Why flexible boundaries help a firm deal with evolving demand
Willem H Boshoff
Recent work on the architecture of the firm suggests that firms may adopt flexible boundaries in response to a hostile environment. Flexible boundaries involve a dynamic organizational setup, where the firm draws its boundaries along the value chain in different ways for its different clients, enabling the firm to enter new intermediate markets in addition to its traditional end-markets. In particular, research suggests that a flexible boundary structure offers a strategic advantage to firms in mature industries facing increased competition and declining profit levels. This paper investigates an alternative rationale for the adoption of flexible boundaries by studying the role of demand-side views. In an era of increasing pressure for corporate social responsibility, clients are increasingly concerned about the roles and identities of different players in the value chain serving them. Consequently, firms may have to consider these value chain views when drawing their boundaries. This paper argues that the firm may accommodate variety in these demand-side views using flexible boundaries. The paper studies the impact of demand-side views on firm boundaries through an in-depth case study of a small South African firm. The setting is quite different from traditional studies focusing on US or European manufacturing and technology firms, but vividly illustrates a case where demand-side factors dominate supply-side considerations in the decision to adopt flexible boundaries.
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