Can the financial performance of the micro, small, and medium-sized enterprise production sector in Medan be a signal in the use of a leanness strategy?

Abstract

Background: Business actors need to take strategic steps to maintain and improve business performance. Studying and deepening the strategies used by micro, small, and medium-sized enterprises (MSMEs) to maintain their performance conditions are needed as a barometer of crisis resistance in the macroeconomic sector, especially those used by MSMEs in Medan, Indonesia. Thus, this research provides a real picture in the field of variables and indicators that affect the business strategy of MSMEs through the perspective of a lean approach. Methods: The population in this region was 466 business actors of MSMEs in Medan. A random stratified sampling strategy is used, and 169 businesses in the MSMEs production sector were obtained as samples, which has exceeded the standard achievement of 80 percent in detecting an R2 value of at least 0.10 (with a 5 percent probability of error). The research variables used consisted of one endogenous variable (use of a lean strategy), two exogenous variables (external lean practice and internal lean practice), and one mediating variable (financial performance). Seven hypotheses (inner models) were tested using structural equation modelling–partial least squares, nonparametric statistical data analysis techniques with mediation effects, assisted by Smart PLS 3.0. Results: Based on the path coefficient, internal lean practice predominantly influences the financial performance of MSMEs in Medan compared to external lean practice. Internal lean practice is the primary signal for identifying the degree of lean strategy practice in the MSMEs production sector in Medan city. Conclusion: These findings can be a map for practitioners, academics, and the government to improve the financial performance of MSMEs and assist them in their business strategies through internal business practices. Moreover, this study's impact can lead to an understanding of business strategies in operations that directly or indirectly affect the environment toward global warming and various environmental problems.