Kaizen Culture
innovation efforts but if the innovation efforts are not
sustained over time, improvement fails. In order to truly Kaizen culture is aimed at nurturing and developing an
sustain innovation efforts, organizations must address the environment that is conducive for continuous learning and
kaizen culture in the company. In fact, it may be that the innovation. It provides a conducive environment whereby
difficulty in implementing successful innovations is not in front-line production employees are empowered to harness
the techniques but in the cultural changes. If true, this the next generation of know-how and encourages them to
assumption would mean that the success of any know the art of being possible. To be continuously
organization pursuing successful innovations depends not improving, a company requires kaizen culture to be
only on applying the tools and techniques, but also on the embedded into the organization. Organizations enhanced
required culture to derive the sustained benefits from these by kaizen culture as the added advantage will achieve
tools and techniques that supports innovation that must be operational performance sustainably while operating in a
established [3]. However, no empirical studies have highly disruptive and unstable business environment [6].
investigated the role of kaizen culture in sustainable Kaizen culture continuously and persistently guides
innovations [4]. organizational members to strive for continuous
improvement and create a climate conducive for learning.
Research Gap Kaizen culture does not just happen; it needs long term
kaizen inculcation from top management that cascades
The study by (Negrão, Godinho Filho, & Marodin, 2017) through the organization. Top management needs to visibly
traced 83 studies dealing with the degree of kaizen culture direct, instill, grow and imbue the kaizen culture in its
practices adoption around the world; Malaysia was placed business strategy. This is necessary because culture
fourth in the listing of 37 countries for publishing articles influences the way employees interact, the context within
that assessed the degree of kaizen culture practices adoption which knowledge is created, the resistance they will have
but has no placement in the listing of 37 countries for towards certain changes, and ultimately the way they share
articles on kaizen culture practices adoption that impact (or the way they do not share) the knowledge. Obviously,
performance [5]. This confirms the research gap that this this focus on the process of continuous improvement does
study proposes is too close. Irrefutably, operational not displace innovation or new technology improvement.
performance is a prerequisite for business performance and The difference in kaizen culture practices within firms may
sustainability of manufacturing companies in Malaysia. In explain why some firms are more successful in producing
addition, the highly competitive business environment with innovative solutions to problems, while seemingly similar
the dawn of digitalization makes a compelling case for firms are much less successful resulting in differences in
manufacturing companies to seek and build kaizen culture operational performance. The four (4) key elements of
in the organization. kaizen culture when applied successfully may explain the
In today’s hyper competitive environment, fostering a difference in operational performance are Employee
learning approach is very important because business is Empowerment, Kaizen Promotion Office (KPO),
changing rapidly. Hence, the need for companies to Management Support and Integration of Kaizen Culture
embrace the change is a must for its survival. However, for into the Organization.
an organization to just decide that employees must embrace Firstly, employee empowerment is implemented to
the change is not sufficient, because the decision must be empower the employees, where the teams are established,
backed by actions that create an environment that trained and developed, the employees are engaged and
employees are comfortable, willing and have the desire to empowered towards high performance. Performing
continuously leverage improvements. Therefore, will the employees create competitive edge through productivity,
speed of innovation diffusion and adoption increase with quality, innovations and good decision making [7], [8].
the support of kaizen culture and will it then lead to Secondly, KPO enables the firm to achieve a higher rate of
operational performance improvement and sustenance in project completion by enabling employees to be happy,
the organization? Intrigued by these questions, this study engaged and play a proactive role. Organizations should
hopes to examine the moderating effect of kaizen culture on assign a kaizen champion or leader who is an excellent
operational performance via innovation through the study communicator and a business process improvement
among manufacturing companies in the E&E industry specialist to take the lead in kaizen implementation. Thirdly,
located in Malaysia. top management’s commitment is crucial in instilling
kaizen culture into an organization and authorize the
required manpower. Finally, Integration of Kaizen Culture
into the organization nurtures the values, behaviors, beliefs

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 Advances in Economics, Business and Management Research, volume 145

and attitudes in a learning environment, so that the kaizen competitive advantage and operational performance. Teams
principles become a way of life in the organization. are opportunities to leverage intellectuality and make a
difference; testing grounds for new ideas, idea-launchers
2.2. Operational Performance and best weapon to resist stultifying bureaucracy. All
successful companies consider STS as an organizational
The current business world has no boundary, fast changing goal for holistic development, sustainability and
and maintaining global competitiveness is extremely transformational change of organization [18].
challenging. Manufacturing organizations are under
immense pressure to pursue operational excellence and Development of Research Conceptual
improve their performance in order to optimize their costs
and provide added-value by producing products of higher
Framework
quality with shorter lead times. Manufacturing The proposed research conceptual framework has been
organizations pursue relentlessly various methods and tools developed based on the research gap that has been identified
that aim to improve the operational performance in order to and underpinning the theory, as exhibited in Figure 1. The
deliver customer satisfaction and profitability. Once Dependent Variable, Independent Variable and Moderating
employees of manufacturing organizations adopted kaizen Variable are Operational Performance, Innovation and
culture mindset, it facilitates achievement of continuous Kaizen Culture respectively.
improvement in every facet of the organization to deliver
operational improvements sustainably; hence customer
satisfaction and profitability continuously [9], [10].
Most of the extensive empirical studies on the relationship
between innovation and operational performance provide
evidence that this relationship is positive [11], [12]. Sixteen
relevant empirical studies of operational performance
provide confirmation to the historical analysis of
operational performance in companies to be quality, cost,
delivery, flexibility and new product introduction speed that
emphasize on efficiency and effectiveness. Finally,
measurements for operational performance are important Figure 1 Proposed Research Conceptual Framework
because operational gains can be subsequently used in
competitive pricing. Ultimately, this improvement effort
Research Hypotheses
could lead to enhanced firm growth and long-term
performance heterogenously [13]. Based on the proposed research conceptual framework, five
(5) hypotheses were developed to address the research
2.3. Innovation objective and questions. The hypotheses are elaborated as
follows:
The result obtained from a survey of the literature is that The moderating effect of Kaizen Culture on the
innovation is viewed as the engine of productivity and relationship between Innovation and Operational
driver of growth for firms either in developed or in Performance
emerging countries. The adoption of innovation is generally Kaizen culture can help enrich and inspire the way company
intended to contribute to the productivity or effectiveness of coordinate and achieve sustainable innovations. Kaizen
the adopting organization. However, Damanpour and does not replace or preclude innovation. Rather, the two
Aravind asserted that the relationship between innovation variables are complementary. After Kaizen has been
and performance had not been explained fully and more exhausted, ideally, innovation should take-off, and Kaizen
empirical studies were needed to explain it [14]. Though, should follow as soon as innovation is initiated. To
most of the literature concluded that innovation was understand how Kaizen will support the improvement of
positively related to performance [15], [16], 17]. existing activities; one need to understand how workers do
their work and how innovation fit into their work to drive
Underpinning Theory operational improvements. Hence, it is crucial for
companies to drive innovation supported by an
Tacit knowledge is the key to innovation, and the
organizational kaizen culture environment. Kaizen culture
acquisition of such knowledge by individuals within the
inculcate a mindset of can-do attitude. Can-do mindset is
company heavily depends on the ability of employees to
imperative for radical innovation to succeed as it prepares
share as well as to resolve the conduct of education and
employees to absorb changes brought about by innovations
training. Socio-Technical Systems (STS) theory supports
especially radical innovations. Hence, this study developed
this framework and respond to the need of providing a
the following hypothesis:
conducive environment whereas autonomous work groups
Hypothesis 1: Kaizen Culture enhances the relationship
promote outcome such as cooperation between tasks groups
between Innovation and Operational Performance of the
and high personal commitment by team members that
E&E industry.
encourage the sharing of tacit knowledge in order to achieve

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 Advances in Economics, Business and Management Research, volume 145

The moderating effect of Integration of Kaizen Culture Hypothesis 4: Kaizen Promotion Office enhances the
into the Organization on the relationship between relationship between Innovation and Operational
Innovation and Operational Performance Performance of the E&E industry.
Organizational culture in every organization gives a The moderating effect of Employee Empowerment on
positive strength and impact for employees in improving the relationship between Innovation and Operational
operational performances. This is due to the fact that culture Performance
formed based on mutual commitment will give more Studies have shown that employees who are engaged and
motivation to employees to perform their best [19]. Kaizen empowered tend to drive innovation as they learned to know
culture imbued companies facilitate new learning, the art of possibility. Employees who are engaged and
continuous change, and improvement in administrative and empowered have a tendency to perform well on their jobs.
work processes and encourage gathering and disseminating Performing employees create competitive edge through
information from an array of sources to improve the productivity, quality, innovations and good decision
mechanisms and processes within the company leading to making [26]. There are significant differences in the degree
improved operational performance [20]. Hence, this study of emphasis on training, job enrichment and employee
intends to test-out the following hypothesis: empowerment among firms that influence the varying levels
Hypothesis 2: Integration of Kaizen Culture into the of intensity on kaizen and quality management [27].
Organization enhances the relationship between Innovation Besides with innovation routines being increasingly
and Operational Performance of the E&E industry. recognized as contributing to competitive advantage; being
The moderating effect of Management Support on the able to mobilize high levels of employee involvement
relationship between Innovation and Operational makes a difference, as studies have demonstrated repeatedly
Performance [28], [29]. Hence, this study intends to test-out the
Managers’ commitment and support seem to be the main following hypothesis:
obstacles of kaizen implementation and success [21]. Hypothesis 5: Employee Empowerment enhances the
Researchers recently argue that not only is the support of an relationship between Innovation and Operational
empowerment management system necessary, but it must Performance of the E&E industry.
also be in compliance with strategic plans and targets [22].
Literature noted that employees might rely on aspects of 3. RESEARCH METHODOLOGY
culture such as openness to new ideas and tolerance for risk
for innovation creation and adoption. Management support The research methodology covers the research design,
is critical to operational performance as it relates to all population, sample size, sampling technique, measurement,
management-controlled activities that affect the work of an data collection method, statistical tool and data analysis to
entire organization; the processes and way of working and be carried out as described below:
the formal and informal organization design, including how
management views work-process change and all Research Design
communication channels. For these aspects of culture to
thrive and flourish, management support is mandatory. The research design is crucial as it provides the procedural
Hence, this study intends to test-out the following steps of how to obtain important and accurate data in order
hypothesis: to provide empirical evidence in answering the research
Hypothesis 3: Management Support enhances the questions raised in the study. It adopts correlational type of
relationship between Innovation and Operational research that utilizes quantitative research method to collect
Performance of the E&E industry. data to address research objectives. The study of this
The moderating effect of Kaizen Promotion Office on correlation was conducted with minimum interference by
the relationship between Innovation and Operational the researcher, with normal work-flow in the natural setting
Performance of the organization [30]. This means that respondents have
This is about mechanisms for the deliberate creation and the freedom to answer the questionnaire with little or no
change of culture by management [23], for instance by interference to their intention. This research is also a cross-
introducing certain individuals at key positions in the sectional type meaning that data is collected and gathered
organization as in this study’s hypothesis; Kaizen just once over a short-period in order to answer the research
Promotion Office. The lack of organizational capabilities questions. The research design is suitable for this study as it
that facilitate incremental enterprise-wide innovation best fits the constraints of time, costs, and resources needed
greatly hinder implementation and sustainability of kaizen to conduct this particular study.
in Chinese firms [24]. The lack of a systematic approach
towards the documentation of kaizen activities is noticeable Population and Sample Size
and most of the ten high-performing companies though
The target population of this study is the organization of
rated matured failed to give consistent evidence of having
companies in the E&E industry listed as members of the
organizational learning processes in place, as mainly seen
Federation of Malaysian Manufacturers (FMM) published
in the lack of available documentation about past
in 2019. A popular rule of thumb for robust PLS-SEM
improvement activities [25]. Hence, this study intends to
estimations, Barclay et al. (1995) suggested to use a
test-out the following hypothesis:
minimum sample size of ten times the maximum number of

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paths aiming at any construct in the outer model (i.e., the the moderator for this relationship. Therefore, the main
number of formative indicators per construct) and inner purpose of this study is to integrate and identify kaizen
model (i.e., the number of path relationships directed at a culture as the moderator between innovation and
particular construct) [31]. Therefore, the minimum sample operational performance as a conceptual framework. The
size for this study would be 90. framework will provide researchers and manufacturers an
understanding on the importance of kaizen culture-
Sample Technique and Data Collection Method innovation in optimizing operational performance in order
to provide a sustainably competitive advantage in today’s
This study is carried out using a stratified, purposive highly unstable, more complex, interconnected and very
sampling technique, in order to generate the sample disruptive business environment.
population. This sampling technique involved a
stratification process to determine the required sample size
ACKNOWLEDGMENT
and next, the purposive sampling method was applied
whereas respondents were purposively selected from each Heartfelt appreciation to Graduate School of
stratum [30].
Business for creating the opportunity to conduct
Data Analysis Techniques this research. Grateful for the wholehearted
support from Dr. Teoh Ai Ping. Special thanks to
In this study, data will be analysed using Statistical Package Ir. Dr. Rajendran Muthuveloo for his tremendous
for Social Sciences (SPSS) and consequently, the Partial
Least Squares - Structural Equation Modelling (PLS-SEM) support and supervision in this study, without
techniques using SmartPLS 3.0 will be applied on acquired which this paper would not have come to pass.
data from the E&E industry in Malaysia, in order to identify
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