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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
ARTICLE IN PRESS
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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