Operational Practices and Financial Performance: an Empirical Analysis of Brazilian Manufacturing Companies

Abstract

In the operations management field, operational practices like total quality management or just in time have been seen as a way to improve operational performance and ultimately financial performance. Empirical support for this effect of operational practices in financial performance has been, however, limited due to research design and the inherent difficulties of using performance as a dependent variable. In this paper, we tested the relationship between selected operational practices (quality management, just in time, ISO certification and services outsourcing) in financial performance outcomes of profitability and growth. A sample of 1200 firms, operating in São Paulo, Brazil, was used. Analysis using multiple regression explored the direct effect of practices and their interaction with industry dummies. Results did not support the existence of a positive relationship with financial performance. A negative relationship of outsourcing with both profitability and growth was found, supporting some critical views of the outsourcing practice. A weaker negative relationship between ISO certification and growth was also found. Some interactions between practices and industries were also significant, with mixed results, indicating that the effect of practices on performance might be context dependent.

Keywords

• operational practices
• financial performance
• operations strategy.