Strategic Thiking Articles

Strategic Management Journal

Strat. Mgmt. J., 26: 1249–1259 (2005) Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.503

EFFICIENCY, FLEXIBILITY, OR BOTH? EVIDENCE LINKING STRATEGY TO PERFORMANCE IN SMALL FIRMS

JAY J. EBBEN* and ALEC C. JOHNSON

Department of Entrepreneurship, University of St. Thomas, St. Paul, Minnesota, U.S.A.

This paper analyzes small firm performance in relation to efficiency and flexibility strategies. Using configuration theory, the authors propose that small firms that pursue efficiency strategies or flexibility strategies outperform those that attempt to pursue both. Additionally, size is used as a configurational attribute to develop competing hypotheses on whether efficiency strategies or flexibility strategies are better suited for small firm performance. In two samples of 200 and 144 privately-held small firms, firms that mixed efficiency and flexibility strategies significantly underperformed. No significant performance differences were found between firms utilizing only efficiency strategies and those utilizing only flexibility strategies. Copyright  2005 John Wiley & Sons, Ltd.

Advancing knowledge on strategy in small firms is an essential task because these firms play a vital role in world economies (e.g., Sherman, 1999), yet face significant disadvantages in the marketplace in terms of managerial expertise, access to capital, bargaining power with suppliers and buyers, and experience curve effects (e.g., Forbes and Milliken, 1999; Pissarides, 1999; Dean, Brown, and Bamford, 1998; Rajan and Zingales, 1995; Holmes and Dunstan, 1994). Progress in this area of the entrepreneurship literature has been made in recent years with studies on topics such as product-market strategies, outsourcing strategies, and market entry strategies to name a few (e.g., Carter et al., 1994; Tsai, MacMillan, and Low, 1991; Jarillo, 1989; Sandberg and Hofer, 1987). Conclusions have generally been made that strategy does indeed...