Production Capability in International Operations: The Impact of Planning and Information Support

Concern that U.S. industry will continue to face escalating international competition has focused much attention on improving the competitiveness of U.S. manufacturing. One result of this renewed emphasis on manufacturing competence is that many U.S. firms have recognized that achieving a sustainable competitive advantage requires that they build strategic value-added capabilities (Stalk et al., 1992). Indeed, these firms operate on the premise that strong organizational performance depends on their ability to develop key capabilities - including production excellence - that differentiate them from their competitors. Organizational success is established through strategic business decisions that emphasize the firm's ability to consistently provide superior value to customers (Ohmae, 1988). By coordinating production skills, integrating technology, and combining organizational knowledge, firms develop production processes that contribute to this overall strategic goal of customer satisfaction (Prahalad and Hamel, 1990). These production processes are transformed into strategic capabilities as investments are made in a supportive infrastructure that links and transcends both traditional functional areas and geographically dispersed operations. Likewise, investments in people skills are fundamental to building a production capability (Ward et al., 1994). The transformation of production processes into a true competitive weapon is best achieved when a selective number of competitive priorities that are viewed as important by key customers drive the capability-development process (Hayes et al., 1988). Thus, a production capability is achieved as the firm develops and focuses the appropriate production-related human and technological resources to produce differentiated products that meet the real needs of customers. The potential of production capability to help firms meet the demands of an increasingly competitive global environment highlights the need to better understand the relationship between production capability and competitiveness. That is, manufacturing skill has been conceptually linked to improved firm performance for many years (Hall, 1983; Hayes and Wheelwright, 1984; Schonberger, 1986; Skinner, 1969). More recently, empirical research has found that production capability does indeed influence a firm's competitive performance; however, these studies were conducted with either a very small sample size (e.g., n=6 in Cleveland et al., 1989) or focused on a single industry (e.g., furniture in Vickery et al., 1993). The objective of this research is to investigate production capability's impact on firm performance using a large sample research methodology that includes multiple industries. Further, given an increased emphasis on international manufacturing strategies, the current study looks at production capability within the cross-national context of production sharing operations. The research also investigates the importance of two antecedents of production capability - planning sophistication and information capability - to provide greater insight into how firms create and manage value-added capabilities. Specifically, regression analysis is used to examine 1) the impact of production capability on competitiveness, and 2) the role of planning and information support in establishing a production capability. The Importance of Production Capability In today's intensely competitive marketplace, no single, optimal organizational structure exists. In fact, the effectiveness of any organizational structure changes continually over time as environmental conditions change (Galbraith, 1973; Jemison, 1981; Kotha, 1993; White and Hamermesh, 1981). This relationship between a firm, its environment, and organizational performance is captured by contingency theory. Contingency theory identifies conditions in the internal and external environments that should influence managerial decision making as a firm seeks to adapt and meet the needs of a dynamic market. …