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IJOPM 27,9

Examining cumulative capabilities in a developing economy

Kwasi Amoako-Gyampah
Department of Information Systems and Operations Management, Bryan School of Business and Economics, University of North Carolina at Greensboro, Greensboro, North Carolina, USA, and

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Jack R. Meredith
Babcock Graduate School of Management, Wake Forest University, Winston-Salem, North Carolina, USA
Abstract
Purpose The purpose of this paper is to test the cumulative capabilities theory of manufacturing strategy against the capabilities tradeoffs theory in a less-developed economy. It also aims to test whether the sequential development of capabilities follows the same order prescribed in the sand cone model. Design/methodology/approach Specic hypotheses on the relationships among the four manufacturing strategy components of cost, delivery, exibility, and quality were stated. Data were collected from 126 manufacturing rms in Ghana. Statistical analyses included correlation, factor analysis, and multiple regression analysis. Findings As with previous studies, the evidence here supports the cumulative capabilities theory. However, tradeoffs between the capabilities of quality, cost, delivery, and exibility were not found. In addition, the sequence of capability development was found to be different from that in developed economies, with cost being second in importance after quality. This is postulated to be due to the substantially different economic conditions in Ghana. Practical implications The ndings of this research provide guidelines to managers, particularly in developing economies, on the sequence of manufacturing capability development that is most likely to occur as they seek lasting improvements in manufacturing performance. Originality/value This paper provides ndings from a less-developed economic environment that is typically not included in manufacturing strategy research Ghana. The consistency of the results with those obtained in more advanced economies provides additional evidence for the cumulative capability model. Keywords Strategic manufacturing, Developing countries, Ghana Paper type Research paper

International Journal of Operations & Production Management Vol. 27 No. 9, 2007 pp. 928-950 q Emerald Group Publishing Limited 0144-3577 DOI 10.1108/01443570710775801

Introduction The purpose of this paper is to test the cumulative capabilities theory (Nakane, 1986; Ferdows and De Meyer, 1990; Noble, 1995; Flynn and Flynn, 2004) and examine the early sequence of manufacturing capability development intended by rms in a less-developed economy such as that of Ghana. We thereby hope to also determine if capability development in such an economy tends to follow a specic sequence similar to any of those found by other researchers. Although there have been quite a few studies examining various aspects of the cumulative capabilities theory (Noble, 1995; White, 1996; Corbett and Whybark, 2001; Flynn and Flynn, 2004), most of the studies have been based on data collected from

rms in advanced or rapidly advancing economies in North America, Europe and Asia. We have yet to see a test of the model in a less-developed economy such as that of Ghana. The practical importance of disconrming either cumulative capabilities or the specic sequence of attainment of capabilities is that managers in these countries may be following the wrong production strategy without realizing it, thereby putting their rms, and perhaps even the delicate economy of these less-developed countries, at risk. As Grossler and Grubner (2006, p. 458) noted: capabilities are potential behavior modes of a plant with which it can support and shape corporate strategy and which help it succeed in the market place. One of the earliest tests of the cumulative capabilities theory was the work done by Noble (1995). Using data collected from factories in Europe, Korea and North America, she concluded that there was general support for the cumulative capabilities theory of operations strategy. Her ndings also indicated that there were differences in the applicability of the model to different regions of the world. For example, although Noble observed that Korean rms tended to follow the Ferdows and De Meyer (1990) capability sequence of the cumulative model more closely than American or European rms, there were several signicant negative relationships between the capabilities, thus providing some support for Skinners (1969) competing theory of tradeoffs among capabilities. More recently, Flynn and Flynn (2004) used data from 167 manufacturing plants from ve countries to test the existence of cumulative capabilities. In contrast to Noble (1995), they found only positive relationships between the capabilities, thus providing support for the cumulative capabilities theory, but they did not nd support for the Ferdows and De Meyer (1990) sequential progression of capabilities. In addition, they provided evidence to show that differences existed in the patterns of cumulative capability development between plants in different countries. Thus, it is apparent that additional studies on the cumulative capabilities theory are worthwhile. In their original discussion of cumulative capabilities, Ferdows and De Meyer (1990) noted that contingency factors might inuence the sequence of capability development. Such contingency factors might include the business environment in the countries in which the rms are located, any technological advances, the presence of special manufacturing strengths, and any particular developmental approaches by the rms. Similarly, Flynn and Flynn (2004) identied other contingency factors such as whether there is experienced management and if there are underlying cultural factors that might lead to uncertainty avoidance. Thus, it appears that additional studies in different economic environments might enhance the theory and expand our knowledge about cumulative capabilities in practice. Theory and hypotheses The tradeoff theory The cumulative capabilities theory was proposed as an alternative to the tradeoff theory in explaining the patterns of capability development by manufacturing rms. The concept of tradeoffs was advocated by Skinner (1969) who argued that manufacturing decisions and policies should be aligned with the competitive strategies of the rm. In other words, it is important that manufacturing capabilities be adjusted to match the overall objectives of the rm. This way, the manufacturing function offered the organization capabilities that allowed the rm to achieve its competitive advantage. These capabilities include cost, quality, dependability, speed,

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and exibility (Hayes and Wheelwright, 1984; Leong et al., 1990). At the same time, Skinner argued that the rm needed to recognize its priorities and focus on a few capabilities at a time. This idea led to the tradeoffs concept. All rms have limited resources. Thus, in order to achieve maximum impact on organizational performance, the manufacturing function should focus on a narrow set of capabilities rather than all the capabilities simultaneously (Skinner, 1974). The argument was that rms focusing on a narrow set were more likely to achieve superior performance than those that tried to emphasize all the capabilities simultaneously. From this reasoning, Skinner (1974) proposed the focused factory idea with specic factories devoted to achieving excellence in a limited set of manufacturing tasks. Although it is not the direct focus of this study, it is worth pointing out that the tradeoff theory, either directly or indirectly, has been the subject of several studies (St John and Young, 1992; Corbett and Van Wassenhove, 1993; Schroeder et al., 1996; Pagell et al., 2000; Sazadeh et al., 2000; Corbett and Whybark, 2001; da Silveira and Slack, 2001; Boyer and Lewis, 2002). For example, based on survey data collected from managers of plants that had implemented advanced manufacturing technology, Boyer and Lewis (2002) concluded that managers do make tradeoffs among competitive capabilities. However, Sazadeh et al. (2000) found that there are tradeoffs between some capabilities (but not all) and that the choice of process, in particular, affects the relationships between the capabilities. For example, the tradeoff between cost and customization is often between plants with different process types, and Pagell et al. (2000) observed that, contrary to the assertions of Ferdows and De Meyer (1990), building cumulative capabilities might not be sustainable and that tradeoffs are eventually necessary. In general, the tradeoff theory has retained its importance in manufacturing strategy research (Corbett and Whybark, 2001). The cumulative capabilities theory Despite the arguments for the tradeoff theory and the similarity of other concepts such as Hayes and Wheelwrights (1979) product/process matrix, there were some researchers who questioned its applicability. Most of the arguments against the tradeoff theory were based on the successes of Japanese manufacturers. These researchers argued that through the use of techniques such as JIT and exible automation, the Japanese and other world class manufacturers were able to develop capabilities in several areas simultaneously (Schonberger, 1986; Collins and Schmenner, 1993; Hayes and Pisano, 1996; Schmenner and Swink, 1998; Flynn et al., 1999). Other evidence against the tradeoff theory has come from the results of studies showing strong relationships between business performance and multiple competitive capabilities (Cleveland et al., 1989; Roth and Miller, 1992; Vickery et al., 1993; Rosenzweig and Roth, 2004). The argument that manufacturing capabilities should be, and frequently are, developed along multiple dimensions simultaneously led to the idea of cumulative capabilities (Nakane, 1986; Ferdows and De Meyer, 1990; Noble, 1995; White, 1996; Boyer and Lewis, 2002; Flynn and Flynn, 2004). It has been further argued that cumulative capabilities are more likely to lead to lasting improvements than capabilities that are built at the expense of other (traded off) capabilities (Ferdows and De Meyer, 1990). The cumulative theory allows managers to develop a proactive rather than a reactive approach to capability development. To the extent that manufacturing

proactiveness leads to improved business performance, one can expect the cumulative theory to offer guidance for long-term lasting success (Ward et al., 1994). At the same time, other researchers have hinted that the theories of capability tradeoffs and cumulative capabilities are not exactly mutually exclusive. Boyer and Lewis (2002) noted that while plant managers consider simultaneously developing capabilities in cost, delivery, exibility, and quality as vital for competitive success, they also perceive the need for tradeoffs. Based on a longitudinal study of North American manufacturers, Roth and Gif (1995) observed that, although manufacturers can improve along more than one capability at the same time, the rate of capability improvement is not uniform, while da Silveira and Slack (2001) noted that practitioners do not see tradeoffs in the same vein as academics. They view tradeoffs as a means to focus and redirect attention to operational areas needing immediate attention (sometimes in the short-run) and not necessarily as a means of building up one capability at the expense of another. In an important reconciliation of the tradeoff-cumulative debate, Schmenner and Swink (1998) and Clark (1996) proposed a theory of performance frontiers, which basically states that capabilities are typically cumulative for rms that are not on the leading edge of capabilities, but once on the frontier, only tradeoffs can then be made to alter the rms competitive position. This perspective has been advocated by other researchers as well (Hayes and Pisano, 1996). The practical implications of this insight are that leading edge (frontier) rms will have to make tradeoffs to alter their competitive position unless they can create an innovation that moves the frontier itself, such as the innovations Dell and Wal-Mart have created in their industries (Magretta, 1998). However, rms that are not on the frontier can improve on multiple capabilities at the same time, as they strive to reach the leading edge in their industry. That strong relationships exist between the different capabilities, however measured, does not appear to be disputed. The meta-analysis done by White (1996) shows the existence of signicant positive relationships among quality, cost, delivery, and exibility. Although the meta-analysis was based on individual dimensions of the capability constructs, it does not take away from the central conclusion that both theoretical and empirical evidence exist for the presence of cumulative capabilities. The issue of interest here is if one should expect to nd similar strong relationships for the manufacturing environment in less developed economies, such as that of Ghana, where rms would generally not be expected to be on the frontier. Ghana: a less developed economy The domestic Ghanaian economy revolves around subsistence agriculture which accounts for about 34 percent of gross domestic product (GDP) and employs about 60 percent of the work force (The World Factbook: Ghana, 2005). Industrial output represents about 25 percent of GDP and 15 percent of the labor force, with manufacturing about 9 percent of GDP (The World Factbook: Ghana, 2005). Since, 1983, and to the present time, Ghana has been implementing various types of economic reforms that are aimed at reversing decades of economic decline. Most of these reforms, which were undertaken in coordination with such nancial institutions as the World Bank and the International Monetary Fund include trade liberalization, removal of price controls and government subsidies, oating of the domestic currency, and

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removal of all restrictions on imports, and were aimed at boosting productivity and increasing export (United States State Department, 2005). The economic liberalization policies have nurtured an open economy and have minimized the hurdles that the manufacturing companies in Ghana need to clear in order to obtain raw materials and other resources for productive activities. However, it has created an unprecedented change in their business environment through increased competition both in the domestic market and from imports into the country. For example, food processing and textile manufacturing output in 1990 were less than 60 percent of their volume in 1977. Also, total manufacturing output for all industries fell below the 1970s level for the rst time in 1998 (Yusuf and Saffu, 2005). Moreover, the rate of growth of imports into the country between 1988 and 1999 was 7.3 percent, while GDP growth was only 4.3 percent (ISSER, 2002). While the preceding economic factors might account for some of the reasons why Ghanaian manufacturing rms will not be on the performance frontier, there are additional factors worthy of consideration. The Ghanaian manufacturing environment, not unlike those of similar developing countries, is characterized by lack of access to manufactured inputs, unavailability of human capital in the necessary skill areas (e.g. technicians and scientists), lack of access to capital, high transaction costs, demand/supply uncertainty, scale inefciencies, and economic volatility (Frazer, 2005; Tybout, 2000). For example, the rate of ination averaged 12.5 percent in 1999, rose to 24.9 percent in 2000, rose again to 32.9 percent in 2001 and dropped to 14.5 percent in 2002 (ISSER, 2002). Scale efciencies are hard to achieve in periods of macro-economic instability. In addition, changing regulatory reforms and demand uncertainties imply that rms are not likely to make long-term xed capital investments that can lead to attainment of higher production efciencies (Tybout, 2000). Thus, although the manufacturing sector grew by 3.7 percent in 2001, manufacturings share of real GDP has remained constant at about 9.1 percent since 1996 (ISSER, 2002). Thus, Ghanaian manufacturing companies need to develop and implement well-conceived strategies in order to be competitive in the business environment. This would include becoming more customer- and competitor-focused by developing strategies to enhance product quality, reduce cost, build relationships with customers and suppliers, and enhance distribution and delivery of their products. These strategies should be pursued in order to reduce operating costs, increase demand, and deal with the heightened competition in the domestic market and increased imports from abroad (Yusuf and Saffu, 2005). The increased import competition from world-class rms is not unique to Ghana. It has been observed in several different developing and emerging economies that have implemented world economy reforms (Khanna and Palepu, 2006; Dangayach and Deshmukh, 2001). In Ghana and similar environments, the increase in competition is compounded by the ooding of the market with used goods from the USA and elsewhere. The used goods include clothing (including shoes and home furnishings such as draperies), medical equipment, and spare parts for automobiles (Czaga and Fliess, 2005). Take the case of used clothing. The exports of used clothing from the USA alone to Africa grew from $35 million in 1989 to $109 million in 1999 (Maharaj, 2004). Worldwide, exports of used clothing in 2001 was estimated at $990 million (Czaga and Fliess, 2005).

The International Trade Center (based in Geneva) reports that Ghana imports over $43 million of used clothing every year. This contrasts with clothing exports of only about $4 million a year (mostly socks). Thus, employment in the textiles industry has declined from about 25,000 people to 3,000 (Crawley, 2004). Similar trends can be found in other sub-Saharan African countries. Over 30,000 jobs have been lost in the textile industry in Zambia in recent years (Rivoli, 2005). The African continent is gradually losing its ability to clothe itself since manufacturers nd it difcult to produce clothing at a cost that is as little as the equivalent of 10 cents that might be paid for used underwear discarded by Westerners. Since, the domestic market is not very large or sophisticated, the increase in imports means that domestic rms must develop multiple and lasting capabilities that will allow them to survive in the local market as well as the international market. In the short run, apparel manufacturers, for example, who focus on developing cost reduction capabilities might be able to compete with the importers of used clothing as well as increased competition from Asia (mostly China). However, their long-term survival will depend on their ability to compete in the export market. Developing capabilities that allow them to compete in the export market will dampen the effect of used goods and other imports on the domestic market. To summarize, due to the rapidly changing political, institutional, and economic changes, it is important that rms in Ghana and similar environments, if they want to survive, upgrade and re-congure their manufacturing capabilities (Wright et al., 2005). In order to succeed, rms have to invest in new equipment and technology, increase the quality of their products and services, offer a diverse set of products to meet changing customers needs, increase their productivity, and produce goods cheaply (Rankin et al., 2002). Given the poor state of manufacturing as well as the economic environment in Ghana, in accordance with the theory of performance frontiers (Clark, 1996; Hayes and Pisano, 1996; Schmenner and Swink, 1998), we propose that manufacturing rms in Ghana will emphasize developing their capabilities simultaneously (rather than trade off one capability for another) in attempts to seek lasting improvements in their manufacturing competitiveness. In other words, Ghanaian manufacturers are so far within the performance frontier that one should not expect any evidence of tradeoffs. As shown by Noble (1995), this can be conrmed through signicant positive correlations among the emphases given to manufacturing capabilities, as stated in our H1: H1. There will only be signicant positive correlations and no negative correlations among the manufacturing capabilities of cost, delivery, exibility, and quality being emphasized by manufacturing rms in Ghana. Sequence of emphasis on capabilities Proponents of the cumulative model argue that not only are capabilities developed without trading off one for another but they follow a sequence of accumulation. That is, one capability is focused on and improved and then another is added to the mix while continuing to improve the rst capability, and then a third is added while improving the rst two, and so on. So while capabilities cumulate, they follow a particular sequence. Although there are somewhat different variations of cumulative capabilities such as Roths (1996) competitive progression theory, the one of special interest in this study is the sand cone model of Ferdows and De Meyer (1990). The genesis of the

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sand cone model can be traced to the work of Nakane (1986) who argued that in order to achieve exibility in their manufacturing operations, Japanese manufacturers should rst emphasize quality followed by dependability, then cost, and nally exibility. Ferdows and De Meyer extended that idea and proposed the sand cone model where each subsequent capability builds on the previous ones, so the capabilities cumulate. The analogy to the sand cone comes from the idea that a company continues its efforts on the rst capability even as it shifts its focus to improving the second capability, and then continues to expand both the rst and second capability as it turns its attention to the third capability, and so on. Thus, the base levels gradually continue to expand while each upper level is added, similar to building a sand cone. However, based on data from their 1988 survey of 167 high-performing European manufacturers, Ferdows and De Meyer (1990) proposed a slightly different sequence from Nakane: quality at the base, followed by dependability, speed (as a measure of exibility), and last, cost. There have been slightly different variations of this sequential capabilities model tested ever since its inception. Noble (1995), for example, proposed the following sequence: quality, dependability, delivery, cost, exibility, and then innovation. Flynn and Flynn (2004) tested another slightly different sequence: quality followed by dependability, speed, exibility, and cost. Several other sequence variations exist (Hall, 1987; Swink and Way, 1995; Schmenner and Swink, 1998). However, almost all of these sequences have quality at the base. In arguing for quality to be at the base, Ferdows and De Meyer noted that improvements in quality can lead to cost efciencies (and also improvements in dependability and speed) whereas increasing cost efciency, for example, is not likely to lead to improvements in quality. As an example, adoption of statistical process control mechanisms will ensure that defects are detected early, thus reducing the number of bad quality products that might have to be re-worked or discarded, thereby reducing overall production costs. Similarly, having less rework will improve delivery lead times and attaining consistent quality will lead to high-delivery capability. At the organizational level, several studies have shown a strong correlation between quality improvement and business performance. After reviewing some of these studies, White (1996, p. 318) stated the positive impact of quality on business performance is well established, perhaps more so than the other capabilities. Given the importance of quality itself, in addition to its benecial side effects on cost and performance, it appears that quality has become what Hill (1994) refers to as an order qualier in the sense that products are not even considered for purchase if they do not have high quality. The assertion that quality will form the foundation for cumulative development is not in dispute, based on the ndings of the studies cited earlier. However, we also noted earlier that the Ghanaian market has been ooded with cheap imports, putting immense pressure on manufacturers to reduce their prices. Thus, it might be expected that the immediate pressure would be to reduce cost and subsequently prices so as to compete with this ood of imports. Hence, a nding that quality still forms the foundation for cumulative capability development even in the Ghanaian environment would certainly make a contribution to the literature. Therefore, our H2 is: H2. Emphasis on quality will form the foundation for cumulative capability development for manufacturing rms in Ghana.

The original sand cone model has cost at the top of the cone, implying that when striving to achieve lasting improvements in manufacturing capabilities, cost efciencies are the last capability that should be emphasized after quality, delivery, and speed (as a measure of exibility) in that order. However, in Ghana, the intense competition brought about by market reforms and the resulting ood of cheap imports is forcing rms to emphasize developing their cost capabilities in order to compete successfully. We noted earlier the impact of used clothing on domestic apparel and textiles production in the Ghanaian market (Crawley, 2004). In fact, this economic impact is not limited to Ghana alone. Used clothes have led to the disappearance of thousands of jobs in Senegal, South Africa, Tanzania, and Zimbabwe, among other countries (Crawley, 2004). Nor is it limited to clothing the same pattern can be found in shoes, furniture, home furnishings, appliances, and automotive components (Czaga and Fliess, 2005). For example, available data suggests that the cost of comparable garden furniture imported from China is about 60 percent of that produced domestically in Ghana (United States International Trade Commission USITC, 2004). Also, there is the pressure of increased imports from Asia on the domestic market. The USITC notes that the growth in the textiles and apparel industry in Sub-Saharan Africa is constrained by widespread shortages of raw materials and inputs, high production costs (compared to Asian producers), unused capacity, and outdated equipment. The smuggling of inexpensive goods together with the inux of used goods that compete with local production hinder the competitiveness of local producers. Whereas an emphasis on exibility can be pursued when a rm is trying to shape the direction of the market that it competes in, manufacturers in Ghana are not in a position to shape the market. They are forced to seek cost reduction mechanisms that will allow them to be price competitive, all things being equal. Similarly, the logistics and transportation infrastructure in Ghana is not well developed. Most people are used to long delays of goods at ports or waiting long periods of time for receipt of goods. It is not unusual for one personally to spend large amounts of time traveling short distances within the Accra/Tema metropolitan area in Ghana because of the lack of parallel and multi-lane roads. There is estimated to be only 43,000 kilometers of roadways in the entire country and less than 10 percent of these are paved (The World Factbook: Ghana, 2005). Thus, developing capabilities in delivery is not likely to provide the same benets as would be expected from capabilities in cost and quality. This line of thinking is consistent with the conclusions of Wacker (1996) who noted that increased competition forces rms to focus on goals that have become order qualiers as opposed to order winners. Similarly, Swink et al. (2006) nd that even for new product development, the best manufacturing rms also seem to develop quality and cost rst, and then speed later. In a meta-model analysis of manufacturing capabilities, White (1996) proposed a model that shows direct linkages between cost and business performance. He argued that such direct relationships may explain the attractiveness of cost reductions in gaining short-term business improvements. We argue that in Ghana, the need to simply survive in the marketplace as a result of the economic reform programs is forcing companies to develop capabilities in cost efciencies ahead of capabilities in delivery or exibility. We note that this situation is similar to the 1980s manufacturing environment in the USA where rms, because of increased competition from the Japanese, were forced to focus on both on quality and cost. In such environments, capability development in cost efciencies ahead of

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exibility (especially product exibility) is highly recommended (Wacker, 1996). Thus, we propose that for Ghana, an emphasis on cost capabilities will immediately follow the focus on meeting quality requirements: H3. Owing to import cost pressures on the Ghanaian economy, manufacturing rms will emphasize cost capabilities after satisfying quality requirements.

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Sample and data collection The data for this study came from a larger study that sought responses to questionnaires that were hand delivered to 250 manufacturing and service organizations in Ghana. In addition to collecting data on the main study variables, we also collected demographic data on the rms including industry type, size, xed assets and ownership structure. The sample consisted primarily of large and medium-sized rms drawn from a list of companies that are part of the Association of Ghana Industries and/or were listed in the Ghana Business Directory. The study was conned to rms in the Accra-Tema metropolitan area which is considered to represent the most important location for manufacturing activity in Ghana (Sohail et al., 2004; Rankin et al., 2002). Approximately, 80 percent of all manufacturing enterprises in Ghana are located in the Greater Accra region (Wolf, 2004). Five graduate students in the School of Administration (the business school) at the University of Ghana were given 50 questionnaires each and assigned to a specic locality where a cluster of the service and manufacturing rms were located. The students went to these companies and sought the operations managers or their equivalent in the companies. An operations manager or equivalent is a senior level ofcial within rms in Ghana and thus he or she is in a position to provide strategic level responses. A typical title is production manager. In the larger study, separate portions of the questionnaire were given to marketing and human resource managers within the company. There were several questions that were common to all sections and these were used to minimize self-report bias. The students explained the purpose of the study, gave the questionnaires to the respondents, and obtained promissory dates when they could go back for the completed questionnaires. Sometimes, the students made two or three follow-up visits to the respondents before receiving the completed surveys. One of the authors of the study also made random visits to some of the rms to check up on the completed surveys as well as any uncompleted surveys. The entire data collection process took three weeks. This approach was used to ensure adequate and accurate responses since rms in Ghana are not used to mail-delivered surveys. A total of 192 completed surveys were obtained representing a response rate of 76.8 percent. Reasons given for the non-respondents included unavailability of the individuals most qualied to complete the survey and lack of interest in participating in the study. We checked for non-response bias by testing the size, industry type, and ownership structure (Table I) and found no statistical differences between respondents and non-respondents. Surveys from 12 rms were discarded due to incomplete information, resulting in a nal usable sample size of 180 which included 59 service rms (deemed inappropriate for this study) and 126 manufacturing rms which were used here. Some of these rms sometimes had missing values in their responses. However, the few missing values were not substantial enough to require totally

Industry Industry prole Textiles Building materials Wood products Chemicals Metals Plastics Others Total Number of employees Less than 50 50-99 100-199 200-499 500-1,000 Total Fixed assets, millions of Cedis a Less than 500 500-900 1,000-5,000 .5,000 Total Capital structure Wholly local Joint venture Wholly foreign Total Ownership structure family-owned business Yes No Total

No. of respondents 10 22 16 22 34 10 12 126 Frequency 63 30 16 15 2 126 17 20 44 40 121 80 27 16 123 55 65 120

Percent 7.9 17.5 12.7 17.5 27.0 7.9 9.5 100.0 Percent 50.0 23.8 12.7 11.9 1.6 100.0 14.0 16.5 36.4 33.1 100.0 65.0 22.0 13.0 100.0 45.8 54.2 100.0

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Note: aAt the time of this study one US$ was equivalent to 9,000 Ghanaian Cedis

Table I. Demographics

eliminating that rm from the database. Thus, in some of our statistical tests, the number of observations is slightly less than 126. We took several steps to check for common method variance (CMV). CMV is the ination of correlations between variables measured with the same method that often arises from self-report surveys. CMV arises because of respondents need to provide consistent answers and/or answers that are socially desirable. First, as we indicated earlier, this study was part of a larger study that included several different items focusing on human resource, marketing, and competitive strategies in addition to the items assessing operations strategy that were interspersed throughout the survey. Second, some of the scales were reversed so one end of the responses did not always correspond to a larger effect. Third, the respondents were assured of the anonymity of their responses as well as given the assurance that their companies will not be individually identied in any published results. These techniques and others are established means by which CMV is minimized and have been used in published operations management research (Nunnally and Bernstein, 1994; Podsakoff et al., 2003; da Silveira and Arkader, 2007).

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Last, we used Harmans (1967) one-factor test. Our factor analysis showing the presence of four distinct factors among capability variables provides assurance that CMV could not explain the relationships among the variables. Variables Several of the empirical studies of both tradeoff and cumulative capabilities theories have directly asked managers how their performance on different dimensions of cost, delivery, exibility, and quality compare with those of their competitors. The inherent assumption here is that if the managers indicate that the rm does well on a particular dimension, then it means it has developed capability in that area. Since, the goal of this study was capability development, the questions were framed to elicit responses on the emphasis that respondents placed on various initiatives that allowed them to build those capabilities. We therefore asked managers the extent to which they have invested resources in various dimensions of cost, delivery, exibility, and quality, their answers thereby indicating the degree to which they intend to build capability in those areas. Following earlier studies (Ferdows and De Meyer, 1990; Noble, 1995), we included measures of emphasis on both process-based quality (e.g. statistical process control, updating process equipment) and market-based quality (Flynn and Flynn, 2004), such as improving product quality and reliability. Also, measures of emphasis on delivery, speed, and exibility included faster deliveries to customers, meeting delivery promises, handling changes in product mix, quickly adjusting capacity, and reducing manufacturing lead times. Some of these measures, as noted earlier, can have effects on multiple capabilities; for example, reducing lead time allows for both increases in volume and variety to be achieved and thus contributes to building capability in exibility as well as reducing costs and improving delivery (Noble, 1995). Cost emphasis measures included inventory reduction and reducing material and overhead costs (Ferdows and De Meyer, 1990; Noble, 1995; Flynn and Flynn, 2004). Overhead cost is clearly an important measure of the cost construct, even though frequently ignored. For example, Ferdows and De Meyer (1990) found a very strong correlation between unit production cost and overhead costs. The recent emphasis that rms are placing on supply chain activities illustrates the importance of reducing material costs. Similar to Noble (1995), we use composite measures for the emphasis on the four capability constructs of interest here: quality, cost, delivery, and exibility (Table II). However, it must be noted that there has been a lack of commonly agreed upon denitions and measures for these constructs, as noted frequently in the literature (Corbett and Van Wassenhove, 1993; White, 1996; Ward et al., 1994; Flynn and Flynn, 2004). For example, the ability of manufacturers to respond quickly to customers (speed of response) is considered to be a measure of speed by Ferdows and De Meyer (1990), delivery by Noble (1995), and fast deliveries by Flynn and Flynn (2004). Similarly, manufacturing lead time (also speed of response) is considered to be an element of delivery (Grossler and Grubner, 2006) and other times thought of as a exibility measure (Ward and Duray, 2000). Thus, issues of reliability and validity become very important when one uses aggregated measures for the different constructs.

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Measures Quality Cost Dependability Delivery Delivery Flexibility Flexibility On-time delivery Speed Fast delivery Volume exibility Product exibility Cost Cost Process quality Market quality Cost

Ferdows and De Meyer (1990)

Noble (1995)

Research study authors Flynn and Flynn Grobler and GrUbner (2004) (2006) Conformance quality Product quality and reliability Cost Inventory turnover Delivery reliability Delivery Volume exibility Mix exibility

Current study Quality Quality Cost Cost Delivery Delivery Flexibility Flexibility

Process quality Market quality Unit cost Overhead cost Material costs Production dependability On-time delivery dependability NPD speed Speed of response Speed of change of volumes Speed of change of product mix Dependability Dependability Speed Speed Speed

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Table II. Comparison of factors terminology and measures

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We assessed the reliability of our measures through the determination of Cronbach a for each construct. The Appendix shows the questions that were used to measure the emphasis on these variables and to collect demographic information. The items are very similar to others used in prior research (Ward and Duray, 2000). We indicate the reliability based on the Cronbach a for each construct in the Appendix. Although one of them is near the 0.60 value, several researchers (Srinivasan, 1985; Nunnally and Bernstein, 1994; Gupta and Somers, 1996) have noted that as of between 0.50 and 0.60 are generally acceptable for exploratory (e.g. the Ghanaian environment) research. Last, Gupta and Somers (1996) argued that since a is a function of the number of items in the composite, it tends to be conservative; thus these a-values indicate acceptable levels of reliability. Construct validity was assessed in different ways. First, the fact that the items composing our constructs were all from previous theoretically-based studies and did not represent new scales provides evidence of the validity of the scales (Anand and Ward, 2004; Swink et al., 2005). To verify that the questions were understandable to Ghanaian managers, they were all reviewed by a University of Ghana business school professor and the MBA students who would eventually administer the surveys. Based on their feedback, the questions were then reworded and claried for a Ghanaian manufacturing environment. Factor analysis using principal component analyses with varimax rotation was used to examine convergent and discriminant validity (Table III). We used varimax rotation because it is the most common rotation method for exploratory research and
Factor Delivery Flexibility 0.181 0.142 0.177 0.674 0.670 0.072 0.284 20.321 0.089 0.264 0.119 0.045 0.102 0.234 0.168 0.351 0.357 0.247 0.182 0.028 0.008 0.301 0.001 0.698 0.583 0.770 0.249 0.249 0.162 0.158 20.074 0.145 0.205 20.147 0.021 0.364

Measures Reducing material costs Reducing overhead costs Reducing inventory costs Providing faster deliveries Meeting delivery promises Reducing manufacturing lead time Adjusting capacity rapidly Handling changes in product mix Using statistical process control methods Updating process equipment/technology Obtaining quality certications such as ISO 9000 Improving supplier quality Improving product performance and reliability Developing new processes for new products Developing new processes for old products Making changes in product design as desired by customersa Handling variations in customer order and/or delivery schedulea Reducing defect ratesa Table III. Factor analysis

Cost 0.791 0.809 0.770 0.256 0.321 0.249 20.034 0.108 0.099 0.092 0.075 0.293 0.309 0.047 0.323 0.290 0.205 0.322

Quality 0.194 0.159 0.095 0.156 2 0.008 2 0.079 0.250 0.217 0.771 0.659 0.815 0.536 0.415 0.680 0.482 0.304 0.294 0.353

Notes: KMO measure of sampling adequacy is 0.831; Bartletts test of sphericity signicant at p , 0.001; n 122; athese items did not load strongly on any one factor and were eliminated from the scales

also because it is the rotation method that maximizes the potential that each variable will load on one factor (Thompson, 2005). Convergent validity is typically considered to be satisfactory when items load high on their respective factors. The results of our factor analyses are shown in Table II. All items had high loadings (greater than 0.40) on their respective factors, signifying desirable measurement convergent validity. Items with multiple loadings and/or with loadings less than 0.4 were eliminated (Hair et al., 1998). Discriminant validity was assessed by examining whether each item loaded substantially higher on the respective factor than on other constructs. The overall results indicated minimal cross loadings, signifying that reasonable discriminant validity has been achieved (Table III). Also, similar to the arguments used by Grossler and Grubner (2006), for cumulative capabilities to exist we should see signicant correlations between the different capability constructs. At the same time however, the constructs should be sufciently dissimilar for discriminant validity to be present. The correlations between the constructs (Table IV) are all signicant but moderate (less than 0.7) providing further support for discriminant validity; that is, the factors appear to be measuring distinct concepts. Results Demographic information on the rms is included in Table I. Data are provided about industry distribution, rm size (number of employees and xed assets), capital structure, and type of ownership. The largest industry category at 27 percent is metals. This includes fabricators of aluminum containers, cooking utensils, and other appliances. The next group is chemicals (mostly pharmaceuticals) and building materials (iron rods, roong sheets and concrete products) at 17.5 percent each. Wood products (mostly furniture) comprise 12.7 percent, followed by plastics (water tanks and plastic containers) and textiles at 7.9 percent each. The others category includes paper, real estate construction, and information technology rms. The table also shows that half of the rms in the sample have less than 50 employees. Firms with more than 100 employees are generally considered large within the Ghanaian manufacturing environment (Soderbom and Teal, 2001). Of the rms, 65 percent are locally owned, with 22 percent being joint venture rms. Slightly less than 50 percent of the rms are family-owned enterprises. Although we did not use a sampling procedure in identifying rms for the study, the distribution of rms in the various categories is identical to that of other studies such as Rankin et al. (2002) who used a stratied sample of manufacturing rms in Ghana. Similar to Noble (1995) and Flynn and Flynn (2004), we use correlations and multiple regressions to test our hypotheses. If an emphasis on cumulative capabilities
Capability Quality Cost Delivery Flexibility Mean 5.43 6.16 6.22 5.39 SD 0.94 0.84 0.94 1.00 Cost capability 0.573 * Delivery 0.533 * 0.525 * Flexibility 0.469 * 0.447 * 0.315 *

Examining cumulative capabilities 941

Notes: n 122; *p , 0.001

Table IV. Means, standard deviations, and correlations

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is present then strong positive correlations should be obtained. As noted earlier, they were (Table IV). Stepwise regression was used to determine the order of signicant predictor variables for each dependent variable. For each model we report the sample size, the adjusted R 2, the signicant predictor capabilities, their standardized coefcients, and the t statistic for each. Since, all the variables were measured on the same scale (degree of emphasis), we can use the standardized b coefcients to indicate the relative importance of the multiple independent variables in predicting the dependent variable. The strength of the association between the dependent and independent variables is indicated by the R 2 values. We also provide evidence of the absence of multi-collinearity through the variance ination factors (VIF) for the regression analyses. The results of our stepwise multiple regression analyses are shown in Table V. An examination of the correlations in Table IV between the emphases on the four capabilities shows that with all positive and signicant pairs of correlations, no tradeoffs are apparent. Thus, it does not appear that manufacturers in Ghana are trading off an emphasis in the development in one capability for another, providing strong support for H1. Additional support for the development of an emphasis on cumulative capabilities by manufacturing rms in Ghana is provided by the regression analyses. As shown in Table V, there are a total of ten signicant positive relationships among the four capabilities of cost, delivery, exibility, and cost. There is not a single negative relationship present. In this respect, our results are different from some of the relationships found by Noble (1995) and Flynn and Flynn (2004). Noble found signicant negative correlations between delivery and exibility for both European and North American manufacturers, while Flynn and Flynn observed negative relationships between market-based quality and fast delivery for German manufacturers. Although Table IV provides some evidence of support for H2 and H3, the strongest evidence comes from our regression analyses shown in Table V. As evident from the regressions in Table V, each of the other capabilities includes quality as a signicant independent variable, providing support for H2. Furthermore, for each one of those capabilities, emphasis on quality is also the strongest predictor, as indicated by the b coefcients, among all the other independent variables. Table V also provides support for H3, in that emphasis on cost is the other signicant predictor (besides quality) for delivery and exibility, and has the strongest link among its b coefcients to quality. In theory, the sand cone predicts that the strongest relationships will be for capabilities toward the base of the cone (Ferdows and De Meyer, 1990; White, 1996). Table V provides evidence that this is happening in the Ghanaian environment. Emphasis on cost has the strongest association with quality, and is next to quality with regard to its association with delivery and exibility. All of this implies that cost will be closer to the base than delivery or exibility and thus lends support for H3. Also, there are three cumulative capabilities involving either quality and also three involving cost while there are only two that involve delivery and two that involve exibility, thus indicating that quality and cost are toward the base of the cone and delivery and exibility are toward the top of the cone; thus neither H2 nor H3 can be rejected. The above arguments in support of our hypotheses are consistent with those of Flynn and Flynn (2004) and Noble (1995). The VIF values in Table V conrm the lack of multi-collinearity since they are substantially less than ten (Frees, 1996), and thus conrm the validity of the regression results.

Dependent variable 120 120 120 120 0.250 21.01 * * * 0.345 32.63 * * * 0.412 28.99 * * * 0.429 31.08 * * *

Adjusted R 2 F Independent variables Coefcient (standardized b)

VIF

Quality

Cost

Delivery

Flexibility

Cost Delivery Flexibility Quality Delivery Flexibility Quality Cost Flexibility Quality Cost Delivery

0.313 0.295 0.232 0.323 0.289 0.203 0.345 0.328 0.012 0.312 0.266 0.014

3.63 * * * 3.62 * * * 2.99 * * 3.63 * * * 3.48 * * 2.56 * 3.84 * * * 3.64 * * * 0.14 3.24 * * 2.76 * * 0.14

1.567 1.397 1.260 1.615 1.408 1.284 1.484 1.484 1.356 1.484 1.484 1.553

Notes: not signicant; *p , 0.05; * *p , 0.01; * * *p 0.000

Examining cumulative capabilities

Table V. Relationships between capabilities

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Discussion and conclusions Evidence of cumulative capabilities exists within the Ghanaian manufacturing environment. Manufacturers in Ghana appear to emphasize all four competitive priorities of low-cost, delivery, exibility, and quality. We did not nd any evidence that manufacturers are trading off one capability for the other. Manufacturers in Ghana are also implementing programs in statistical quality control, obtaining ISO certications, and implementing other quality programs to help develop capabilities in quality (Amoako-Gyampah and Gargeya, 2001). Simultaneously, they are emphasizing programs that lead to reduction in materials costs, defect rates, manufacturing lead times, and capacity improvement so as to achieve unit cost efciencies, and volume and mix exibility. Lastly, they are investing to achieve the capability of providing fast and consistent deliveries (Amoako-Gyampah and Gargeya, 2001). The cumulative capabilities primarily emphasized by Ghanaian rms were quality and cost. This is in contrast to ndings from other environments. For example, Flynn and Flynn (2004) found that, for plants in Germany, most of the cumulative capabilities were with dependability (delivery) and speed as opposed to cost and quality, whereas for plants in the USA, the largest number of cumulative capabilities were dependability and exibility. The difference can, we believe, be linked to the Ghanaian manufacturing environment. As noted earlier, prior to the mid-1980s the manufacturing environment was characterized by large state run enterprises with their attendant inefciencies and subsidies. Following the implementation of structural adjustment programs, some of these enterprises were sold to private organizations, subsidies were eliminated, the currency was oated, and price controls removed. The resultant increase of imports meant that locally produced goods were no longer competitive on price. This forced manufacturers to emphasize the development of capabilities in low-cost manufacturing. Improving cost efciencies and productivity is recognized as very important because of increased competition in the domestic market (Wolf, 2004). The rms are therefore emphasizing inventory reduction and reducing overhead and material costs. The cost of materials, in particular, is of greatest concern because about 50 percent of all raw materials used in production in Ghana are imported (Wolf, 2004). In Ghana, there is also the perception that foreign goods are of higher quality than locally manufactured goods. Thus, in order to compete rms have to develop capabilities in quality, as stated earlier. This is consistent with the ndings of Khanna and Palepu (2006) who noted:
. . . we have found that once emerging market rms improve the quality of their products and services, they are able to cater to customers at home as well as, if not better than, multinational companies.

We also note that in the mid-1980s, manufacturers in the USA were similarly forced to focus on both cost and quality in the midst of increasing imports into the USA market from Japanese manufacturers. There are, of course, limitations to our study. We did not test for the impact of capabilities on rm performance. It will be useful for future studies to examine the relationship between capability development and rm performance. A study that incorporates a time lag between capability development and performance would be

particularly useful. This should help managers understand which programs to implement rst in order to improve performance (Corbett and Whybark, 2001). The fact that over 75 percent of our rms have less than 100 employees limited our ability to asses the impact of rm size on capability development. Also, although the study was conned to manufacturing rms, it would be interesting to ascertain if differences exist between different manufacturing industries. Since, this was a cross-sectional study we cannot infer cause and effect in terms of the dependencies between the capabilities. However, our data suggest that our three hypotheses cannot be rejected and that capability development based on manufacturing emphasis thus appears to largely follow the sand cone model, though the sequence is somewhat different from that suggested by Ferdows and De Meyer (1990). In Ghana it appears that the sequence is quality followed by cost, and then delivery and/or exibility. This research has contributed to the literature on the cumulative model of operations strategy by providing ndings from a non-traditional environment the manufacturing environment in Ghana, an underdeveloped economy. Previous studies of the cumulative model have been based on advanced or rapidly developing economies. We provide ndings from an emerging economy and by providing support for those ndings we contribute to the strengthening of the theory on cumulative capabilities. Lack of talent and access to capital (compared to companies in the USA and Europe) make it difcult for rms in developing countries to build global brands or invest in technology to achieve exibility in their operations (Khanna and Palepu, 2006). In addition, emphasizing reliable and dependable delivery is not easy to achieve because of inadequate infrastructure and delivery systems. Despite the relatively low-cost of labor, most manufacturers are unable to produce items cheaper than the landed price of equivalent imports. Our recommendation to managers in such environments is to focus on developing capabilities that have been known to lead to lasting improvements. Our ndings as well as those of others (Flynn and Flynn, 2004; Noble, 1995) clearly indicate that differences exist in the patterns of cumulative capability development. We have used the economic environment prevalent in Ghana to explain our results. It would be worthwhile to develop theoretical extensions to the sand cone model that incorporate specic economic factors into the relationships between capability variables. Such models would enhance our ability to predict and explain the impact of cumulative development in different economic environments. Additionally, our sample included rms that in other environments (such as in the USA) might be considered to be very small (50 percent of our rms had less than 50 employees). It appears from our ndings that even small rms develop capabilities in a cumulative manner. Given that the argument for tradeoffs and cumulative capabilities is still ongoing, this study provides support for the cumulative model in a non-traditional environment. Whereas in the past, domestic producers might have leaned on government policies and other covert activities, such as burning down used clothing markets (Rivoli, 2005), it appears that developing capabilities that allow them to produce for export is gradually being recognized by manufacturers in Ghana as more a effective approach to sustainability.
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Demographics: check the industry to which your company belongs Industry A Food A Building materials A Textiles A Electronics A Transportation equipment A Rubber A Chemicals A Wood products A Metals Indicate the number of employees in your company A Less than 50 A 50-99 A 100-199 A 200-499 A 500-1,000 Indicate your companys xed assets (in Cedis) A Less than 5 hundred million A 5-9 hundred million A 1-5 billion Indicate the capital structure of your company A Wholly local A Joint venture A Wholly foreign This company is a state-owned enterprise. A Yes A No This company is a family-owned enterprise A Yes A No

A Printing A Services A Other__________ A More than 1,000 A More than 5 billion

Corresponding author Kwasi Amoako-Gyampah can be contacted at: kwasi_amoako@uncg.edu

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