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Int. J.

Production Economics 98 (2005) 273289


Flexibility of manufacturing systems, strategic
change and performance
F. Javier Llore ns
a,
, Luis M. Molina
a
, Antonio J. Verdu
b
a
Department of Management, University of Granada, Campus de Cartuja s/n, Granada 18071, Spain
b
Department of Management, Miguel Hernandez University, Spain
Received 13 October 2003; accepted 29 May 2004
Available online 20 December 2004
Abstract
The past decade has witnessed an increase of interest in exibility, which bestows on a rm the ability to respond
promptly to market opportunities and changing technologies. The development of capabilities to be exible rests on the
mandate of top management, helps rms manage environmental uncertainty, and tends to enhance rm performance.
This research paper aims to establish an analytical approximation that considers how the determinants of
manufacturing exibility at the system level affect the desired strategic change in organizations, as well as subsequent
performance. We propose the hypotheses that both environmental factors and internal resources affect exibility, this
latter aspect inuencing the organizations performance. The problems that stem from measuring manufacturing
exibility in terms of t were also analyzed. In order to do this, we have made a wide-ranging trans-national study,
within the framework of the European Union, using data from 403 European rms. The Structural Equation Model
(SEM) technique has been used to contrast the hypotheses. The results show that manufacturing exibility at system
level can be a critical factor in the process of strategic change, which means that it can have an impact on the desirability
of strategic change or on the more specic strategic t.
r 2004 Elsevier B.V. All rights reserved.
Keywords: Strategic change; Manufacturing exibility; Fit; Competences; Metaexibility; Performance
1. Introduction
The study of strategic change has long occupied
an important position in the larger eld of
strategic management. Strategic change has been
recognized as an important phenomenon because
it represents the means through which organiza-
tions maintain coalignment with shifting competi-
tive, technological, and social environments which
occasionally pose threats to their continued
survival and effectiveness (Kraatz and Zajac,
2001). The emergence of new global competitors,
the convergence of high-technology industries and
the increasing speed and cost of technological
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Corresponding author. Tel.: +34 958 242 889;


fax: +34 958 2462 222.
E-mail address: lorens@ugr.es (F.J. Llore ns).
development promise an increasingly uncertain
environment for organizations (Hagedoorn and
Schakenraad, 1994). This may be particularly true
in fast-paced industries or hypercompetitive en-
vironments characterized by rapid technological
change, shortened product life cycles, increasing
competitive rivalry, and global competition (Up-
ton, 1994; Volberda, 1996).
Manufacturing companies often face high-de-
mand volatility, in terms of total volume, product
mix and customisation requirements. In order to
cope with these changes in the manufacturing
environment, the company would need to possess
some degrees of exibility in order to stay
competitive and protable. Flexibility can be seen
as a fundamental property of the manufacturing
system (Grubbstro m and Olhager, 1997). Thus, it
is a complementary property to productivity, and
the prevailing opinion today is that companies
need to be both productive and exible, and that
there must be no trade-off between the two
(Bengtsson and Olhager, 2002). The development
of capabilities to be exible rests on the mandate
of top management, helps rms manage environ-
mental uncertainty, and tends to enhance rm
performance (Evans, 1991). Many organizations
have found that it is almost impossible to address
these competitive forces without some major
internal and external structural adjustments that
provide greater exibility (Young-Ybarra and
Wierseman, 1999).
The literature lends its attention increasingly
more to the factors that act as obstacles to
strategic change (Amburgey et al., 1993; Rajago-
palan and Spreitzer, 1997; Zajac and Kraatz, 1993;
Kraatz and Zajac, 2001). However, little attention
is paid to the role manufacturing exibility plays.
Zajac et al. (2000) offer an approximation to
strategic change in which the comparison of actual
and necessary strategic change determines the
degree of dynamic strategic t, which should then
inuence subsequent performance. At the same
time, they give a set of organizational factors that
theoretically should dene strategic t. Organiza-
tional resources and competences can act as
critical factors for organizations that are contem-
plating strategic change. This study analyzes the
inuence manufacturing exibility has as a critical
factor. Most research on manufacturing exibility
contributes to the theory, but the very few
empirical works published use exibility or adap-
tation indices that measure the number of times
rms have changed, modied or adopted different
components or conducts. The t between the level
of actual exibility and that required by the
environment (the manufacturing exibility gap) is
not analyzed as an explanatory variable of
performance. Thus, a situation can arise in which
a rms exibility does not reach the required level,
though the number of changes is high. In this case,
the t is decient and exibility management
inefcient. In other cases it may be that a rms
exibility exceeds the demands of the sector, which
can exert a negative inuence on the costs it has to
bear.
From our point of view, manufacturing ex-
ibility can inuence the desirability of strategic
change or the more specic strategic t. This
paper, rstly, proposes to develop an analytical
approximation that considers how the determi-
nants and antecedents of manufacturing exibility
condition the change desired by the organizations
CEOs, as well as subsequent rm performance.
Secondly, we attempt to analyze the problems
involved in measuring exibility in terms of t. In
the sections that follow, we, rst of all, briey
review the past conceptual work on manufacturing
exibility and strategic change, as well as the
problems surrounding its measurement. We then
describe the sample and methodology of a eld
study that provides an initial test of our hypoth-
eses. Finally, we present and discuss the nding
and suggest implications for both future research
and practice.
2. Manufacturing exibility and strategic change
The literature has suggested the theoretical
relationship between manufacturing exibility
and strategy (Chang et al., 2003). In recent years,
interest in strategic changes seems to have
heightened even further, and many studies exam-
ining the occurrence, antecedents, and perfor-
mance consequences of strategic change have
appeared (Goodstein and Boeker, 1991; Kelly
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and Amburgey, 1991; Kraatz and Zajac, 2001).
Along these lines, certain normative studies into
strategic change have concentrated on identifying
the organizational and environmental factors that
should affect strategic t throughout time, such as
performance (Zajac et al., 2000; Kraatz and Zajac,
2001). One of the most widely shared and enduring
assumptions in the strategy formulation literature
is that the appropriateness of a rms strategy can
be dened in terms of its t, match, or congruence
with the environmental or organizational contin-
gencies facing the rm (Ginsberg and Venkatra-
man, 1985; Miles and Snow, 1984). However,
historically, in the strategy literature the concept
of matching and alignment has been of a multi-
dimensional and ambiguous nature (Zajac et al.,
2000). Thus, if the conditions of the environment
change, it is not necessarily evident that an
organization should change its strategy to achieve
a good t, since these changes could imply a
mist with the established organizational forces.
The multidimensional nature of the t concept
may lead organizations to confront situations in
which the need of change is there but they cannot
respond adequately, which can be detrimental to
performance. In these rms, in which a situation of
strategic mist arises, the non-occurrence of this
needed change may be due to an inability or
unwillingness to change, or perhaps an unaware-
ness of the need to change. On other occasions,
organizations are faced with a situation which
does not require change, but they opt to do so,
which can also be, once again, detrimental to
performance. Such excessive change may be
viewed as reecting an organizations well-inten-
tioned but miscalculated pursuit of strategic t.
Along these lines, Hedberg (1981) and Rumelt
(1995) argue that certain resources and compe-
tences may be damaged if the organization
attempts to expand its markets beyond its tradi-
tional domains or to do so quickly.
In an attempt to explain this problem, the
literature in the area of strategic change has seen
the increasing prominence of new theoretical
approaches. An important stream of research has
discussed the importance of organizational ex-
ibility in rapidly changing or uncertain environ-
ments (e.g., Aaker and Mascarenhas, 1984).
Competitive intensity, the degree of competition
an organization faces, requires rms to take a
exible approach so that they can adapt and
improvise to put their best foot forward (Moorman
and Miner, 1998). In conditions of low competitive
intensity, investments in exible resources and
strategic options are not useful, because an
organization is less likely to face circumstances that
require the use of these resources. In contrast, in
highly competitive environments, manufacturing
exibility is a valuable asset.
There have been numerous attempts at dening
and measuring manufacturing exibility; for an
overview, see e.g., Arias (2003), Gupta and Somers
(1992), Gupta and Goyal (1989), Sethi and Sethi
(1990) and Ramasesh and Jayakumar (1991). It is
well established that exibility can be viewed in
many perspectives; the two most widely cited being
volume exibility and product-mix exibility
(Bengtsson and Olhager, 2002). Using the deni-
tions of Sethi and Sethi, Bengtsson (2001) con-
siders the value of manufacturing exibility at the
basic level, at the system level and at the aggregate
level. Flexibility at the basic level of the Sethi and
Sethi framework includes machine exibility,
material handling system exibility and operation
exibility. Flexibility at the system level concerns
exibility of the whole manufacturing system and
will be dependent on the exibility types at the
basic level. Sethi and Sethi dene ve exibility
types at the system level and these are process,
product, routing, volume and expansion exibility.
Finally, exibility at the aggregated level concerns
exibility at the plant level. Sethi and Sethi identify
and dene three types of exibility at the aggregate
level and these are program exibility, production
exibility and market exibility.
There is an increasingly larger body of research
on the various forces that may act as barriers to
change (Rajagopalan and Spreitzer, 1997). How-
ever, the literature on strategic change pays little
attention to manufacturing exibility. Zajac et al.
(2000) offer an approximation to strategic change
in which the comparison of actual and necessary
strategic change determines the degree of dynamic
strategic t, which should then inuence subse-
quent performance. At the same time, they dene a
series of organizational factors that theoretically
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F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 275
should dene strategic t. Organizational re-
sources and competences can act as critical factors
for organizations contemplating strategic change.
From our viewpoint, such competences can have
an impact on the desirability of strategic change or
on the more specic strategic t. Manufacturing
exibility can be linked to the development of
organizational competences that enable the hand-
ling of strategic options that can respond reac-
tively or proactively to the demands of the
environment. For this reason, an analytical
approximation is needed that considers how
manufacturing exibility affects change and stra-
tegic t through time, as well as subsequent rm
performance. This approximation can be used to
evaluate whether organizations that do not act in
accordance with the contingency model (excessive
or insufcient change) can nd the explanation for
their poor subsequent performance in the level of
exibility developed.
3. Measuring manufacturing exibility:
An alternative approach
Manufacturing exibility is difcult to measure
(Beskese et al., 2004; Giachetti et al., 2003). One of
the perspectives from which exibility can be
approached is by comparing it with the concept
of t or congruence. The observations of Milliman
et al. (1991) on the relation between t and
exibility are revealing. These authors consider
that both concepts are the opposite ends of a
continuum and are, therefore, opposed, meaning
that t and exibility cannot co-exist in the same
rm. Other authors (Rowe and Wright, 1997;
Wright and Snell, 1998) consider that the concepts
are independent; they are not the far ends of a
continuum and, therefore, can be complementary.
The challenge of strategic management is to
confront change using exibility and constant
adaptation in order to reach a t between the rm
and its environment (Miles and Snow, 1984). Fit
can be seen as a temporary state, while exibility
would be a permanent characteristic of the
company. Fit is determined by the interconnection
between two variables, one internal and the other
external, whereas exibility can be classed as a
purely internal variable. By actual exibility we
refer to the organizations exible capacities; it is
the organizations exibility as such. On the other
hand, required exibility concentrates on the
perceptions CEOs have regarding the exibility
the environment demands.
The t between, on the one hand, actual and
potential exibility and, on the other, required
exibility can be operatively dened by measuring
a gap that reects the differences between what
CEOs perceive as required by the sector, in terms
of environmental demands, and what they actually
perceive within their rms. A rm may be less
exible, but still be more efcient, because this
conguration is what the environment it operates
in requires (a gap close to 0). On the contrary, a
rm may be very exible, but suffer from excess
exibility as regards the environments require-
ments. Thus, an efciently exible organization is
one that is adapted to what the environment needs.
Manufacturing exibility, in this sense of the
word, can be measured at a given moment,
checking whether what the environment needs is
what the rm is offering. However, if we under-
stand exibility to be the capacity for solving
paradoxes, we would consider the company to be
exible if it was capable of maintaining the gap at
values close to 0 when the environmental require-
ments change. A rm that is capable of adapting
to and/or having an inuence on the environment
will attempt to keep the gap at close-to-zero values
throughout time.
The way to measure this type of exibility has to
be done through time, using longitudinal studies
and observing the rms interaction with the
environment. As we can see, researchers recom-
mend evaluating exibility using longitudinal
studies, to conrm that a rms exibility char-
acteristics allow it to adapt effectively to its
environment. However, the notion of t implied
by the rst meaning would allow it to be measured
using cross-sectional studies. In this approach, the
aim is not to identify ideal exible forms from the
combination of exibility elements or variables.
This approximation enables us to check whether
the ts between the requisites perceived by CEOs
in a specic sector and the practices of their
respective rms offer better performance.
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4. Hypothesis development
Managers interpretations or perceptions of
their organizations external environment are
inuenced by their own backgrounds and experi-
ences (Daft and Weick, 1984). Several writers have
recognized environmental scanning and perception
as key to the strategy-making process (e.g.,
Bourgeois, 1985). Since strategic change in an
organization is brought about through a series of
behaviors and actions, organizational capability to
design effective strategic behaviors and organiza-
tional structures is critical for a rms growth and
survival (Chandler, 1990). A series of strategic
behaviors is shaped through the stable generation
mechanisms. Strategic learning is organizational
learning whereby basic assumptions underlying
corporate-level knowledge are reframed and lead
to a renewal of the organizations strategic
capability. Solving the paradoxes that arise within
the framework of manufacturing exibility when
up against a more competitive, dynamic, complex
and unpredictable environment implies the rm
having a greater learning capability. Volberda
(1999) denes this learning capability or ability to
solve paradoxes by means of the term metaex-
ibility.
Metaexibility and hyper-competitiveness are
two aspects that can be related. If the environment
is stable and relatively uncompetitive, the devel-
opment of learning capability is usually hindered,
since there are few incentives to learn and to
change if the established behaviors never become
obsolete. When this environment ceases to be
stable, that will be precisely when learning
capability begins to blossom (e.g., Lant and
Mezias, 1992) because a certain amount of stress,
due, e.g., to greater competition, is needed for the
learning to occur (e.g., Hedberg et al., 1976). We
are currently immersed in a hyper-competitive
situation, forcing environments to be highly
changing, dynamic, complex and unpredictable.
Obtaining sustainable competitive advantages in
this type of environment requires an ability to
generate new advantages; in other words, the
learning capability needs to be developed con-
stantly and rapidly (Slater and Narver, 1995),
which will allow us to harness the market
opportunities that others miss (Prokesch, 1997).
Only by developing metaexibility and generating
the intelligent organization can we tackle strategic
change and respond to the increasingly competi-
tive environment (Salaman, 2001). As the organi-
zation improves its learning capability, the CEOs
will perceive less uncertainty (Bowman and Hurri,
1993), such that the environment will begin to
become familiar and the organization will move
from an exploratory stage to one of exploitation,
generating prots (March, 1991). In short, in this
hyper-competitive environment the question is not
whether the change is there, or should occur, but
rather, whether we have the capability to learn
quickly and efciently enough to tackle this
change and make progress. This suggests the
following hypotheses:
Hypothesis 1a. The hyper-competitiveness of the
environment will increase the organizations level
of metaexibility.
Hypothesis 1b. The hyper-competitiveness of the
environment will reduce the manufacturing ex-
ibility gap at system level.
Hypothesis 1c. A higher level of organizational
metaexibility will reduce the manufacturing ex-
ibility gap at system level.
The strategic change literature, directed largely
by open-systems theories of organization (Pfeffer
and Salancik, 1978; Scott, 1998), has strongly
emphasized the need for organizations to maintain
coalignment with changing contingencies in their
competitive environments. While this literature
has obviously acknowledged that a variety of
organizational factors may intervene and compli-
cate the relationship between environmental shifts
and strategic change, the necessity of pursuing
tness with the environment is generally taken as
given. This emphasis on the benets of pursuing
environmental t is clearly not easily reconciled
with various resource-based views on strategy,
which emphasize the benets of building and
maintaining strategies that exploit existing stocks
of human, physical, nancial, reputational, social,
and/or organizational capital (Montgomery, 1995;
Kraatz and Zajac, 2001). Kraatz and Zajac (2001)
examine how historical resource endowments and
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competences affect strategic change and its out-
comes amid environmental turbulence. Their
empirical ndings provided the greatest evidence
for the Resources as Commitments perspective.
This perspective, which has roots in both economic
and behavioral traditions, suggested that valuable
distinctive resources would make organizations
possessing them more reluctant to change strate-
gies in response to environmental changes. Their
results indicate that organizations possessing
greater stocks of historically valuable resources
were much less likely to engage in adaptive
strategic change, but also that this resource-driven
disinclination towards change tended to have a
benign or even benecial effect on performance.
The above approximation leads us to believe that a
greater stock of nancial resources does not
necessarily have to lead towards a greater manu-
facturing exibility in order to tackle strategic
change. This suggests:
Hypothesis 2a. Organizations with greater nan-
cial resource endowments will have a greater
manufacturing exibility gap at system level.
Hypothesis 2b. Financial resource endowments
will moderate the effect of manufacturing ex-
ibility at system level on subsequent performance.
Levitt and March (1988) and Levinthal and
March (1993) have noted how the same resources
that have historically provided organizations with
competences can also create competency traps
when environmental conditions change. They note
that competency traps may occur largely because
of the general tendency of organizations to engage
in exploitation at expense of exploration. Because
the returns from exploiting existing resources are
generally more certain than those from explora-
tion, the former often drives out the latter. Thus,
the very possession of valuable resources para-
doxically leads resource-rich organizations to
focus an increasing amount of attention upon
applying and improving them, at expense of
exploring and developing the new resources which
are often required for strategic change (Kraatz and
Zajac, 2001).
Various authors have pointed out the general
idea that nancial resource endowments can pose
barriers to learning capability (metaexibility
denes a learning capability). Ghemewat and
Costa (1993) discuss the tendency of some
organizations to focus unproductively on static
efciency at the expense of the dynamic efciency
required in changing environments. All organiza-
tions possess a set of physical, human, organiza-
tional and nancial resources that can be used to
carry out strategies that create value (Eisenhardt
and Martin, 2000). Financial resources play a key
role, giving rms the capacity to face up to the
necessary strategic changes. However, there is
nothing that determines that the organizations
that learn are exclusively large companies or those
with a large nancial resources stock (McGill and
Slocum, 1993). The essential thing is for there to be
nancial exibility that enables rms to have the
ability to integrate, construct and re-shape those
resources in order to confront rapidly changing
environments by achieving new forms of compe-
titive advantage; in other words, by generating a
dynamic capability that is linked to nancial
exibility. This exibility, along with other dy-
namic capabilities, allows the rm to be able to
create new products and processes and respond to
the changing market conditions (Teece and Pisa-
no, 1994; Helfalt, 1997). Furthermore, it enables
organizations to alter the base of the existing
nancial resources (integrate, re-design, increase
and liberate), creating a fresh conguration of the
nancial resources that generates competitive
advantage; in other words, the advantage stems
from the new nancial resources base brought
about through nancial exibility and not from
the nancial resources themselves. Organizations
with greater nancial resources can face up to the
challenge of metaexibility with greater chances of
success. Thus, for example, the learning that is
associated to job practice (learning by doing)
requires organizations to have the adequate
combination and management of nancial re-
sources, since it involves a high initial cost.
Likewise, this form of learning can mean errors
or failures that the organization has to be able to
handle (McCune, 1997), since that is the only way
of learning from failure (Garvin, 1993).
In the same way, if we do not have the adequate
nancial resource endowments, there will be a
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tendency to succumb to the tension between
exploitation and exploration, substituting long-
term distant learning for short-term near learning,
due to the fact that it is impossible for the rm to
run into debt or risk its nancial resources in the
mid or long term (lack of nancial exibility). If
we wish to reach an adequate level of metaex-
ibility we have to achieve an adequate balance
between exploration and exploitation (Levinthal
and March, 1993; Vermeulen and Barkema, 2001)
and, for that, we must possess a correct exibility
as regards nancial resources. It follows that
greater nancial resource endowments result in a
lower level of metaexibility. We thus hypothesize:
Hypothesis 3a. Organizations with greater nan-
cial resource endowments will have a lower level of
metaexibility.
Hypothesis 3b. Financial resource endowments
will moderate the effect of metaexibility on
subsequent performance.
Manufacturing exibility has been proposed as
a key principle for rms adapting to dynamic
markets. The reduction of the gap should not
remain solely as a form of exibility taken as the
capacity to adapt, but, to this, we add the meaning
of the capacity to inuence the environment, since
the manufacturing exibility construct includes
both internal (adaptation to the environment) and
external (inuence on the environment) exibil-
ities. Flexibility can be understood from both a
reactive and a proactive viewpoint. We expected
that rms in which CEOs perceive the environ-
ment to be more uncertain, hostile and complex
would be characterized by higher degrees of t on
a manufacturing exibility (internal and external)
level, which, in turn, should positively inuence
rm performance. Our arguments can be summar-
ized in the following hypothesis:
Hypothesis 4. Organizations with lower manufac-
turing exibility gap at system level will have a
greater level of performance.
Fig. 1 shows the model that conjointly consider
the developed hypotheses.
5. Research method
5.1. Data collection
The study concentrated on three sectors within
the geographical framework of the European
Union: chemicals, electronics and vehicles. These
industries were chosen due to the interest inherent
in carrying out a study on manufacturing ex-
ibility and change using sectors with a high
technological component. All three sectors are
involved in the manufacture and commercializa-
tion of tangible goods that are highly sensitive to
technological change and are the result of group-
ing together various sub-sectors. The chemicals
sector includes pharmaceutical and petrochemical
organizations. The electronics sector is made up of
organizations involved in telecommunications,
robotics, automatons and informatics. The vehi-
cles sector covers all components and assembly
plants related to vehicle manufacture. Information
technologies have played a major role in market
globalization and, in turn, in the globalization of
organizational practices. For this reason, we feel it
appropriate to carry out our study within the
framework of EU Member States.
A key respondent, survey approach was used in
this research. The CEO of each participating rm
was asked to complete a questionnaire intended to
evaluate the organizations manufacturing ex-
ibility, perceived environment, metaexibility, and
performance. We focused on the CEO because our
research question involves the degree to which the
top executives hold a rms strategic change inside
their head and, in turn, relates it to the perception
of metaexibility and manufacturing exibility in
the organization, all of which is looked at from the
viewpoint of a specic environment. According to
Gioia and Chittipeddi (1991), the CEO is typically
portrayed as someone who has primary responsi-
bility for setting strategic directions and plans for
the organization, as well as responsibility for
guiding actions that will realize those plans. The
notion of t included in the research allowed
us to make a cross-sectional study. Pilot tests of
the questionnaire were conducted using ve
organizations that were not included in the nal
sample.
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The sample was identied using the Dun and
Bradstreet (2000) database. Each questionnaire
was sent to the CEOs from a random sample of
3411 rms. The selection was made using a
procedure of stratied random sampling with
afxation proportional to the business sectors
related to the technologies (chemicals, electronics
and vehicles) and to the different EU countries.
The sample represents 5% of the whole population
of rms and is divided up among the sectors of
vehicles (872), electronics (1360) and chemicals
(1179). The sampling error is 74.8%, with a
condence level of 95% and for p q 0:5: The
questionnaire was sent to rms of different sizes.
For the classication in terms of company size, we
used the criteria established in the EUs Fourth
Directive 78/660/CEE.
After two rounds of follow-up reminders, 403
useful questionnaires were received, representing a
11.81% response rate. The participant rms are
from various sectors and countries of origin. These
countries include the UK (92), Ireland (14),
Germany (36), Belgium (29), France (42), Den-
mark (34), Spain (73), Italy (22) and others (61).
After applying the classication by size criterion,
we differentiated 131 large rms (32%) and 272
SMEs. Using the database, non-response bias was
also checked for. From this resource, we were able
to obtain archival data concerning some charac-
teristics such as total investment, registered capi-
tal, annual sales or number of employees variables.
The mean differences between the responding and
non-responding companies along these dimensions
were tested using an unpaired t-test. The same
method was used to check for differences due to
size, country and industry. The results demon-
strated that all t-statistics were non-signicant.
5.2. Variables and measurement
Following an overview of the literature on
manufacturing exibility and an exploratory study
among rms, a questionnaire was designed that
was used in the research. This questionnaire has
six parts that deal with the different aspects we
wished to measure: environment, manufacturing
ARTICLE IN PRESS
Environment
Metaflexibility
Financial
Resources
Manufacturing
Flexibility
Performance
Y
21
Y
11
Y
12
Y
22
Y
32

21

13

32
Fig. 1. Structural model.
F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 280
exibility at system level, nancial resource en-
dowments, metaexibility, performance and con-
trol variables. Table 1 shows the measurement
reliability for the major variables in this study.
Environment: Some researchers have treated the
environment as an objective fact independent of
rms (Aldrich, 1979), while others have treated
this construct as perceptually determined and
enacted (Weick, 1969). This unresolved issue has
been a source of equivocal empirical results.
Bourgeois (1980) concluded that the issue is not
whether measures should be objective or percep-
tual. He suggested that both objective and
perceived environments are real and relevant from
a strategic management standpoint. Perceptual
measures make sense since only factors that
participants perceive can enter into their strategy
formulation behavior (Pfeffer and Salancik, 1978).
In this study, the environment is viewed as a
perceptual construct. Respondents were asked
their perception of the level of hostility, uncer-
tainty and complexity from the point of view of
competitiveness. The items were adapted from the
works of Bourgeois (1985) and Volberda (1999)
and dene the intensity and frequency of the
changes, along with the number of factors and
their relation. The reliability (Cronbachs alpha) of
the scale was a 0:783 exceeding the recom-
mended 0.70 threshold (Nunnally, 1978), provid-
ing evidence of internal consistency. Moreover, the
average variance extracted is over 50% (Shook et
al., 2004).
5.3. Manufacturing exibility at the system level
The items were adapted from the work of Sethi
and Sethi (1990). Sethi and Sethi dene ve
exibility types at the system level and these are
process, product, routing, volume and expansion
exibility. Sethi and Sethis denition is that
process exibility of a manufacturing system
relates to the set of part types that the system
can produce without major set-ups. They dene
product exibility as the ease with which new parts
ARTICLE IN PRESS
Table 1
Major variables and their measurement
Factors Item l* t Cronbach alpha Fornell and Larcker
Environment Dynamics frequency 0.76 11.79*** 0.783 0.502
Dynamics intensity 0.87 NA
a
Complexity variables 0.51 9.38***
Complexity relations 0.33 5.12***
Manufacturing exibility Process exibility 0.82 6.34*** 0.925 0.676
Product exibility 0.86 5.56***
Routine exibility 0.63 NA
Volume exibility 0.75 5.87***
Expansion exibility 0.74 6.75***
Financial resources Uncommitted resources 0.59 NA 0.744 0.499
Short payback 0.42 5.54***
Access resources 0.65 6.81***
Metaexibility Double looping learn 0.72 10.36*** 0.747 0.499
Deutero learning 0.79 NA
Absorptive capacity 0.60 8.85***
Performance Sales growth 0.90 NA 0.798 0.501
Return on assets 0.84 20.24
Return on sales 0.65 11.35
Performance success 0.75 17.59
*po0:05; **po0:01; ***po0:001:
a
NA Non-applicable.
F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 281
can be added or substituted for existing parts.
Routing exibility of a manufacturing system
means its ability to produce a part by alternate
routes through the system. Volume exibility
means the ability to be operated protably at
different overall output levels. Finally, Sethi and
Sethi dene expansion exibility of a manufactur-
ing system as the ease with which its capacity and
capability can be increased when needed.
Since we assume that the ideal situation for a
rm is to have a exibility level that best ts what
it requires in terms of the environmental char-
acteristics, we split the items into two, asking the
interviewees about both required and actual
exibility. Thus, each of the items concerning the
measurement of manufacturing exibility at sys-
tem level doubled up. The exibility gap will be
determined by the difference in the sectors
valuations and those of the rm itself (1). This
difference produces both positive values (required
exibilityactual exibility40), when the organi-
zation shows a certain rigidity with regard to the
environmental requisites, and negative values
(required exibilityactual exibilityo0), when
the rm has an excess of exibility. To this end,
we had to transform the scores in our scale.
Assuming that the ideal position for an organiza-
tion is a nil gap (gap 0), we converted the
remaining differences into negative absolute values
so that 0 becomes the highest value on the scale,
and the increase in distance with regard to 0
indicates a greater mist in relation to the required
exibility (2). The more negative a value is, the
worse its situation will be with regard to the
environmental requisites.
flexibility gap required flexibility
actual flexibility; 1
absolute flexibility gap jflexibility gapj. (2)
Finally, data were homogenized to be used in the
statistical analysis. We have transformed negative
scores from (2) in positive values ranging from 1 to
7. Hence values of manufacturing exibility gap
are similar to the rest of scales in the analysis.
However, in this case, values do not mean the
degree of agreement or disagreement but the level
of t (value 7) or mist between required and
actual exibility (from 6 to 1).
In this way, if the gap turns out to be positive,
the organizations actual exibility does not reach
the required level. If the contrary occurs, the
organization will have a actual exibility that goes
beyond the demands of the sector. The manufac-
turing exibility measurement method does not
aim to identify ideal exible forms from a
combination of factors that determine exibility.
The objective is to check whether the ts between
those requirements perceived by CEOs in a certain
sector and the practices of their respective
organizations have a positive inuence on perfor-
mance. The questionnaire does not refer to CEOs
expectations to measure the required exibility
level but, rather, to the perceptions they have of
the environment, which involves the fact that these
perceptions, instead of indicating an innite ideal
point, reveal a feasible ideal point that reects the
reality perceived by the respondent. Rather than
dening normative expectations (innite ideal
point), we have contemplated a requirement based
on what clients expect to obtain from those rms
known for their excellence. Following this ap-
proach, the questionnaire used the concept of
excellent rm, instead of what should be an
ideal organization. This nuance is of particular
importance, since the description of an ideal
organization has less sense as a standard of
comparison than an excellent organization. The
Cronbach alpha coefcient was 0.92, and the
average variance extracted was 0.67.
Financial resource endowments: Under the title
of nancial resource endowments, we included all
those items related to the organizations solvency
and borrowing capacity. The items used to
measure this construct were adapted from the
work of Volberda (1999) and Singh and Hodder
(2000). We then followed the procedures set out by
Churchill (1979) for scale purifying and by
Gerbing and Anderson (1988) and Bagozzi
(1994) for evaluating the reliability and validating
the measurement scale. The results were equally
satisfactory. The Cronbach alpha coefcient was
0.74, and the average variance extracted 0.50.
Metaexibility: Metaexibility represents the
learning capability that supports and sustains an
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F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 282
organizations exibility. Metaexibility covers the
processing of information to facilitate the constant
t of the exibility gap in the face of changes in the
environment. The items to measure the degree of
metaexibility were drawn from the work of
Argyris and Scho n (1978) and Cohen and
Levinthal (1990). Using the Cronbachs alpha
coefcient, the internal consistency was estimated
(a 0:74), the average variance extracted (0.50)
and a conrmatory factorial analysis was em-
ployed to value the external consistency of the
proposed measurement scale. The results obtained
were satisfactory.
Performance: We used multiple measures of rm
performance to reect the multi-dimensionality of
the performance construct (e.g., Chakravarthy,
1986). Since many of the rms in the sample were
expected to be closely held, their executives were
expected to be unwilling to provide detailed
accounting data. The CEOs were therefore asked
rm performance questions based on Dess and
Robinson (1984). Respondents were asked to rate
their rms performance compared to other similar
rms on sales growth, after tax return on sales,
after tax return on total assets, and overall
performance/success, each for the previous 5-year
period. Three-year averages were sought to mini-
mize the inuence of short-term variations on the
reported performance of the rm. The comparison
to other similar rms provided a form of control
for differences in performance that may be due to
industry (Dess et al., 1990) and strategic group
(Hatten et al., 1978) effects. Subjective, self-
reported performance measures such as those used
in this study have been found to be highly
correlated with objective measures of rm perfor-
mance (Venkatraman and Ramanujan, 1987). The
reliability of the scale was a 0:80; and the
average variance extracted 0.50.
The tool used to collect the information on the
variables described was a structured questionnaire
with closed response questions. A Likert-type 7-
point scale was used, where the value of 1 (totally
disagree) and of 7 (totally agree), along with
the intermediate values, were employed to grade
the different statements made. Finally, we inquired
about certain aspects aimed at obtaining descrip-
tive information on the rm, such as the sector
of activity, turnover and number of employees.
Table 2 shows some descriptive statistics of the
above variables and Pearson correlations between
them.
6. Results
To test the hypotheses we developed a structural
equations model with the help of the LISREL 8.30
software. This type of analysis consists of jointly
evaluating how the relations established t to the
data observed. This technique is also known as
covariance analysis, since the estimation method
involves minimizing, using a reiterative method, a
function that represents the difference between
the covariance matrix observed and that obtained
by means of the relations established. This type
of analysis enables us to check the validity of
the structural model, made up, in this paper, of
non-observable variables, along with the model
that measures them, taking into account any
possible measurement errors. In such errors, the
validity of the scales content is related to the
ARTICLE IN PRESS
Table 2
Descriptive statistics and correlations
Variables Mean S.D. 1 2 3 4 5
1 Environment 4.58 1.05 1
2 Financial resources 4.62 0.95 0.03 1
3 Metaexibility 4.95 1.01 0.29*** 0.41*** 1
4 Manufacturing exibility 4.29 1.01 0.43*** 0.44*** 0.47*** 1
5 Performance 4.46 1.09 0.06 0.62*** 0.16*** 0.45*** 1
n 403; *po0:05; **po0:01; ***po0:001:
F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 283
number of items representing each of the latent
constructs. Although the optimum number will
depend on what the construct covers (Hair et al.,
1998), three is the preferred optimum number to
avoid problems of non-feasible solutions. One
major limitation of the Structural Equation Model
(SEM) method is that it requires large sample
sizes, 20 observations for each item in the model
being needed. Thus, in the proposed model, a
sample of 400 observations is required, a value,
that is, just slightly surpassed in this study
(n 403). On the basis of the hypotheses for-
mulated, we dened environment and nancial
resource endowments as exogenous constructs.
The constructs concerning metaexibility, manu-
facturing exibility gap and performance were
taken as endogenous constructs. The causality
relations considered are non-recursive. The fact
that the scales data could be treated as continuous
prompted us to use the covariance matrix and the
Maximum Likelihood method in our analysis. The
absence of normality in the behavior of the
manufacturing exibility variable led us to calcu-
late the asymptotic covariance matrix and to
estimate the Satorra-Bentler w
2
(Jo reskog et al.,
1999), so as to obtain a more robust estimator.
The Satorra-Bentler w
2
is only obtained by using
the Maximum Likelihood method. Missing values
were, listwise, delete.
Table 3 and Fig. 2 show the estimation of the
values for the standardized coefcients of the
parameters, signicance levels and goodness-of-t
indices of the structural equations system. The
models overall t proved to be good, as were the
standardized loads, the indicators and their
signicance levels (all t values above 2.08,
po0:05). Both the compound reliability and the
extracted variance analysis surpassed the recom-
mended limits of 0.70 and 0.50, respectively (Hair
et al., 1998). It can be seen that, in the condence
level of the correlation, the value of 1 never
appeared (Anderson and Gerbing, 1988) and,
therefore, we did not nd correlated endogenous
constructs (Table 4).
Hypotheses 1a and b are conrmed as regard
the inuence environmental attributes have on
metaexibility (t 3:98; po0:001) and manufac-
turing exibility gap (t 5:83; po0:001). The
perceived environment has a signicant impact
on the degree of metaexibility and manufacturing
exibility gap. The results for the role of meta-
exibility on the manufacturing exibility gap
(t 2:10; po0:05) support for Hypothesis 1c
which proposed that a higher level of organiza-
tional metaexibility will reduce the manufactur-
ing exibility gap at system level. This, we believe,
reveals that an organizations learning capability
improves the t of the manufacturing exibility
levels.
There is also a positive inuence of nancial
resource endowments on metaexibility (t 4:64;
po0:001) and manufacturing exibility gap
ARTICLE IN PRESS
Table 3
Standardized estimated coefcients form the structural equations analysis
Structural equations l* t R
2
g
11
Environment -Metaexibility 0.24 3.98*** 0.28
g
12
Financial resources -Metaexibility 0.45 4.41***
g
21
Environment -Manufacturing exibility 0.39 5.83*** 0.50
g
22
Financial resources -Manufacturing exibility 0.45 4.41***
b
21
Metaexibility -Manufacturing exibility 0.19 2.10*
g
32
Financial resources -Performance 0.61 5.38*** 0.41
b
13
Metaexibility -Performance 0.21 2.87**
b
32
Manufacturing exibility gap -Performance 0.19 2.08*
Goodness of t: Satorra-Bentler w
2
359:48; degrees of freedom 155 (po0:001), w
2
-normed 2.32, RMSEA 0.057, GFI 0.95,
AGFI 0.91, NNFI 0.90, CFI 0.92, IFI 0.92.
*po0:05; **po0:01; ***po0:001:
F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 284
(t 4:41; po0:05), refusing Hypotheses 1a and b.
This means that a greater level of nancial
resource endowments increases the levels of meta-
exibility and leads to a more favorable t of the
manufacturing exibility. As regards performance,
the results point to the inuence that nancial
ARTICLE IN PRESS
Table 4
Discriminant validity analysis
Factors Covariance t Condent interval
EnvironmentFinancial resources 0.03 0.31 0.190.14
EnvironmentMetaexibility 0.29 3.74*** 0.140.45
EnvironmentManufacturing exibility gap 0.43 5.63*** 0.250.58
EnvironmentPerformance 0.06 0.71 0.110.24
Financial resourcesMetaexibility 0.41 4.95*** 0.250.57
Financial resourcesManufacturing exibility 0.44 5.01*** 0.270.61
Financial resourcesPerformance 0.62 6.22*** 0.430.82
MetaexibilityManufacturing exibility 0.47 5.91*** 0.320.63
Metaexibility -Performance 0.16 2.25* 0.020.30
Manufacturing exibility -Performance 0.45 5.45*** 0.290.62
Goodness of t: Satorra-Bentler w
2
358:77; degrees of freedom 154 (po0:001), w
2
-normed 2.33, RMSEA 0.058, GFI 0.95,
AGFI 0.91, NNFI 0.90, CFI 0.92, IFI 0.92.
*po0:05; **po0:01; ***po0:001:
Environment
Metaflexibility
Financial
Resources
Manufacturing
Flexibility
Performance
0.39***
0.24***
0.45***
0.45***
0.19*
0.19*
-0.21**
0.61***
Fig. 2. Standardized coefcients of the structural parameters.
F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 285
resource endowments (t 5:38; po0:001) and the
manufacturing exibility gap (t 2:08; po0:05)
have. This data refuses Hypothesis 2b and
conrms Hypothesis 4; in other words, a good t
in the manufacturing exibility level and a high
degree of nancial resource endowments imply an
improvement in performance. The results of the
different indicators on the models goodness-of-t
are satisfactory (NNFI 0.90, CFI 0.92,
RMSEA 0.057, GFI 0.95, IFI 0.92 and
AGFI 0.91). This conrms that the equations
that dene the model represent the information
well. The w
2
statistics value is signicant
(w
2
359:48; 155 d.f., po0:001), which is normal,
considering the sensitivity of this indicator to
sample size (Hair et al., 1998). The remaining
indices have values that are within the acceptable
range. In short, these results validate the hypoth-
eses formulated.
7. Discussion and conclusions
This major nding provides some theoretical
and managerial insights into understanding the
factors that determine an organizations degree of
manufacturing exibility and which end up mak-
ing strategic changes easier or more difcult.
Firstly, nancial resource endowments have a
signicant inuence on achieving strategic change,
through its impact on manufacturing exibility.
The strategic t is related to the organizations
capacity to redesign itself and adapt to the
environmental requirements from a nancial view-
point. Without an optimal exible capital structure
that guarantees the adequate nancing of the
changes, the t of the exibility level is impossible,
regardless of whether the capability to learn and
assimilate the changes is high. We also suggest that
a greater manufacturing exibility can be ex-
plained by a greater endowment of nancial
resources, and by a more exible managing of
said resources.
Second, the concept of learning contributes to
explaining the process of change of strategic
orientation. This study addresses the idea that a
greater level of organizational metaexibility leads
to a better t of the manufacturing exibility level.
Flexibility is a form of meta-control aimed at
increasing the capacity to respond to environmen-
tal turbulence. This control potential is based on a
learning system that is capable of assimilating the
magnitude of the changes by rolling out the
adequate corrective actions. In contrast with the
hypothesis developed, metaexibility has a nega-
tive effect on performance. The propensity to
explore or to exploit the resources can explain this
result (March, 1991). Thus, resources assigned to
enhance metaexibility improve the manufactur-
ing exibility t. This result can be explained due
to the larger range of potential behaviors of
organizations components (Huber, 1991). Never-
theless, this learning does not directly induce a
change in the real behavior. Hence, the organiza-
tion hold up the resources costs but the member
behavior has not changed.
Finally, this study documents the fact that
manufacturing exibility can be dened as a
permanent characteristic within the organization.
For this reason, we have developed a measurement
procedure that establishes a gap including the level
of t between actual and required exibility. This
gap enables us to reect the differences between
what CEOs perceive to be their sectors require-
ments, in terms of environmental demands, and
what they actually perceive within their own
organization. The CEO is typically portrayed as
someone who has primary responsibility for
setting strategic directions and plans for the
organization, as well as responsibility for guiding
actions that will realize those plans. The notion of
t included in this research enables us to carry out
cross-sectional studies to measure it. This approx-
imation allows us to check whether the ts
between CEO-perceived requirements and the
actual practices of their organizations bring about
improved performance.
This paper provides an analytical approxima-
tion that studies how the determinants and
antecedents of manufacturing exibility at system
level affect strategic change and its outcomes.
Most strategy researchers have, in general, become
increasingly concerned with the unique, inimitable,
historically accumulated, and heterogeneously
distributed resources that differentiate organiza-
tions from one another. In fewer cases, research
ARTICLE IN PRESS
F.J. Llorens et al. / Int. J. Production Economics 98 (2005) 273289 286
has been done into how resources endowments
may impact organizations propensity for adaptive
strategic change, or affect the outcomes of such
change. However, in these research studies on
resources and competences, there is a notable
lack of discussion or research concentrating on
the analysis of role played by manufacturing
exibility. Our study reviews and includes
the different studies that suggest that organiza-
tional resources and competences can act as
critical factors for organizations that are contem-
plating strategic change. After overviewing the
literature, we suggest that manufacturing exibil-
ity may be a critical factor within the strategic
change process, which means it may have an
impact on the desirability of strategic change or
on the more specic strategic t. In the same
way, we analyze the problems posed by measur-
ing exibility in terms of t. We also conducted
an empirical study that concentrated on three
industrial sectors within the framework of the
European Union.
This study has various limitations. The cross-
sectional nature of the research should be com-
plemented by longitudinal studies. The t-based
approximation to measure exibility has softened
this limitation. Besides, the items of the ques-
tionnaire have been worded in terms of the rms
evolution over the last three years. The study
sample is limited to EU Member States, as well
as to three specic sectors with a high techno-
logical component. Other sectors may give differ-
ent results. To enhance the generalizability of
this studys main results, future research may
replicate this study to other industries or use
samples from multiple countries to obtain com-
parative insights.
As a conclusion, it was found that a good t in
the manufacturing exibility level and a high
degree of nancial resource endowments are
related to a greater performance. Likewise, the
results revealed to us that reaching an appropriate
t in an organizations level of manufacturing
exibility is conditioned by factors such as its
metaexibility and nancial resource endowments.
Finally, it was shown that the characteristics
dening the business environment have an impact
on the level of metaexibility.
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