Characterizing organizational lifecycle through strategic and structural flexibility: insights from MSMEs in Mexico

Abstract

Today’s lifespan of companies tends to be low in the so-called micro-, small-, and medium-sized enterprises (MSMEs). Organizational life cycle (OLC) theory indicates that organizational aging is related, but not determined, by the firm chronological age or its size. Therefore, a firm’s aging should be analyzed by other factors such as flexibility. The literature considers flexibility as an essential capability, a source of competitive advantage, and an enabler of long-term growth for MSMEs. However, little attention in emerging economies has been paid to examine the nuances of this concept in relation to the OLC in this type of companies. Additionally, studies tend to analyze flexibility as a general term, ignoring that it is a polymorphic concept. That is why there is a need to research the different categories of flexibility. Drawing on a quantitative approach conducting a factor analysis, a two-step cluster, and decision tree analysis to interrogate data from 257 MSMEs in Mexico, this study provides evidence of different dimensions of strategic and structural flexibility that help to characterize and predict the growth, maturity, and declining stages of MSMEs. Our results show that mature firms present more strategic and structural flexible characteristics than those involved in growth or decline stages. The flexible factors that help classify and predict an MSME in the maturity stage include open communication, decentralized decision making, and formalization. We provide a model with these results to illuminate unaddressed issues regarding the broad term of flexibility and its relationship to OLC.