Flexibility, Hierarchy, Markets

SUMMARY The conclusion that organizations need to become more strategically flexible as a response to increasing environmental dynamism and uncertainty has been an important feature of recent contingency theories of organization design. In this literature organizations have been analysed from the perspective of the development of networks of organizations concentrating on their core competencies and contracting among themselves on a stable long‐term basis. This model of inter‐firm relationships provides an alternative mode of organizational structuring to that arising from vertical integration, which, by contrast, is seen as fostering strategic inflexibility. In the literature on corporate restructuring and changes in ownership form arising from the markets and hierarchies perspective, we see a similar emphasis on the dysfunctional consequences of large‐scale bureaucratic organization. Changes in ownership form are seen as a major means of providing more effective managerial control. In this paper we argue that linking the literature on flexibility emanating from contingency theories of organizational design and the markets and hierarchies perspective provides important new insights into current and emerging forms of organization.