doc
Upcoming SlideShare
Loading in...5
×
 

doc

on

  • 1,001 views

 

Statistics

Views

Total Views
1,001
Views on SlideShare
1,001
Embed Views
0

Actions

Likes
0
Downloads
25
Comments
0

0 Embeds 0

No embeds

Accessibility

Categories

Upload Details

Uploaded via as Microsoft Word

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    doc doc Document Transcript

    • A CASE STUDY OF VALUE ENGINEERING AS AN INNOVATIVE TOOL IN A MALAYSIAN AUTOMOTIVE COMPONENT MANUFACTURING COMPANY Aliza Ramli Faculty of Accountancy, Universiti Teknologi MARA SAAS Building, 40450 Shah Alam, Selangor, Malaysia aliza629@salam.uitm.edu.my Suzana Sulaiman Faculty of Accountancy, Universiti Teknologi MARA SAAS Building, 40450 Shah Alam, Selangor, Malaysia s-suzana@mailcity.com Falconer Mitchell Management School and Economics, University of Edinburgh 7 Bristo Square, Edinburgh, EH8 9AL, United Kingdom falconer.mitchell@ed.ac.uk ABSTRACT Increased global competition and complexity within the Malaysian automotive sector has led companies to find ways to maximized value of products, processes, projects, or services within a total system. The maximized value is approached from a customer viewpoint and the related function is expected to operate at the least cost without affecting its quality and reliability. While the literature on Value Engineering covers various issues, however it lacks comprehensive studies that focus on maximizing these values from customers’ perspective. Value Engineering has evolved into an innovative tool that develops alternatives through evaluation of creative ideas. An in-depth case study is undertaken on Value Engineering adopting variables in the context of a Malaysian automotive component manufacturer. Data are collected from multiple sources of evidence and analyzed using NVivo software to determine influencing factors and barriers that resulted in maximizing value of products and processes within the company through adoption of Value Engineering. The initial findings identify the major variables, which include top management support and initiatives, relative advantage of the innovation, product diversities, competitive pressure, and customer requirement. Whilst human resources and sufficient knowledge are the impeding factors, found in the study. Key Words: Value Engineering; Innovation; Value Creation; Case Study INTRODUCTION Most organisations in Malaysia have extended their management accounting control systems since the country entered its deep and enduring recession. According to Sulaiman et al. (2007) Malaysian companies had become more customer-focused since the enactment of free trade laws. This has exposed them to greater global competition subsequently, Malaysian management accountants’ key tasks and the tools and skills changed accordingly (Ramli & Sulaiman, 2006). This study showed that management 1
    • accountants in Malaysia rated companies’ customer-oriented activities as the main factor that drive changes in their tasks and roles. This is followed by their companies focus on core competencies aims and globalization. Core competency is seen as necessary to achieve an effective performance by the management accounting function that forms part of the organization management process (IFAC, 1998). It embodies a culture of proactivity, which reflects continuous improvement as well as creating opportunities for value creation. For example, organization would consider it desirable to ensure the effective execution of core business processes that generate an outcome, which is valued by customers in order to create and sustain competitive advantage (Williams, 2004). Focusing on core competencies encourages organizations to identify and exploit what they do best, that available resources can be channel to areas of value and growth (Cerasale and Stone, 2004). Intense national and international competition has, therefore required Malaysian companies to be forward-looking, proactive and focussed on their core activities and customers to be successful. Examples of core business activities are product design, quality and service whilst customer-oriented initiative can be identified through Customer Profitability Analysis (CPA). The intense competition and uncertain business environment have put significant pressure on corporate management to make sound business decisions. This is only possible with full support of appropriate management accounting tools and techniques which include such as Strategic Management Accounting, Activity-Based-Costing, Value Engineering and Six Sigma. This is supported by Ramli and Sulaiman (2006) which discover Value Engineering as one of the top ten important tools in the future perceived by Malaysian management accountants. This encourage for this study to examine the effect and extent of VE application, reasons for its adoption, factors that influence and impede its adoption within identified automotive component manufacturing Malaysian company. Automotive industry context The National Automotive Policy (NAP) is used as a positive step in the evolution of the Malaysian automotive industry. The Government’s new initiatives encourage a vibrant and globally competitive local automotive industry (NST, 2005). The enhancement of value added and local capabilities in the Malaysian automotive industry can be achieved through the new initiatives. The initiatives also required Malaysian automotive component and parts manufacturer to be globally competitive within the automotive sector. The automotive industry is perceived by researchers as an important sector because it is the single most biggest industrial sector in the world economy (Helper, 1991). Furthermore, Berdoto (1991) and Wells & Rawlinson (1994) in Story et al. (2001) highlighted that significant changes have taken place in the structure in the automotive sector. Automotive manufacturers are also exposed to (Simonian, 1998) “…cut costs, shorten new product lead times and generally make life easier for themselves by devolving to suppliers much of the burden of designing and manufacturing entire component systems.” There have been a greater role to automotive manufacturers in designing and manufacturing of parts and components according to their customers need. Appropriate tools are therefore needed to be adopted by then. For example, cost management is adopted in reducing cost, enhancing customers’ satisfaction and delight. According to 2
    • Yoshikawa, Innes & Mitchell (1995), cost management is a continuous process which integrated activity within an organization’s which include products or services entire life cycle. Cost management is most effectively applied during pre-production phases (planning and design) where greatest impact can be achieved. It is effective if it is part of the company policy, suitable environment and availability of resources within the company. One of the key methods in cost management is VE and that aims to provide better products or services for lesser cost (David, 1999). There are few researchers examined how companies adopt value appraisals and tools like VE in their product development (Lindgreen and Wynstra, 2005). Hence, it is important for their study to be conducted on Malaysia automotive sector. Increased global competition and complexity within Malaysian automotive sector has also led companies to find ways to maximized their products’ values, processes, projects or services within a total system. VE maximized value through functional analysis which include improving, make cost effective design, redesign of products, processes, projects or services. Similar themes that focus upon meeting customers’ needs in VE definition are also found in Cheah and Ting (2005), Mazlan (2002) and Fong (1999). On the contrary, Male and Kelly (1990, pg.74) relates VE with identifying and eliminating unnecessary cost so that minimum cost could be achieved. An organization needs to reduce unnecessary cost by identifying and eliminating waste at the earliest opportunity. Fong (1999) described VE as a creative group problem solving technique. VE becomes a useful tool in resolving issues in organization and this can be achieved by identifying the main function of design, product, project or service. Hence, eliminating unnecessary cost, existing design or decisions could be done. VE has evolved into an innovative tool that develop alternatives through evaluation of creative ideas and becoming an important tool in the pursuit of competitiveness. It has also enjoyed a half-century as a successful tool for improving the value of products, processes and projects (Sperling, 2001). The next section provides explanation on tools in value creation and is followed by a history and evolution of VE. An explanation on the theory of diffusion of innovation which is applied to describe and explain VE adoption within the case company is provided in the next section. The section continues with the research method and subject, in which the basic ideas are described and the approach adopted is presented. The remaining of the paper discusses the analysis and findings and finally the significant and limitation of the study. TOOLS IN VALUE CREATION Value creation is defined by Miller and Floricel (2004, p.26) as: “The creative invention of new products and services to delight consumers by discovering new market spaces and thus increasing the utility that they draw from them” It is important to produce or develop new products and services creatively to satisfy consumers. The new products and services should meet the users’ specific requirements 3
    • as customers consider value as something worth paying for (Jancsurak, 1998). According to Baughin et al (1997), value is also created if the shareholders’ investment provides a higher return. Growth with positive economic profit is the single most effective method of creating value for shareholder (McCarthy, 2004). On the other hand, in a merger situation, value creation is the difference between the combined company post-merger values and the total individual values of the buyer and seller (Rappaport, 1998). Every member in the management team shares the responsibility of creating value for the organization. Their collective contribution is essential in the creating value process. Organization profit can be increased through adopting or conducting value creation on the organization’s products and services. In similar vein, Miller & Floricel (2004) study contended that firms achieving high profitability and growth level are due to adoption capabilities and practices to value creations rather than adopted best practices. Value creation includes techniques such as Value Analysis (VA), Value Engineering (VE) and Value Management (VM) applied by organizations to improve their product, process and project values. Company normally applied these techniques in their product development. Lindgreen and Wynstra (2005) suggested innovation and product development as the core activities in the value creation process. Value Engineering (VE) One of the imagination, creativity and synthesis of various sources that usually adopted by engineers is VE (Omigbodun, 2001). Miles was responsible for the establishment of VE and since then the technique is very much accepted in various industries. There is a consensus that Miles is regarded as the ‘father’ of VE (Davis, 2004). The Society of Japanese Value Engineering (SJVE) (1981, pg.3) defines VE as: “A systematic approach to analysing functional requirements of products or services for the purposes of achieving the essential functions at the lowest total cost.” This reflects that VE is applied to products and services through analyzing each of the functions involved. SJVE (1981) suggests that the services where VE can be applied include software items in manufacturing organization. These software items include filling-out forms, actual operations, processes and setting-out specifications in relation to manufacturing of products. The application of VE is also extended to services organizations such as hospitals and government agencies. VE was also popular among the construction industry (Dell’Isola, 1988). SJVE (1981) refer the term value used by VE or VA as the customer’s judgment of the product. It is also regarded as a method to solve problem pertaining to the value of product or service from customer viewpoint. Nevertheless, the fundamental of VE application is by analyzing functions of the products or services in a systematic manner and at the same time achieving those functions at the lowest overall cost (Omigbodun, 2001; Witschey and Wulff, 1999; Fong, 1998a and Yoshikawa, Innes and Mitchell, 1995). Function can be described as the purpose of or the work performed by the project, product or process (Sperling, 2001). 4
    • On the other hand, one could argue on the quality of projects, products and services produced or provided if the focused is on minimizing the cost. Quality is not neglected in VE process and furthermore if it is just merely cost reduction exercise the technique is not termed as VE. VE is a technique that eliminates only the unnecessary cost (Fong, 1999 and SJVE, 1992). Unnecessary cost according to Miles (1963) does not contribute to quality, life, use, appearance and customer features of products. Reasons for the unnecessary cost incurred are due to the poor design, incorrect materials selection, poor build ability and habits. When unnecessary cost of a product or system, which is irrelevant to the specific functions, is removed, cost is reduced and performance enhanced or maintained (Fong, 1999). VE is also designed as a method that considers qualitative and quantitative choices to achieve the required cost (Rwelamila and Savile, 1994). Qualitative option refers to the factors in the decision analysis that could not be expressed easily in numerical terms whilst quantitative choice can be effectively expressed in numbers (Hilton, 2002). Short- term improvements on cost reduction and increase productivity control is possible through hierarchical pressure (Drury, 2000). However, such situation could lead to a negative effect on managers’ performance. Several qualitative problems could arise and these include low motivation, increased labour turnover and lower product quality. DEVELOPMENT OF VE The origin of VE can be traced back to the days of World War II. The event that triggered VE development was the “Asbestos Affair”. This took placed in 1947 at the General Electric Company in the United States. When World War II ended, asbestos, a common flooring material for warehouses became a short supply item. General Electric Company through some specialist suppliers found out that a substitute material was available at lower price. In 1970, VE practices and applications were introduced in other parts of the world namely Japan, Italy, Australia and Canada (Cheah and Ting, 2005). There were also construction-oriented value engineers found in India, South Africa, England, France, Sweden and Germany (Dell’Isola, 1988). In later years, a number of authors and practitioners termed VE technique as VM. Since then, its usage spread to Australia, New Zealand and the United Kingdom. However, in North America, Japan, and many European countries, the term VE is still being used (Mazlan, 2002). VE has evolved into a technique that focuses on maximizing the value of product, processes or services from a total system. The increase value is approach from customer or consumer viewpoint and the required function is provided at the least cost without affecting the quality and reliability of product, process and services VE PRACTICE Applications of VE VE technique is applicable to all type of sectors. Initially, VE technique was introduced in manufacturing industries. This technique is then expanded to all type of business or economic sector, which include construction, service, government, agriculture, education 5
    • and healthcare (McDowell, 1996). Examples of VE studies conducted in a variety of disciplines are construction projects (Davies, 2004; Omigbodun, 2001; Witschey & Wulff; 1999; Jergeas, Cooke & Hartman, 1999; Fong, 1999; Male & Kelly, 1990) manufacturing (Yoshikawa, Innes & Mitchell, 1995) service (Pylkas, 2002) and waste water facility (Sperling, 2001). Nevertheless, the construction sector has been a major user in various countries (Cheah & Ting, 2005; Liu, 2003). The construction industries began to adopt VE not until 1963 by Al Dell’Isola (Fong, 1999). VE technique in construction industries is widely applied in the US because of the mandatory requirement. This application is toward larger federal projects under the Federal Procurement Law and Environmental Protection Agency (EPA) projects (Cheah and Ting, 2005). Likewise, VE is also strongly established in other countries such as Japan, Canada, Australia and United Kingdom. Additionally, VE tool has been widely practiced in western countries (Europe, Canada, the UK and the USA) and in Japan and Australia (Dawson, 2000). VE is proven as a tool with many benefits such as cost savings and value for money successfully used by most developed countries, (SAVE International, 1998 and VMM Austarlia, 1992). Despite numerous benefits VE is largely regarded as an untapped resource in South East Asian countries (Cheah & Ting, 2005), Hong Kong (Fong, 1998a) and Malaysia (Jaapar, 2006; Mazlan, 2002). Ramli and Sulaiman (2006) also found that VE is still not a popular tool applied by most in Malaysian organisation. Malaysian automotive and construction sectors are examples of organisations that used VE however the numbers are still insignificant. VE was introduced in Malaysia in 1986/87 with the aim of creating awareness in the country. The Institute of Value Management Malaysia (IVMM) was formed in 1995 to promote greater awareness of the technique and its benefits. A VE manual was developed which outlines the VE process that hope to assist users in its application. In the near future, VE will be made a mandatory requirement for all capital projects in Malaysia. Various approaches to VE are practiced by organizations. Examples of the formal approaches are “40 hour Workshop”, “Charette”, “Contractor’s Value Management Change Proposal (VMCP)” and Job Plan. The most commonly adopted approach to VE is the “40 Hour Workshop” (Male and Kelly, 1990). However, this type of workshop is rare outside the USA and Japan. The 40 Hour Workshop is basically conducted over a period of five days. It involves the review of the sketch design and documentation by a second design team. The workshop normally takes place at the 35% of a product design stage. This approach is regarded as quick and effective. The Charette approach is undertaken after the project brief has been conducted and the design team appointed. At this stage, the actual design has not yet commenced. This approach comprises of customer’s representative and the design team. The aim of this session is to generate ideas, which meets customer’s expectation. The Contractor’s Value Management Change Proposal (VMCP) emphasized changes made on the approved project by the contractor. The basic method or framework in conducting a VE study is the Job Plan (Fong, 1999; Davis, 2004; Omigbodun, 2001 and Sperling, 2001). Job Plan is a systematize plan of action for conducting a Value Study and it also 6
    • encompass implementation of the recommended changes (Witschey and Wulff, 1999). The Job Plan lay out the steps or phases to follow from inception to conclusion in a systematic manner. In the Job Plan, VE activities are separated into different phases whereby all these phases are geared towards achieving value outcomes for organization, stakeholders and customers (VM: British Standard, 2003). Through Job Plan, product or service are effectively analyzed in developing the highest number of alternatives to achieve the product or service’s function. DIFFUSION OF INNOVATION An innovation tool Innovation is perceived as an important research area because innovations are expected to aid organizations to successfully adapt to and continue to exist in volatile business environments (Emsley, 2005; Rogers, 2003). Innovation is defined by Rogers (2003, p.12) as “…an idea, practiced or objects that is perceived as new by an individual or other unit of adoption.” As long as an idea, practiced or objects is perceived by individual, group of individuals or organization as new regardless of the lapse of time since its initial application or discovery, the term innovation can be used. This indicates that innovation may also exist previously in a different form or in another area. In addition, the newness can be related to knowledge, persuasion or decision to adopt (Rogers, 2003). Bjornenak (1997) and (Knuth, 1997) follows a similar approach in defining innovation. If it is perceived as new in a given area or social group, then it qualifies as an innovation. In line with this, innovation is define by Gaynor (2002, p. 3) as “Invention plus implementation/commercialization”. Invention relates to the process of choosing an idea and then developing it into a concept. The concept will in turn become an innovation. Accordingly, innovation is treated as a management discipline and it requires design. Design is central to the practice of both management and innovation. Thus, innovations will emerge through implementing designs. The term innovation according to Anthony (2003) reflects new technology, a modernization or an improvement. Gaynor (2002) contended that the majority of innovation success takes place incrementally over time. He described incremental innovation as making improvements to current products, processes, services and systems. Innovation can also be related to a total process of interrelated subproceses (Myers & Marquis (1969) in Zaltman et. al, 1973). It involves all processes from the conception of new ideas to the development of a new market in an integrated manner. This explicitly implies innovation as a process that will gain extensive application. This idea of innovation fits in very well with the concept of adoption. Based on discussions on previous studies, VE fits well with innovation characteristics and thus can be viewed as an innovative technology. Rogers (2003), Anthony (2003), Gaynor (2002) and Zaltman (1973) and Witchey and Wulff (1999) further asserted that VE provides a new way and improvement to an activity. VE is viewed as innovative since it develops alternatives through evaluation of creative ideas (Davies, 2004 and Sperling, 2001). 7
    • Diffusion of innovation Since VE is an innovation, diffusion theory would be a suitable conceptual framework. Examples of innovation examined by diffusion studies are ABC, Balanced Scorecard, Business computing, City structure, Replacement cost disclosure, Web-based distanced education, and Word processors (Christian and Bjornenak, 2005; Frederickson, 2004; Li, 2004; Mitsufuji, 2003 and Kelly-Newton, 1980). Diffusion studies on innovation have covered a wide area that include financial and management accounting, management, administrative, technology and education. Most changes in organizations are the direct result of the diffusion of innovations (Malmi,1999). The innovation is spread or disseminated through diffusion process (Bjornenak, 1997). According to Frederickson et al. (2004), some would view the term diffusion as change whilst those who prefers a particular diffusion, call it reform or innovation. Rogers (2003, p.11) defined diffusion as: “The process by which an innovation is communicated through certain channels over time among members of a social system” The adoption pattern across populations of organizations show communication flow pattern Elements of diffusion There are four main elements for the diffusion process of an innovation; an innovation itself, communication channels, time and the social system. These elements have been identified in all research study on diffusion and in all diffusion campaign or program (Rogers, 2003). In addition, successful innovation requires understanding its principles and guidelines and then applying them within a specific organizational context. The elements comprised of competent people, sound management practice, good innovation design and freedom to exercise personal (Gaynor, 2002). This includes competent people in VE innovation are those who are creative and viewed as constructive mavericks. Sound management practice includes freedom to operate and the desire to be accountable for results and tolerance for negative results whenever necessary. While varying degrees of VE innovation implementation can be explained using the organizational adoption model by Cooper and Zmud (1990). The model consist the following four stages: 1. Innitiation - an organization search for an innovation based on internal needs and external competitive threats. 2. Adoption – the organization makes decision to invest resources to facilitate change. 3. Adaptation – Unforeseen needs are identified in the process of changing 4. Acceptance – Employees are persuaded to commit to use the new technology. 5. Routinisation – Innovation application is encourage as a normal activity. 6. Infusion – The innovation is applied in a comprehensive and integrated manner which enhanced organisation’s effectiveness. It is important to highlight the extent of organization application of innovation of and its effects on organizational structures, cultures and processes rather than whether or not the organization adopts the innovation. Consistent with the above, this study has explored the crucial variable in the context of VE innovation. 8
    • Types of innovation decisions Types of innovation-decisions have an important influence on the diffusion of new ideas. New ideas can be adopted or rejected by an individual member of a social system or the entire social system. The three types of innovation decision as explained by Rogers (2003) are optional innovation-decisions, collective innovation decisions and authority innovation decisions. The optional innovation-decisions reflect a potential adopter choice whether to adopt or reject an innovation. Collective innovation-decisions involve a general consensus from members of the system. Once the decision is made, every unit in the social system must conform. The authority innovation-decisions refer to a few individuals in a system that, make the choice of adopting or rejecting an innovation. They have the power, high social status or technical expertise. Perceived attributes of innovation The members of a social system perception of innovation characteristics will actually determine its rate of adoption (Rogers, 2003). Rate of adoption will reflect the relative speed of the adoption of innovation by members of a social system. The five perceived attributes of an innovation as identified by Rogers (2003) are relative advantage, compatible, complexity, trialability and observability. The first four of these attributes are significantly related to the rate of adoption while complexity is negatively related to the adoption rate of innovation (Rogers, 2003). Adopters characteristics Innovativeness is related to the structural characteristics of an organization (Rogers (2003). The same variable could also be applied to the diffusion process of an innovation such as VM. The organizational structure variables are centralization, complexity, formalization, interconnectedness and organizational slack (Rogers, 2003; p 412). These variables are described in the following paragraph. In addition, Zmud (1982) stated that centralization’s influence on implementation of innovation would change according to the innovation’s compatibility with members of the organization. There will be an increased in openness and flexibility in individual behaviours and more implementation of the innovation when members opted for the innovation. This reflects the behaviour in decentralization. According to Zmud (1982), innovation could be implemented when organizational members accepted the changes authorized by a decision to adopt. The willingness of the organisation members to adopt such changes could be enhanced by an organization’s sense of openness and flexibility or organizational requirements for change are accepted. RESEARCH METHOD AND SUBJECT Initial discussion with experts from the automotive industry, attending meetings conducted by the national automotive association and analysing related secondary sources were part of the preliminary investigation on the automotive component manufacturing sector. The information gathered from the meeting corroborate with the information gathered from the informal discussion conducted with the practitioners from 9
    • automotive sector and secondary sources. Discussions were to gather VE general practice within the automotive sector. It appears that VE is practice by both Malaysian’s automotive and automotive component manufacturers. The focus of the case was on a Malaysian automotive component manufacturing company which was incorporated in 1989. An average of four months (from end of 2005 to early 2006) were spent on exploring VE adoption within the company. Various documents and company records were reviewed and direct observations were made. Face to face semi-structured interviews were also conducted with relevant company personnel. To surmise, the preliminary investigation provided further research framework and ease the identification of the case study company. Further background information on the proposed case company was gathered from surfing the web and analyzing the annual reports. Discussion with the Managing Director of the proposed automotive component manufacturer provided further input. The case study examines how VE is implemented, its effect and the factors that lead to its adoption and the barriers experienced within the company. The method chosen was based on the intention of the study which is to specify the information type to be collected in advance of the study and to allow issues to emerge from the investigations. Further, case studies are a popular method of studying management accounting within its organization context (Lillis & Mundy, 2005). In this study, the qualitative approach or case study was adopted because VE is still novel in Malaysia. To the extent of the researchers’ knowledge, no study has been conducted on VE practice in the Malaysian automotive sector in the country. According to Ramli & Sulaiman (2006), VE is not a popular tool used by Malaysian companies in the past five years (2000 to 2005). This further supports the suitability of adopting the case study method which enabled understanding of VE practice in the case company and particularly the depth, detail and individual meaning to the study (Patton, 2002). Case study situation would be when (Yin, 2003:9) “a ‘how’or ‘why’ question is being asked about a contemporary set of events, over which the investigator has little or no control” The ‘how’ and ‘why’ questions are explanatory in nature and therefore case studies would be the method perceived as a suitable research strategy since this particular study answers those questions. Qualitative data was adopted in this study and information was collected from multiple sources in order to corroborate the same theme or phenomenon. Facts have been supported by more than one or several sources of evidence. Fully triangulated data is required in pursuing corroborative strategies. Data collection instruments The data collection effort for this study was extensive. A wide variety of data was collected using multiple sources including interview data, archival information, documents and reports and direct observation. 10
    • a. Interview data All the interviews were solely conducted through semi-structured interviews. Continuous selection was based on snowballing effect as proposed by Brewerton & Millward (2003) besides screening potential informants with company’s representative. Snowballing refers to the selection of individuals based on information obtained from other selected sample members or individuals (Brewerton & Millward, 2003; Tashakkori and Teddlie, 1998). Interview data have been cross-checked for any conflicting or inconsistent findings by relying upon responses from multiple respondents (Alam, 2005). The interviewee was briefed on the objective of the study at the beginning of each session. Permission to digitally record the interviews was also discussed. Two of 19 denied to be digitally recorded. 19 semi-structured interviews were conducted with accountant, personnel involved in the VE process from different management level. This included the managing director, plant manager, members of the quality, production, engineering, logistic, research & development, accounts and human resource departments. Views are able to be solicited from this group. This has enhanced the research findings as it has provided a holistic perspective of VE practice, influencing factors, and impeding the adoption and diffusion of VE that has taken place within the case company. The aim according to Delbridge and Barton (2002) was to secure a variety of perspectives and views from different functions and hierarchical levels within the company. Cross sectional study within a company provides a more comprehensive inferences about behaviours and events (Tashakkori & Teddlie, 1998). It is necessary to consider the opinions of all influential parties when evaluating any management innovation (Anderson & Young, 2001),. This is because it is uncommon for an individual to cause the adoption of an innovation. Key personals from various levels normally influence the adoption of any innovation. The personnel beliefs and behaviours on a specific innovation are based on their unique, individual circumstances within the company (Pedhazur and Schmelkin, 1991 in Anderson & Young, 2001). The semi-structured and thematically organized interview schedule is devised on the basis of earlier studies (Creswell, 2004). The interview checklist and case study plan were shown to the Managing Director of the case company and relevant input was duly provided. The interview checklist was also shown to academician, organizational representative and experts to gauge the appropriateness of the questions. Modification was made to the initial questions to enable their suitability. As a result, the reliability and comparability of the findings will be enhanced (Ezzamel, 1990). The interviews data were digitally recorded and transcribed immediately. The total of approximately 26 interview hours were conducted on the 19 personnel. On average the interview took approximately 1 hour and 38 minutes with the longest of 2 hours and 56 minutes with one of the R&D personnel. More hours required as he was fully and directly involved in all the VE activities. 83% of the interviewees were male and approximately 72% of them have tertiary education. 50% of the interviewees have been with the case company for more than ten years. Three participants employed as the key personnel for less than a year were interviewed as they were recommended by the earlier interviewed participants. 11
    • During the interview, informants were asked to provide their background information which included their qualification, years of experience with the present company, educational background and their job responsibilities. They were also asked to provide information on their involvement and views on VE. All digitalized recorded were transcribed immediately to enhance validity of the data gathered. The transcripts include direct quotations from participants about their experiences, opinions, feelings and knowledge (Patton, 2002) on VE practices within the company. Interview notes were also taken during interview to supply significant information about the circumstances of the interview not captured by the digital recording. Reports are prepared for key interview participant. The reports were sent back to the respective participants with the intention to acquire a clear understanding of the issues involved (Sharma, 2001). It is essential to confirm on the meaning and interpretation of the research evidence by the researcher by the relevant personnel. The respondent validation is achieved (Ritchie & Lewis, 2003) and enhancing the internal validity of the findings (Merriam, 1998). The extent of the interview data were corroborated with reviewed hundreds of pages of documents such as VE reports, continual improvements reports, quality manual, e-mail correspondence, and minutes of meeting. Data was triangulated to enhance the construct validity of the findings (Brewerton & Millward, 2003; Yin, 2003). The multiple perspectives or multiple sources of evidence have enabled the building up in-depth understanding of this single case (Ritchie & Lewis, 2003; Yin, 2003 and Creswell, 1998). All types of validity and reliability criteria as suggested by many researches have been addressed when conducting a case study on the automotive component manufacturing company. b. Documents and records The second method of data collection is through analysing the written documents. Company records and documentation relating to VE were inspected. The documents include reports on VE exercises undertaken and continual improvement procedural rules, regulations reports and quality manual. Examples of documents gathered and analysed were the Holdings company’s organization chart, subsidiaries updated quality control plan and process flow charts. The organization charts indicates the organization structure whilst the other documents provide an overview of the production process within the company. The VE documents and reports, current customers and suppliers’ lists, training lists, quality manual, e-mail correspondence, training materials, types of materials and products lists are reviewed and analysed too. Company’s previous and current brochures were reviewed in discovering the background of the company. Further information on the company’s background were also gathered from the internet and professional journal. These documents were collected and analysed along with other sources of evidence in order to increase the construct validity of the findings (Yin, 2003). c. Archival sources Archival source is also collected as part of the data collection process. Most of the information about the company’s background was gathered from the company’s website. The information included the company’s profile, products and facilities, subsidiary companies and products produced. Other archival data collection also included the company’s financial statements since its inception, list of products manufactured, 12
    • materials purchased and customers, monthly Key Performance Index, Process flow chart, Quality control plan, policy and objective and company brochures. However, certain archival information was incomplete and vague. For example, the number of employees for years 1994-1998. The reason given by the Human Resource Administrative assistant mananger was the ‘missing record’ held by the previous manager who has resigned from the company. Further, it was discovered that certain processes depicted in the Quality control plan did not appear in the supporting documents such as in the process flow chart. Certain processes in the quality control plan did not match the supporting documents, the process flow chart. Clarification was made with the operation manager. The revised process flow chart conform to the Quality control plan however certain processes in the plan was amended. Much information on VE was also gathered during the visit to both plants. Most of the archival records provided were from the interviewee participants to support their information. Permission was granted before going through the VE files for other related information. All information was corroborated for the purpose of increasing construct validity of the findings. d. Direct observations The final data collection method used in this case study was direct observations through plant tours and attending meetings. During the Plant A’s production department visit on 30 September 2005, overall picture on the production processes was given by the operation manager. The plant visit lasted approximately 30 minutes. This is followed by a second visit on 5 October 2005. The aim of the tour was to observe the entire product process flow, from its initial to final stage. The tour enabled better understanding on the production process which include the products produced, processes applied, sequence and the organizational setting (Anderson & Young, 2001). All observations noted and field notes were written down during and soon after the plant tours and meetings. The field notes contain systematic records of events, behaviours, expressions of participants and sentences that provide detailed explanation of what had been observed. Information was also gathered through attending several meetings which included morning market highlights and a VE meeting. For both meetings, the researcher had a non-participatory presence. Research subject Researchers according to Flyvbjerg (2006) are required to use their experience and intuition to evaluate the suitability of a given case in relation to whether it is interesting in a paradigmatic context and provide collective acceptable reasons for the given case. The case company was chosen because of its accessibility and willingness of the company. The positive attitudes of the case company in relation to community work and research has also inspired its selection as the case company. The positive attitude of the company was discovered during the discussions with the automotive component manufacturing company’s Managing Director (MD) and selected employees. The case company has won numerous industry awards and recognition. This indicated proper documentation practiced by the case company which has facilitated the study. Also, the maturity stage 13
    • of VE within the company was considered as appropriate for this type of study. Additionally, the convenient location of the case company which is about five kilometers from the researchers’ office allowed for frequent visits to the company. These factors were the basis for the researchers to opt for the case company. This study focused on the automotive component manufacturing company and the starting point for this case was to explore how VE is adopted, the extent and effect of its adoption within the case company. The factors influencing and impeding VE adoption was also identified. DATA ANALYSIS AND FINDINGS The data analysis and findings section presents the company’s background and the application of VE. The findings are also discussed in light of diffusion of innovation theory (Rogers, 2003). A qualitative analysis software program, NVivo 7, was used to manage, code, analyze, and model the data. The textual data were coded using tree nodes that were organized in a hierarchical structure. Emerging themes were also identified and coded as free nodes. NVivo 7 was used to ‘pull down’ from the data key patterns and themes and search for interrelationships. Six themes considered being the most important for the driving and impeding factors in VE were selected. 1. Company’s background The Malaysian automotive component manufacturing company which is the subject of this case study was established about 17 years ago. It is a wholly owned Bumiputra company with a paid-up capital of RM2.5 million. The case company’s nature of business is to manufacture and supply automotive fluid transfer systems, engine metal parts and components and transmission systems. The company designs and manufactures metal parts and components for the engine, transmission, body and chassis utilizing operations that include stamping, spot and projection welding, arch welding and furnace brazing. In addition, the company also supplies tool set and hose clip. Through its subsidiary company, the case company provides services which includes engineering consulting and design and manufactures and installs jigs and fixture. The subsidiary company is a joint venture between the case company and a Korean company which was formed in 2004. The case company has two plants (Plant A and Plant B) located in Malaysia. Plant A manufactures stamping and tubing products which include engine parts, tubing and break system. On the other hand, modular products such as fluid lines and fuel filler neck are manufactured in Plant B. The case company’s products are marketed to the national and foreign automotive manufacturers and assemblers in Malaysia. 14
    • The case company is located in the biggest industrial area in Malaysia. Both case company’s plants are in good close proximity with their major customers and suppliers. Purchase of automotive parts and components supplies are from domestic and overseas suppliers. Case company’s strategic location has enhanced and facilitates its production and delivery process. The case company was incorporated in 1989 with the aims of providing hi-tech and value-added products to the automotive industries. In 1990, the company began developing three engine components comprising of oil strainer, oil gauge rod and oil gauge guide and they were mass produce a year later. Since then, the company has specialized in metal stamping, welding, brazing and assembly of engine components for national automotive manufacturer. However in 1995, the case company began to expand into manufacturing automotive fluid transfer system for various automotive assemblers. Over the years, the company grew in strength and capability and now manufactures and supplies parts and components to other automotive manufacturers and assemblers. VE Application There were several views in relation to when VE was first introduced and implemented within the company. The MD recalled that VE was used since the case company’s inception. He added that none of the company’s employees realized that the technique which they have been practicing is actually VE until pointed out by their major customer, the national automotive manufacturer. The General Manager however stated that they began using VE when the case company received QS-9000:1998 accreditation, a quality management system for suppliers of production parts, materials and services in 2002. Basically VE is conducted on new and existing products. The following are the two types of VE applications within the case company. i. VE with customer VE with customer refers to ‘change material request’. This type of VE is only conducted for specified customer, the national automotive manufacturers. As pointed out by the R&D personnel, “ We do VE only for the national car manufacturers” The R&D department will request from the customer for an alternative material to be used in the manufacturing of a component or parts. An alternative material means an equivalent material that has the same specification. Accordingly, components that contributed to high cost reduction was selected for VE exercise. In one of the exercises, the request for the change in material use was due to several reasons. As shown in Table 1, material cost reduction is the main reason besides standardizing material usage and preventing assembly error in the manufacturing of Part No. AAA. In this particular case, the existing material (SAPH 38) has been changed to an equivalent material (SPHC-P&O) however its specification remains the same. The proposal for the alternative material however would need the customer’s approval. The resultant change was reduction gained of material cost by 3.5% or RM0.268 per unit with monthly production 3,500 pieces of Part No. AAA. Consequently, the new revised price for the component changed from RM7.620 to RM7.352. 15
    • Table 1: Change request for Part No. AAA Source: VE report SAPH 38 SPHC – P&O [2.6 x 110 x 1219] [2.6 x 110 x 1219] Main reasons for change: Reduction of material cost Standardisation / Commonisation of material used in the manufacturing of part no. AAA Prevention of assembly error Approval from the national automotive manufacturer is required before an alternative material can be used in the manufacturing of parts and components that are manufactured solely for them. Approval for ‘VE with customer’ is granted only when their customer requirements which include maintaining the product function and quality have been met. VE exercise is normally conducted together with the national automotive manufacturer. Live observation of VE meeting held at customer’s R&D premise provided triangulation on customer’s involvement in the exercise. The customer provided input on the suitability of the proposed material and further test required such as heat ageing test. ii. VE In-house The case company also conducts VE internally. Customer approval is not required in this type of VE. The VE In-house comprised ‘material change supplier’ and ‘improve processes’. In the ‘material change supplier’ exercise, VE is conducted on raw material and child part as these materials normally contribute to 40% of the part price. For example the objective of this VE exercise was • To work and study on the possibility to change material source from Supplier A to Supplier B for the benefit of the [case company’s] cost cutting programme. In this case, the material change sourcing exercise enables the case company to obtain on average approximately 8% reduction and a further 2% reduction through new material change. The implementation method is detailed below: Table 2: New material sourcing implementation procedure Source: Trial File 16
    • No Activity Person in charge Target 1. Finalise quotation and terms VAVE Mid May 2 Request for Mill Certificate from VAVE Mid May manufacturer 3. Study and evaluate quality from Mill QC End of May Certificate 4. Order of trial production PPC End of May 5. Approval QC Mid June 6. Phase in/phase out planning schedule PPC Mid June 7. Order of mass production PPC End June Initially, the Purchasing Material Control (PMC) department would request all suppliers to provide quotation for parts and components supplied at the beginning of each year. The most competitive price for a particular raw material or child part will be chosen. In this way, there is a possibility of a change in the supplier for the raw materials or child parts. The report is then presented to management for final approval. The R&D personnel stated that “Now it is under PMC. … We need to present to management how much is the purchase price and what VE exercises have been conducted. How much was the price before and after the new suppler was identified. How many do we have and this is multiplied with usage per month. This will indicate how much we are getting. This is how we monitor.” A report on the VE exercise is prepared and presented to management for approval. The cost saving per unit can be measured by comparing both old and new purchase price to arrive at cost saving per unit. This is then multiplied with the usage of the specified material in determining its total material cost saving. On the other hand, ‘improve process’ refers to improvement in the manufacturing process of parts and components. The aim of VE is to reduce the rejection rate and manufacturing cost of a particular part or component. For example, the existing or current material which involves plating and painting processes was change to another material specification. The revised material does not involve plating and painting processes. This means that the manufacturing process of this part or component would be reduced due to the elimination of the plating and painting process. Through VE exercise, there is improvement in the manufacturing process in relation to cost reduction and time. No proper VE tools such as Job Plan and FAST diagram were used in all VE exercises within the case company. The case company followed an unstructured manner in their VE exercises. Their method is similar to the Job Plan however it does not follow the systematic plan of action for conducting a value study on their parts and components. Instead, the continual improvement procedure was referred. The procedure involves filling up a standard continual improvement form before conducting any VE exercise. According to the R&D manager, there is no VE procedure in the company because 17
    • “Most of the time, it is based on our own initiative or department’s initiative. Sometimes it is based on their knowledge and experience. They refer to customers’ internal process. That’s how they get the idea on how to improve the process or to reduce cost. Our contract here is to reduce cost related to VE and improve our production and productivity.” The R&D staff used their knowledge and experience acquired over the years when conducting VE exercises within the case company. Most R&D staff interviewed acquired VE knowledge from the customer and management of the case company. However, no courses or training was ever provided by the management of the case company and customer to parties involved in VE. Further, there is no permanent VE team to conduct VE exercise in the case company. VE activities are conducted by the R&D department staff. They will gather the relevant information and analyse the function of parts or components that is subjected to VE. Discussion on VE exercise will be conducted during the cross functional team meeting. Representatives from engineering, production, logistic, quality control, accounting, purchase and material control and R&D attend the cross functional meeting. The aim is to discuss the alternatives proposed for the parts or components that have been chosen for the VE exercise. The criteria for the selection of parts and components for VE exercises depends on the most contribution to cost saving. Parts or components with materials that contributed to most saving would then be selected. The meeting is headed by the R&D manager. Feedbacks from all departments representative are duly considered. Table 3: Informants common key words to describe VE • Cost reduction/ cost saving • A step by step procedure to study process • Material and process change • Enhancing work procedure • Value enhancement • Process improvement Table 3 above shows several common keywords used by informants to describe VE. VE reflects the procedure used to study material and process change in the manufacturing of parts and components. VE enables cost reduction and improvement in the processes and values of products. VE can also be extended to enhance work procedure and meet customer satisfaction. Nevertheless, the definition of VE can be summarized and clearly seen as encompassing a wider scope. The MD defines VE as “… a systematic and function-based approach to improving value to a specific product or process. It involve[s] a team which uses structured process in improvement activities. It involves innovation, analysis and understanding different perspective.” VE activity in the case company refers to the reduction of the number of processes involves in the manufacturing of components and parts . The function of the components or parts remain the same however, it is the manufacturing process that is improved. The definition of VE provided by the interviewees is in line with the definition given by several researches; Witschey and Wulff (1999), Jergeas et al (1999) and Sperling (2001). 18
    • Reasons and objectives of VE The following are the main reasons for VE exercises provided by several informants involved in VE. The information corroborates with the documents reviewed such as numerous VE documents and reports, Quality manual, monthly KPI reports and other documents. • Customer requirement • Price competitiveness • Cost Reduction • Customer confidence VE is conducted within the company based on the requirement of their two major customers. They are required by their major customers to reduce the cost of the components and parts supplied through finding alternative equivalent materials. These proposed materials must meet the stringent requirement of these customers. Since the case company is already competitive in their manufacturing process as their manufacturing cycle time is at par with other companies, hence, the priority within the company is to focus on reducing price of materials, components and parts. This is one of the continuous exercises conducted to achieve the Key Performance Index (KPI no.10) which is to achieve a target cost saving of RM500,000 annually. Thus, the objectives of conducting VE within the case company are as follows: • To achieve minimum cost savings target of RM500,000 annually • To reduce cost of material and child parts • To be able to compete successfully with other companies The first and second objectives are in line with their KPI No. 10. The company’s aim is to reduce the cost of material, sub-contract parts and other consumable items by minimum of 3% or RM500,000 annually. This is achieved through applying several techniques which include VE, cost down activities, resourcing and negotiation. Since the case company face intense competition for most of their major products, it is pertinent for them to become competitive in order to succeed as a Bumiputra company and leader in the automotive sector. The case company strives to exceed customer expectations and offer excellent service to their customer through their commitment in continuous improvement and VE activities. The company’s mission is consistent with the Government’s National Automotive Policy (NAP, 2006). A. Perceived attributes of VE Innovation VE as an innovative tool has been applied within the case company due to its relative advantages over other techniques. Through VE exercises the case company was able to achieve material cost reduction in the manufacturing of its parts and components. For example, the case company was able to achieve a cost reduction of 3.5% per unit for the Part AAA which the case company manufactures. The resultant of the material change enables the company to standardize its material utilization and reduce assembly error. It appears that VE exercises enable cost management or cost control exercises to be practiced effectively within the company. The cost saving achieved through VE and other continuous improvement activities enable the case company to achieve its target cost saving for the year 2004. In a similar vein, VE enable the case company to improve cost effectiveness and promote team cohesiveness among the parties involved in the VE 19
    • exercises. Even though cost was reduced however it did not affect the quality and reliability of the parts and components manufactured. Another perceived attributes of VE is in relation to compatibility. The compatibility of VE innovation in the case company reflects the degree to which VE is regarded as being consistent with social-cultural values, beliefs and perceived needs of the organization (Rogers, 2003). The members of the organization accepted VE and this indicated the innovation’s compatibility with the members. VE is believed to be compatible with the other techniques adopted by the company which include quality management system. The objectives of VE are also consistent with the corporate objectives. The business focuses on their customers and various management initiatives and tools used are directed towards meeting customers’ needs and satisfaction. The case company was also able to achieve this through VE. Other reasons for compatibility found are relevancy and convenience of change. VE was adopted with the aim of meeting quality products requirement stipulated by the customer. Subsequently, as a result of VE the customer needs were duly achieved by the company. The adoption can be seen as a convenient and relevant exercise. The cost reduction achieved for each VE exercise can be easily calculated and the results have contributed towards the target cost reduction of RM500,000 in 2004. The results of VE innovation are in fact observable or visible by the management and other members of the company. The perceived attributes of VE can be seen in relation to its relative advantage, compatibility and observability. B. Adopter characteristics i. Size and structure The case company has approximately 252 employees, sales of RM62 million and total assets of RM10 million in 2005. There are 32 direct employees comprising management and executives and the remaining are indirect employees such as supervisors, line leaders, operators and clerks. The case company practices hierarchical organizational structure. All activities of a similar type within the case company are placed under the control of appropriate divisional head. The company is divided into four main separate divisions which comprised operation, research & development, accounts and administrative and human resource. The RND manager heads the division and the assistant manager, executives and supervisors assist him. There are three units in RND; Product Design, Business Development and Product Development. The RND manager oversees the commercial aspect whilst the assistant manager is responsible for the technical activities. The technical activities include getting approval on any proposal submitted to customers, discuss changes proposed with the customers and provide sketch of the proposed changes of a particular part. Generally, the RND is responsible for the preparation of part quotation and development of products from receipt of the drawing to mass production stage. The R&D division has 15 staffs including management, executives, supervisors and others. It appears that centralization’s has influenced on the implementation of VE in the case company and this concurs with Zmud (1982). The adoption of VE within the case 20
    • company was seen as a directive from the top management. Further, decisions pertaining to any VE internal exercises require the approval of management thus reflecting centralization has influenced on the innovation adoption. According to one of the informants, even though direction came from management to conduct VE, however the R&D employees do take their own initiative on any available opportunities to reduce costs. ii. Product diversities The case company has manufacturing facilities at both plants which cater to the demands of various automotive companies in particular the national automotive manufacturers. Based on documents reviewed, Plant A manufactures 927 of different parts and components which comprise 225 for stamping and the remaining for tubing. There are approximately 200 parts manufactured at Plant B. Plant B manufactures body modular parts, fluid lines and fuel filler neck. The major product at this plant is the body modular part based on production volume and turnover. In short, the case company manufactures a wide range of small products at its Plant A as compared to modular products at Plant B. The wide range of manufactured parts and components in the case company has resulted in a variety of continuous improvement techniques such as VE being implemented. Subsequently, VE exercises within the case company have focused on reducing the material cost as it represents 40% of total product cost. Product diversity includes material diversity and production volume. Material diversity and production volume of each parts and components have actually influenced the adoption of VE. The material ordered in September 2005 comprised 329 and 247 of local and imported materials respectively. Since there are over 1000 of different parts and components that the case company manufactures, the production volume is perceived as huge. Essentially, data from interviews with the general manager, accountant and production managers was crosschecked with the available documents (e.g. material list, product list, brochures). The diversity in the products has influenced the adoption of VE within the case company and this finding concurs with Cooper (1988a) and Bjornenak (1997). Thus, it was found that the aim of VE exercises was to achieve price competitiveness, cost reduction, meeting customer needs and gain customer confidence. iii. Management support and initiatives Management has provided appropriate facilities and collaborations are made with technical partners to improve company’s performance. The management of the company has taken several initiatives to improve company’s performance by adopting various continuous improvement activities such as VE and Kaizen and quality management systems. The case company’s quality policy statement is to provide quality products and fulfill customer satisfaction. To achieve this, the company is committed to provide customers with prompt delivery of high quality products at competitive price. This has been possible also by conducting continuous improvement, VE activities. This has been highlighted in the company’s mission statement. Management believed that continuous improvement and value added activities able to contribute towards customers’ expectations and excellent services. In addition, the company is also steadfast in 21
    • complying with various requirements of interested parties and continually improves their quality management system. Over the years, the company has won numerous recognition and awards, which included Toyota Top Local Supplier for Best Delivery Performance (2004), Volvo Best Supplier Performance (2003), Toyota Top Local Supplier for Best Quality Performance (2002), Modenas Cost Down Award (2002) and accreditation (ISO 9002:1994, QS-9000:1998 and ISO9001:2000). The case company has continually improved its performance, which includes delivery and quality in meeting customers’ requirement and satisfaction. Similarly, the certification indicated the company’s emphasis on keeping up with customer’s expectations that are becoming sophisticated and growing, a commitment to quality through continual improvement process. This standard is a well documented quality management system that enables a company to achieve consistency and improvement of working practices. The standard is aligned to an organisation’s operations; the critical process in the company. The case company has always focused on continual improvement using innovative tools such as VE to meet customers’ satisfaction as evidence in its mission statement. Its continuous strives to improve performance has proven the company to be a credible manufacturer of automotive parts and components, which meets international quality standard. Their products and services are recognized by top automotive manufacturers. The case company has strong R&D capabilities and manufacturing facilities. This has contributed to the company securing several long-term contracts from various customers which included the national automotive manufacturers. The company has a wide range of automotive parts and components manufacturing facilities. Examples of the facilities include the Stamping Press Line, Robotic Welding Line, CNC Tube Bender, Nylon Fuel Tube Oven and Quick Connector Assembly. Its total capacity exceeds 450,000 sets annually, which able to fulfill the local and overseas demand. There was many experienced and dedicated staff as a result of collaboration activities with the customers. For many years, there has been close support and collaboration by various automotive assemblers. For example, in the early years, one of its major customers initiated the matchmaking programme as a method to transfer technology to local companies. It was during this programme that the case company was matched with a technical partner from overseas. It required the case company to work hard to meet the standard requirements set by the technical partner. This relationship has resulted in experience product development team within the company which is needed in developing and manufacturing quality products. The company always strives to achieve the stringent quality requirement of their customers. An agreement was made with technical partners from Japan and Australia. Its technical assistant from Japan is a leading Japanese tube manufacturer. The Japanese company scope involves automotive metal fuel and brake tubing. The case company seeks technical assistance from Australia, a manufacturer of automotive nylon fuel tubing and fuel filler neck. Within a year with the assistance of the technical assistance partner, the case company was able to complete the development of fuel and break tubing for nine national automotive manufacturer’s models. The case company continues to provide 22
    • great support and commitment towards customer satisfaction. Thus, to date, the company has developed and supplied these parts to more than ten automotive models. C. Environmental influences This section explains the environmental influences on the adoption of VE within the case company. Both competition and customer requirements were found to influence the adoption. i. Degree of competition The case company is well known for its tubing products. According to majority interviewed, there is only one competitor for tubing product. The Project engineer stated “So we’ve got many vendors in Malaysia. Each vendor has their own specialties. We specialise in stamping, tubing and fluid transfer system. So when they need tubing, they will think of two; [case company] and our competitor. So that makes it 50-50 for tubing. For stamping, there’s a lot more competitor.” Based on interviews conducted with key informants, the level of competition for the case company’s major products can be summarized below. Table 4: Major products competition level Product types Approximate No. of Level of competition competitors Traditional products None None Tubing 1 Low Medium stamping 5 Low Small stamping 20 Medium It seems that the company faced moderate competition for small stamping products. However the competition is perceived as low by all the informants for both tubing and medium stamping. The case company seemed to monopolize the production of the traditional products which comprised oil strainer and guide assy oil level gauge. On the other hand, the remaining products that the company manufactures faced strong competition. The operation manager recalled that “ [Competition] is strong, as long as we meet the customer price, we will get the project. Otherwise, we are finish. … It depends, sometimes we are also surprised. We received direction form the managing director. [He] said get the project first, price is number two. Follow customer price. Currently, it is very tight, very tough. … Everybody are quoting 29 cent. You quote 30 cent [you are] out. So we get the 29 cent. Then we will do internal improvement. Only than, we will be able to maintain profit or make profit. Otherwise there will be none.” Nevertheless, the company believes that it is pertinent to conduct VE exercise in order to manage cost of parts and components regardless of the degree of competition that exists in the market. The finding in this study supported Bjornenak’s on increased competition has resulted in the adoption of an innovation (Bjornenak, 1997). Consequently, the case 23
    • company would not be able to survive long in the automotive market if costs are not managed using various continuous improvement tools such as VE. The MD strongly believed in the application of continuous improvement exercises including VE in achieving the case company’s annual target cost saving. ii. Customer requirement The case company ensures that the customer requirements are determined and fulfilled. The aim was to enhance customer satisfaction. The quality manual was reviewed and it can be appreciated that customer related processes was used by the case company. The specified customer requirements should include delivery and post-delivery activities. On the contrary, customer requirements not stated was found to be necessary for its specified use and should be considered by the company as well. The statutory and regulatory requirements related to the product are also included in the customer related processes. The company’s products are sold to various automotive manufacturers and assemblers. The national automotive manufacturer was the only customer that requested VE exercise on the parts and components manufactured for them. VE exercise of this type was conducted based on customer requirement. An opportunity to attend VE meeting of this type was granted by the case company. The VE meeting was between the customer and case company. The VE meeting was held at the customer’s premise to discuss about an alternative material for the dipstick handle, a product which the case company manufactures. The objective for the material change was to reduce the product cost. The case company proposed an alternative material for the manufacturing of the product. The discussion resulted in further tests to be conducted by the customer and the supplier of the raw material before customer’s approval was granted. Even though alternative material was used, the function and quality of the product remains unchanged. D. Social phenomena The barriers or factors that impede the adoption of VE can be grouped into cultural and resources. The cultural aspect is looked at from the VE culture perspective. VE culture comprised attitude, awareness and sufficient knowledge. Even though VE was included in the company’s mission statement, there were a number of informants who were not aware of VE. Several of the informants were aware or heard of the term VE however they lacked in VE knowledge. Based on interviews conducted, only one informant has undergone a formal course in Japan which included VE as part of the course. It seems that those involved in VE did not attend any course or training on VE. From the interview conducted with HRM manager and review of training list, no course or training related to VE was ever proposed nor conducted. However, several informants were actually keen to attend VE course or workshop if they were offered. Thus, difficulty in obtaining VE knowledge was faced by employees in the case company. Consistent with Attewell (1992) and Firth (1996), there were also difficulties in obtaining skilled people on VE in the case company. Difficulty in obtaining skilled people is one of the adopting variables according to Attwell, (1992). According to the one of RND staff, the approval process for VE exercise with the major customer was perceived as a long and difficult task. Even though the proposal was made 24
    • in 1997, the major customer granted approval for the use of the alternative material only eight years later. The major customer would still request for other requirements such as more testing on the material even after providing all the required information. He felt frustrated and recalled “We need to have schedule, timing plan, implementation and approval date and customer requirement. However, the requirements are not clear. … We felt we have met all the requirements but it seems it was not enough” The customer took a considerable amount of time to grant the approval. This is regarded as one of the factors that delay the adoption of VE in the case company. In addition, no proper tools were used for VE implementation. This implies that the case company did not conduct VE exercise in a systematic and structured manner which has hindered the full potential of VE benefits enjoyed. The benefits that the case company enjoyed by using VE focus on material cost saving. VE is more than just a cost saving tool. Besides tangible results, other benefits such as intangible results which include efficient bidding process and customer satisfaction could be enjoyed to the fullest by the case company if VE is applied in an organize and structured manner. On the contrary, the general manager believed that it is best to be flexible when conducting VE activities otherwise it will restrict the creativity of those involved in VE. E. Communication channel Communication channel is used as a method to transfer VE information from one individual to another. Based on the interviews conducted, it was found that several informants acquired knowledge on VE through reading books. There were also a larger number of the informants who learned about VE from the management of the case company. Only one of the informants however was exposed to VE during a course held in Japan. This finding concurs with Fredrickson et al. (2004) and Liu (2003) that public media which include trainings, seminars and books have influenced the adoption of VE within the case company. In addition, VE was also communicated to the case company by the major customer. The major customer was perceived as the change agent. This finding is consistent with Bjornenak (1997) who noted courses and change agent as the most effective communication channels. VE was also communicated to members of the organization through their corporate strategy by including VE as a continuous improvement activity in their mission statement. 2. Types of innovation-decisions Approval for VE In-house was granted by the top management in the case company. They are the few individuals in the system that makes the choice of adopting VE since they have the power and technical expertise. In similar vein, authority innovation- decision was reflected in the ‘VE with customer’. In this type of VE exercise, the decision to adopt VE came from the customer. There was a directive from the national automotive manufacturer requesting the case company to conduct VE exercise on the parts and components being manufactured for them. On the other hand, the finding also reflected optional innovation-decision used in VE In-house. The RND manager and staff took their own initiative to conduct VE exercises. Even though it is optional but they 25
    • have voluntarily conducted VE exercise. In this type of innovation-decision, the individual is the main unit of decision-making and he or she has almost complete responsibility to introduce VE on the material change. According to Rogers (2003), majority of organizations has collective and authority innovation decisions. However, authority and optional innovation-decisions have influenced the adoption of VE within the case company. 3. Extent of VE adoption The organizational adoption model by Cooper and Zmud (1990) was used in parallel to explain the extent of VE adoption within the case company. The varying degrees of VE innovation implementation follow six stages as suggested by Cooper and Zmud (1990). The six stages comprised of initiation, adoption, adaptation, acceptance, routinisation and infusion. The case company can be described as in the routinisation stage. VE was applied as a routine exercise for cost reduction within the case company. It is perceived as a normal activity as VE In-house is conducted annually by the Purchasing Material Control department. Further, the RND department regularly conducts VE exercises on materials change. VE is also highlighted in the company’s mission statement. Additionally, VE was perceived as a normal and routine activity by organization members. The findings in this study supported Rogers diffusion of innovation theory (Rogers, 2003). Roger’s diffusion of innovation theory provided a central role in explaining the diffusion process. Regarding methodology, the qualitative analysis software program, NVivo 7, was valuable in assisting the researchers in coding, searching, and performing data analysis for this study. Care should be taken when applying the results of this study to other type of innovation since the study can only be generalized contextually. CONCLUSION This study explores the adoption of VE as an innovative tool and the influential and impeding factors are identified within the case company. The effect and extent of adoption of VE was also examined in an automotive component manufacturing Malaysian company. The objectives of adopting VE in the case company were to meet customer requirement, price competitiveness, cost reduction and customer confidence. The focus of VE exercise is on material as material cost constitutes a significant portion of total production cost of the parts or components. VE was used as a cost control or cost reduction exercise within the case company. This supports several definitions on VE in relation to its usage and objective. However, the company did not fully exploit the potential maximum application of VE. It was used in an unstructured manner instead. Even though the company enjoyed considerable amount of cost savings, VE is more than just a cost reduction exercise. VE should be applied in a structured and systematic manner (Omigbodun, 2001; Yoshikawa et al, 1995) using proper tools which can realize the optimum benefit of VE. Based on the diffusion of innovation theory, the perceived attributes of VE in relation to relative advantage and compatibility was found to determine the adoption of VE in the automotive component manufacturing company. An 26
    • indicator for the degree of compatibility of a new idea is when it meets the needs of the customer. The needs of the customer are determine by the change agents and in this case, the major customer of the company. Centralisation, product diversities, management support and initiatives are the factors that also influence organization to adopt VE. The findings indicate that there is lack of VE awareness and knowledge can amongst employees involve in the innovation. The willingness of the company to adopt VE innovation was found to be related to the attitude towards the innovation itself, perceived social pressure and control upon innovation process. Management support and initiatives have also influence its adoption. Degree of competition and customer requirement are the two influential environmental variables for VE. Further, developing and establishing VE program requires strong support and commitment from the top management. VE has also provided substantial returns and benefits to its users. The findings indicate that cost savings, price competitiveness, and customer confidence were benefits enjoyed by the case study company. Routinisation can be used to describe the extent of VE in the case company. The impeding factors to VE adoption are lack of awareness and knowledge on VE. Parties involvement in VE however do not have proper training and courses on the fundamentals of VE tools. There are others who are still not aware on VE even though it has been included in their mission statement. Overall, the results provided evidence that perceived attributes of VE innovation, centralization, product diversities, management support and initiatives, customer requirement, competition level and optional and authority innovation-decisions were the influential factors in VE adoption. Factors that impede its adoption are lack of communication channel for VE adoption. LIMITATION AND FUTURE RESEARCH This study allows for contextual generalizability through observations and analysis of complicated research phenomena however its limitation is that single case study is not statistically generalizable. Given that the study was conducted in an automotive component manufacturing company, the questions as to the degree of the factors that influence and impede VE adoption to the wider population should be investigated. Also, further research in comparing VE practices in the automotive sector with other sectors should be examined in order to determine the similarities and dissimilarities and the extent and effect of VE adoption between the sectors. REFERENCES 1981. Guidebook for VE activities - A basic manual: 1-32: Society of Japanese Value Engineering. 1992. Capital Works Investment: Value Management Manual: New South Wales Government. 1998. Value Mathodology Standard: 1-16: SAVE International "The value society" 1998. Management Accounting Concepts: International Federation of Accountants. 2003. British Standard: Value Management, BS EN 12973:2000, Vol. ICS 03.100.40: 1-61: British Standards Institution. 2004. Malaysia Trade and Industry Report 2004: Ministry of International Trade and Industry Malaysia. 27
    • 2005. RM2.4 billion shot in the arm., New Straits Times: F1-2. Kuala Lumpur. Anderson, S. W. & Young, S. M. 2001. Implementing management innovations: lessons learned from Activity Based Costing in the U.S. automobile industry. Norwell: Kluwer Academic Publishers. Anthony, K. R. 1992. Technology diffusion and organizational learning: the case of business computing. . Organization Science, 3(1): 1-19. Anthony, K. R. 2003. A rapid response organization's diffusion of innovations. Unpublished Ph.D., Capella University Attewell, P. 1992. Technology diffusion and organisational learning: the case of business computing. Organisation Science, 3(1): 1-19. Bjornenak, T. 1997. Diffusion and accounting: the case of ABC in Norway. Management Accounting Research, 8(3): 3-17. Brewerton, P. & Millward, L. 2003. Organizational research methods. London: Sage Publications Ltd. Bughin, J. & Copeland, T. E. 1997. The virtuous cycle of shareholder value creation. McKinsey Quarterly: 156-168. Cerasale, M. & Stone, M. 2004. Transforming how companies serve customer. IEE Engineering Management: 42-43. Cheah, C. Y. J. & Ting, S. K. 2005. Appraisal of value engineering in construction in Southeast Asia. International Journal of Project Management, 23: 151-158. Christian, A. & Bjornenak, T. 2005. Bundling and diffusion of management accounting innovations: The case of the balanced scorecard in Sweeden. Management Accounting Research, 16(1): 1-20. Cooper, R. B. & Zmud, R. W. 1990. Information technology implementation research: a technological diffusion approach. Management Science, 36: 123-139. Creswell, J. W. 2003. Research design. Qualitative, quantitative and mixed methods approaches. (2 ed.). Thousang Oaks: Sage Publications. Davies, K. E. L. 2004. Finding value in value engineering. Cost Engineering, 46(12): 24-27. Dawson, B. 2000. Evolving value management- Where to next? Paper presented at the HKIVM International Conference, Hong Kong. Dell'Isola, A. J. 1988. Value engineering in the construction industry. Washington D. C.: Smith Hinchman & Grylls. Drury, C. 2000. Management & Cost Accounting (Fifth ed.). London: Business Press Thomson Learning. Emsley, D. 2005. Restructuring the management accounting function: A note on the effect of role involvement on innovativeness. Management Accounting Research: 1-21. Ezzamel, M. 1990. The impact of environmental uncertainty, managerial autonomynand size on budget characteristics. Management Accounting Research(1): 181-197. Firth, M. 1996. The diffusion of managerial accounting procedures in the People's Republic of China and the influence of foreign partnered joint ventures. Accounting, Organizations and Society, 21(7/8): 629-654. Fisher, J. M. 1999. The modification of value engineering for application in the petrochemical industry., University of Calgary, Calgary. Flyvbjerg, B. 2006. Five misunderstandings about case-study research. Qualitative Inquiry, 12(2): 219-245. 28
    • Fong, P. S. W. 1998 a. Value engineering in Hong Kong - A powerful tool for a changing society. Computers Industrial Engineers, 35(3/4): 627-630. Fong, P. S. W. 1998 b. Value management applications in construction. AACE International Transactions. Morgan, 6: 1-5. Fong, P. S. W. 1999. Function-oriented creative group problem solving. Creativity and Innovation Management, 8(3): 210-222. Frederickson, H. G., Johnson, G. A., & Wood, C. 2004. The changing structure of American cities: A study of the diffusion of innovation. Public Administration Review, 64(3): 320-330. Gaynor, G. H. 2002. Innovation by design. New York: AMACOM. Hilton, R. W. 2002. Managerial Accounting. Creating value in a dynamic business environment (Fifth ed.). New York: McGraw Hill. IFAC. 1998. Management Accounting Concepts: International Federation of Accountants. Innes, J. & Mitchell, F. 1990. The process of change in management accounting: some field study evidence. Management Accounting Research(1): 3-19. Jaapar, A. 2006. The application of value management in the Malaysian construction industry and development of prototype value management guidelines., Universiti Teknologi MARA, Shah Alam. Jancsurak, J. 1998. Wanted: Value creation. Appliance Manufacturer, 46: 57-59. Jergeas, G. F., Cooke, V. G., & Hartman, F. T. 1999. Value engineering incentive clauses. Cost Engineering. Morgantown, 41(3): 25-35. Kelly-Newton, L. 1980. A sociological investigation of the USA mandate for replacement cost disclosures. Acccounting, Organizations and Society, 5(3): 311-321. Li, Y. 2004. Faculty perceptions about attributes and barriers impacting diffusion of web- based distance education (WBDE) at the China Agricultural University. Texas A & M University. Lillis, A. M. & Mundy, J. 2005. Cross-sectional field studies in management accounting research-closing the gaps between surveys and case studies. Journal of Management Accounting Research, 17: 191-141. Lindgreen, A. & Wynstra, F. 2005. Value in business markets: What do we know? Where are we going? Industrial Marketing Management: 17. Liu, G. 2003. A framework for implementing value management in China's constructions industry. The Hong Kong Polytechnic University Hong Kong. Male, S. & Kelly, J. 1990. The economic management of construction projects: An evolving methodology. Habitat International, 14(2/3): 73-81. Malmi, T. 1999. Activity-based costing diffusion across organization: An exploratory empirical analysis of Finnish firms. Accounting, Organizations and Society, 24: 649-672. Mazlan, C. M. M. 2002. Value Management Principles and Applications. Petalng Jaya: Prentice Hall. McCarthy, B. F. 2004. Instant gratification or long-term value? Journal of Business Strategy, 25(4): 10-17. McDowell, T. 1996. Value management: Surviiving in the millennium via diligence rewarded. Management Accounting 74(7): 48-50. Merriam, S. B. 1998. Qualitative research and case study applications in education. San Francisco: Jossey-Bass. 29
    • Miles, L. D. 1963. Definitions: Lawrence D. Miles value Engineering Reference Center: Wendt Library. Miller, R. & Floricel, S. 2004. Value Creation and games of innovation Research Technology Management: 25-37. Mitsufuji, T. 2003. How an innovation is formed: A case study of Japan word processors. Technological Forecasting & Social Change, 70: 671-685. Omigbodun, A. 2001. Value engineering and optimal building projects. Journal of Architectural Engineering, 7(2): 40-43. Ramli, A. & Sulaiman, S. 2006. The structural and functional changes of management accountants in Malaysia. Paper presented at the Asian Academic Accounting Association 7th Annual Conference, Sydney. Ramli, A. & Sulaiman, S. 2006. Value Management, Accountants Today, Vol. 19: 24-27. Ramli, A. & Sulaiman, S. 2006. Tools in value creation, Accountants Today, Vol. 19: 30-32. Rappaport, A. 1998. Calculating the value creation potential of a deal. Mergers & Acquisition, 33: 33-45. Ritchie, J. & Lewis, J. (Eds.). 2003. Qualitative Research Practice: A guide for social science students and researches. London: Sage Publications Ltd. Rogers, E. M. 2003. Diffusion of Innovations (Fifth ed.). New York: The Free Press. Rwelamila, P. D. & Savile, P. W. 1994. Hybrid value engineering: The challenge of construction project management in the 1990's. International Journal of Project Management, 12(3): 157-164. Patton, M. Q. 2002. Qualitative research and evaluation methods. (3 ed.): Sage Publications. Seale, C. 1999. The quality of qualitative research. London: Sage Publications Ltd. Sharma, U. 2001. Management accounting and control system changes in a public sector context: A case study. Paper presented at the Asia Pacific Interdisciplinary Research in Accounting (APIRA) Conference, Adelaide. Sperling, R. B. 2001. Understanding value engineering. IIE Solutions, 33(8): 45-51. Story, V., Smith, G., & Saker, J. 2001. Developing appropriate measures of new product development: A contingency-based approach. International Journal of Innovation Management, 5(1): 21. Sulaiman, S., Ramli, A., & Mitchell, F. 2007. Financial management in Malaysia, Financial Management: 36-37. Tashakkori, A. & Teddlie, C. 1998. Mixed methodology: Combining qualitative and quantitative approaches. California: Sage Publications Inc. Tek, O. H. & Yeomans, P. R. 2002. Value Management: Enhancing project cost performance. Williams, S. 2004. The widening reach of management accounting. Strategic Finance, 2: 2-41. Witschey, W. & Wulff, R. 2002. How to ensure quality and cut costs with cultural institution value mathodology. A case study of value engineering on an history renovation project at the Science Museum of Virginia. . Museum Management and Curatorship, 17(1): 65-83. Yin, R. K. 2003. Case study research: Design and methods (Third ed.): SAGE Publications. 30
    • Yoshikawa, T., Innes, J., & Mitchell, F. 1995. A Japanese case study of functional cost analysis. Management Accounting Research, 6: 415-432. Zaltman, G., Duncan, R., & Holbeck, J. 1973. Innovations and organizations: A Wiley- Interscience publication. Zmud, R. W. 1982. Diffusion of modern software practices: Influence of centralization and formalization. Management Science, 28(12): 1421-1431. 31