Idea

Flexibility

Oct 9th 2009
From Economist.com

A firm’s ability to respond to changes in its environment both rapidly and at low cost

In a business context, flexibility can refer to a number of different ideas. Today its most common usage is in the workplace where it refers to such things as flexi-time, variable hours and extended periods of leave. But the word has a longer pedigree in the area of strategy, where it generally refers to a firm’s ability to respond to changes in its environment both rapidly and at low cost. In the (limited) sense that strategy is an unchanging commitment to something, it is the antithesis of flexibility.

A firm’s strategic flexibility depends partly on its liquidity, since its ability to respond speedily is inevitably determined by its access to funds. But more importantly it depends on its organisational structure, on the way in which its various units work with each other, and the freedom they have to take decisions on their own initiative.

The trade-off between flexibility and firmness has been a long-running subject of management discussion. Julian Birkinshaw, a professor at London Business School and author of “The Flexible Firm”, wrote an article in the summer 2004 edition of the Sloan Management Review called “Building Ambidexterity Into an Organisation”. In it he says:

For a company to succeed over the long term it needs to master both adaptability and alignment—an attribute that is sometimes referred to as ambidexterity.

For adaptability, read flexibility; and for alignment, read firmness. The balance between the two, ambidexterity, is a term which Birkinshaw claims was first used in this sense in 1976.

Sumantra Ghoshal put the dilemma slightly differently. In an article in the Sloan Management Review in autumn 2002 he wrote:

One of the most fundamental and enduring tensions in all but very small companies is between sub-unit autonomy and empowerment on the one hand, and overall organisational integration and cohesion on the other.

Autonomy and cohesion; adaptability and alignment; flexibility and firmness. The words are different though the dilemma remains the same.

For most of the past century, firmness has had the upper hand in corporate strategy. Companies have set themselves on a particular course, and it has taken a huge effort to divert them. A big company, wrote one author at the end of the 1990s, “is a bit like an oil tanker. There is no way it can turn on a six-pence”.

In the 21st century companies have come to value flexibility more and more, and have looked for ways in which they could, indeed, turn on a sixpence. Peter Brabeck, when head of Nestlé, set out at the turn of the 21st century to transform the company from being run “like a supertanker” into being more like an “agile fleet” of vessels, a fleet that called into action different business units to seize different market opportunities as and when they arose.

Some, however, felt that the enthusiasm for flexibility went too far. A senior executive at Yahoo! was reported by the Wall Street Journal in December 2006 as having written an internal memo bewailing the fact that:

We lack a focused cohesive vision for our company. We want to do everything and be everything to everyone…We are scared to be left out. We are reactive instead of charting an unwavering course. We need to boldly and definitively declare what we are and what we are not.

In his book “Does IT Matter?”, Nicholas G. Carr, an editor at Harvard Business Review, found a compromise. Writing of the future, he said:

Successful companies will therefore work to establish and protect distinctive strategic positions even as they use more temporary competitive advantages as stepping stones to new advantages. They will be, so to speak, flexibly inflexible.

Further reading

Birkinshaw, J. and Hagström, P. (eds), “The Flexible Firm: Capability Management in Network Organizations”, Oxford University Press, 2000

Birkinshaw, J., “Building Ambidexterity Into an Organisation”, Sloan Management Review, 2004

Carr, N.G., “Does IT Matter? Information Technology and the Corrosion of Competitive Advantage”, Harvard Business School Press, 2004