Firm Size and Organizational Flexibility

Large firms are at a resource advantage vis á vis smaller firms through superior access to resources, greater market power and recognition, and economies of scale and scope. Small firms are assumed to counter these resource disadvantages with flexibility. The flexibility argument, however, is often presented as an implicit assumption or taken for granted, approached as a unidimensional concept, or investigated only concerning specific resources and capabilities. The present study advances the resource-based view to develop refutable implications for the relationship between firm size, organizational flexibility and firm performance.

The dynamic capabilities that endow firms with flexibility are manifested at different levels, which can be considered a hierarchy of capabilities with operational flexibility, structural flexibility, and strategic flexibility.

We hypothesize that SMEs, being less capital intensive compared to large firms, will exhibit higher levels of operational flexibility. Further, SMEs are generally less bureaucratic and we hypothesize that size is negatively related to structural flexibility. At a strategic level, SMEs obtain flexibility from their portfolio external resources and certain resources that allow them to overcome some barriers relatively easy and exploit certain industry opportunities more readily than large firms. We hypothesize that size is negatively related to strategic flexibility.