Determinants factors of operational excellence: the moderating effect of external environment in SMEs manufacturing sectors

The manufacturing industry is the largest contributor to the total exports and the second largest contributor to the gross domestic product (GDP) in Malaysia. However, the total shares of Malaysia’s manufacturing exports in the world market are continuously declining. Moreover, there is still limited evidence concerning how to achieve the operational excellence and lack of study in Malaysian Small and Medium Enterprises (SMEs) manufacturing industry context. The purpose of this study is to examine the factors that influence the operational excellence of SMEs manufacturing industry in Malaysia. Grounded by the Resource-Based View (RBV) and Contingency Theory, this study proposes a framework by integrating internal and external environmental factors. A total of 182 firms from SMEs manufacturing industry in the East Coast Region of Malaysia have participated in this study. Data were collected through self-administered survey questionnaires. The partial least squares structural equation modelling (PLS-SEM) method was the main statistical technique employed in this study. The study has shown that the transformational leadership style is found to be the most dominant predictor towards operational excellence, closely followed by process management, operations strategy and human resource practices. Additionally, external environmental factors are found to have moderating effect in the relationship between internal environment factors and operational excellence. Overall, the results indicate that the models provide a good understanding of the factors that influence the operational excellence in Malaysian SMEs manufacturing industries. The study contributes to knowledge in the field of operational management by promoting a better understanding of the operational excellence in the SMEs manufacturing sectors. Managers will use the findings of this study to monitor the crucial performance drivers in their firms. The study has offered future directions for policy makers and the owners of the manufacturing firms in managing their strategic planning to achieve the operational excellence. Areas for further research have been highlighted for context and other variables to be tested.