Advanced manufacturing technology: organizational design and strategic flexibility

Organization Studies, Summer, 1996 by David Lei, Michael A. Hitt, Joel D. Goldhar

Much of the work in the early management literature has focused on the different sources of competitive advantage arising from pursuit of various generic strategies (e.g. Porter 1980, 1985; Hambrick 1983a, 1983b; Dess and Davis 1984; Miller 1988, Murray 1988). Researchers have often examined different generic strategies through such typologies as cost leadership, differentiation and focus (Porter 1980; Kim and Lim 1988; Zajac and Shortell 1989). Yet, it is clear that the competitive landscape in many industries is changing. For example, rapid technological change, the continuous fragmentation of markets, the convergence of different industries, shorter product life-cycles and the enormous growth in telecommunications and inexpensive computing power have made the environment more 'hypercompetitive' (D'Aveni 1994), truncated (Anderson and Tushman 1990), 'high-velocity' (Bourgeois and Eisenhardt 1988) and chaotic (DeMarie et al. 1994). Business strategies in themselves have become more difficult to classify (Chrisman et al. 1988), because an increasing number of firms are implementing time-based, fast-response competitive strategies to achieve greater strategic flexibility (Hill 1988; Stalk 1988; Hamel and Prahalad 1994). These new strategic approaches are significantly different from the more rudimentary low-cost, differentiation and focus archetypes.

The focus on our paper is to show how investments in advanced manufacturing technologies (AMT), such as computer-integrated manufacturing (CIM), flexible manufacturing systems (FMS), computer-aided design and computer-aided manufacturing (CAD/CAM) networks have expanded the potential strategic flexibility available to the firm. These new manufacturing technologies, when properly implemented, enable the firm to customize its strategy to achieve greater strategic flexibility in designing new products (Clark 1989), competing on time (Stalk 1988) and simultaneously producing high variety at low cost (Nemetz and Fry 1988; Lei and Goldhar 1990; Parthasarthy and Sethi 1992). In effect, an investment in AMT provides a strategic option that greatly expands the range of the firm's potential growth paths. Experience with AMT may also create a capability for firms to contest and enter new markets where product and/or component designs are similar to those used in the firm's existing products. In other words, highly advanced and flexible manufacturing systems may reduce the potential barriers to entry in related markets or similar market segments, thus increasing the firm's strategic flexibility (DeMeyer et al. 1989; Hayes and Pisano 1994).

The full exploitation of AMT, however, requires a flexible organization design that allows quick responses to take advantage of the capabilities of the technology. New organizational forms, such as loosely coupled systems (Orton and Weick 1990; Hitt et al. 1993), 'modular' structures (Daft and Lewin 1993; Sanchez and Mahoney 1994), 'open systems' perspective (e.g. Schmidt 1991) and learning laboratories (Leonard-Barton 1992) represent alternative characterizations of emerging organization designs that facilitate the implementation of AMT. They share common organizational features, such as the cultivation of new sources of tacit, organization-embedded knowledge, cross-functional integration and coordination of value-adding activities, and relative ease of selectively cooperating with other organizations in dividing the industry-wide value chain.

The first part of this paper examines the economic and strategic characteristics of AMT. These include such features as economies of scope, 'design for response' capabilities and rapid system turnaround with low changeover costs. AMT capabilities create a series of flexible strategic options (Sharp 1991) that enable the firm to build a customized, integrated business strategy for each of its markets served. Full appropriation of the value of AMT is directly related to how well the firm is able to 'stretch' (Hamel and Prahalad 1993) the system's economies of scope and 'design for response' capabilities. Moreover, the underlying option value of AMT to serve multiple markets simultaneously may be viewed as the exercise of the firm's option or commitment (Ghemawat 1991) to pursue an integrated strategy.

The second part of this paper considers the types of firm-based knowledge and organization designs that enable the firm to maximize the strategic flexibility created by AMT. Investments in AMT without commensurate changes in the firm's organizational structure and operating routines are unlikely to maximize the full range of technological capabilities of AMT.

In the third section of this paper, we discuss how AMT may play a role in strategy and organization. We analyse how the growing use of AMT is likely to recast the field's perspective towards generic strategies (e.g. Porter 1980), as well as the concepts of emergent strategies (Mintzberg 1978) and help transform organizations into learning laboratories (Leonard-Barton 1992).