| Despite increasing recognition of the importance of strategic flexibility as a new competitive advantage, there is little research exploring the major dimensions of strategic flexibility or examining its relationship to business performances. This research analyzes and operationalizes the concept of strategic flexibility and investigates the effect of flexibility on business performance in different international business environments.;Flexibility is hypothesized to have a positive influence on business performance in unstable environments. In these types of environments, a relatively high degree of flexibility is hypothesized to enhance business performance since business units need to quickly adjust existing operations to dynamic environmental changes such as frequent demand fluctuation and technological innovation. Conversely, the impact of flexibility on performance is hypothesized to be negative in stable environments. Business units operating in such environments may incur more costs than benefits by maintaining flexibility within an organization.;Major Divisions of the 100 largest U.S. multinational corporations were surveyed to gather information about their competitive position, flexibility and business performance in the overseas market segment. A parsimonious regression model was developed to test the posited hypotheses. To control for the effect of unobservable factors, a serial correlation model was combined with the instrumental variable approach.;The research results suggest that flexibility has a significant positive effect on the profitability of a business unit. Further, the substantial effect of flexibility on business performance tends to persist regardless of whether the business environment is stable or unstable. In addition, contrary to the traditional view that there is a trade-off between flexibility and cost efficiency, flexibility is found to generate cost efficiency even at relatively low levels of environmental instability. As such, flexibility seems to provide business units with a competitive advantage which enables them to offer a vast variety of products and to achieve low cost. |
