The impact of leanness and innovativeness on environmental and financial performance: Insights from Indian SMEs

Abstract

The incomplete implementation of lean and innovative approaches in Indian small and medium-sized enterprises (SMEs) and the lack of evidence of successful application of those approaches highlight the need to investigate how and to what extent leanness and innovativeness impact firm's performance. Although some studies in the literature explain the individual impact of leanness or innovativeness on performance, further research is required to analyse the simultaneous effect that these two approaches have on both environmental and financial performance. Therefore, this paper investigates the relationships existing between leanness, process innovation, product innovation, environmental performance, and financial performance. To achieve this aim, we test the hypothesised model empirically using data from 374 Indian manufacturing SMEs. This paper builds upon structural equation modelling (SEM). Specifically, confirmatory factor analysis (CFA) is used to test the construct measures and path model analysis to test the hypotheses of the structural model. The results of the study are consistent with the hypothesised model and show a significant positive impact of both leanness and innovativeness on financial and environmental performance. In addition, the results of this paper show the importance of considering simultaneously leanness and innovation since leanness does not have only a direct effect on environmental and financial performance, but also an indirect effect mediated by innovation. These findings may draw the attention of practitioners, academicians, and policy-makers to the impact that lean and innovation practices have on environmental and financial performance of individual firms and supply chains.