John Atkinson's Flexible-Firm Model (1984) is a managerial and organisational technique used to optimise the allocation of human resources in accordance with market instability and workforce flexibility. It defines two clear groups of workers, the core and peripheral group, which are organised within the company based on three types of flexibility: functional, financial and numerical.
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The Flexible-Firm Model was proposed in 1984 by John Atkinson of the Institute of Manpower Studies. He suggested that organisational structures require increased plasticity in a fluctuating market and unpredictable and competitive business environment. The answer to this market volatility was, in his view, the implementation of flexible staffing arrangements. Atkinson identified the need to distinguish the levels of importance of certain teams or groups of employees to an organisation, to generate workforce flexibility and a clear hierarchy of importance. This led to the formulation and creation of the Flexible Firm model as an answer to how such groups should be placed within the flexibility hierarchy.
The key belief of this model is that being proactive and decisive, rather than reactionary in terms of change is the difference between a successful flexible organisation and a dysfunctional organisation. The model suggests that the workforce can be proactively designed to meet businesses needs within a turbulent market. The model advocates the integration of flexible conditions within an organisation's functional operations so that it can meet the requirements of a competitive market resulting in the achievement of goals and aims. It does, however, note that creating a flexible workforce is a risk as cutting down the workforce may backfire in strenuous conditions if there is insufficient scope to deal with unforeseen issues.
The Flexible Firm model divides an organisation's employees into two distinct groups, the core group and the peripheral group. The core group consists of full-time primary workers and internal workers who are integral to the functionality of the organisation, functionally-flexible and difficult to replace, due to high-level skills, knowledge and experience.
In contrast, the peripheral group consists of secondary workers, who are often less skilled and less experienced. The numbers of people in the peripheral group is highly variable, as their skills are easily available in the labour market. This means that they can be sourced at short-notice, in accordance with the number and type of particular tasks and are often only needed at particularly task-heavy periods of the week. The peripheral group can be divided into two sub-groups: the first peripheral group, consisting of the aforementioned low-skilled, often part-time and flexible workers, and the second peripheral group, which is made up of large volumes of agency staff, outsourcing and sub-contractors. These individuals, who often operate functions such as cleaning and catering – though they are not direct employees of the organisation – are important to its functioning.
Diagram derived from Ritson (2011).
In addition to his core and peripheral groups, Atkinson also identified three different forms of flexibility within an organisation. These are:
- Functional Flexibility. This is associated with high-skill levels across many different tasks, as exhibited by the core group of workers. It allows management to relocate core workers between multiple workforces and tasks. Developing functional flexibility within a workforce generally requires increased training, more flexible working hours and re-evaluation of payment/value to the company.
- Numerical Flexibility. This generally applies to the peripheral workforce, and is related to the volume of low-skilled workers available in the labour market. Numerical flexibility means that employers can match labour demands with the number of employees under contract at the company. This can be achieved through the of flexible employment methods such as short-term contracts, outsourcing, temporary workers and other means.
- Financial Flexibility. Financial flexibility refers to the capability of organisations to adjust the price (pay) of labour in accordance with the supply and demand of workers within the company. It also refers to the compensation granted to individuals upon the termination of their contracts. Thus, financial flexibility is related to and supportive of numerical and functional flexibility.
In addition to the three forms of flexibility, Atkinson outlined two dimensions in which flexibility can be applied:
- Flexibility in Employment. Flexibility in employment is a concept regarding the labour market. Since perhaps the 1960s, employers have found new and innovative ways to make the size and composition of their work-forces far more flexible. These include part-time and ‘zero-hours’ contracts, sub-contracting, remote workers, and many more.
- Flexibility in Work. This refers to the flexibility within the organisation itself. It can be used in discussion of work structures, such as group-work and flexible working times, and also to the implementation of new technologies which allow for a more flexible production process. These technologies and work structures allow employees to respond quickly to market changes within changing the composition of their workforce.
The model is primarily utilised by a company’s executives as a response to the state of the market. Flexible-Firm is often used as a guideline when the company is required to make cuts to the workforce, whilst retaining its talent to stay competitive. For example, when expenses require cuts, these are made in accordance with the hierarchy outlined by Flexible-Firm and the first area in which staff will be reduced is the periphery – particularly outsourced groups – as these team members are not integral to the organisation and are usually contracted only to complete a specific task. Should further cuts be required, the next target will be other members of the periphery such as part-time staff and less experienced team members. ‘Zero hours’ contracts may be utilised so that wage cuts can be made whilst retaining individuals on a company contract for future times of need. This does, however, put pressure on remaining staff as they will have to pick up many tasks, therefore careful consideration should be had before too many cuts are made. Generally, the core group are safe in this model as they are considered vital to the organisation’s function. If cuts are required within the core group, then it may be indicative of major financial difficulty within the company.
This model is particularly useful for those in higher managerial positions within an organisation, as it demonstrates the areas in which the company can be streamlined using proactive approaches. It allows the business to match the volume and skill-level of staff to their requirements at the time, which may in the long-term lead to lower wage and other staff-related costs, and may provide a competitive edge over market competitors.
However, this model carries a degree of risk due to its proactive nature – if predictions suggest the need for cuts and the company lays off staff needlessly, productivity may drop and the competitivity of the organisation may fall off as it struggles to keep up with its rivals, leading to further needs for cuts. Therefore, this model should be in place at all times theoretically but only physically implemented when necessary, due to its risky nature. In addition, this model is often considered unnecessarily objective and is seemingly unfair on low-skilled, “peripheral” employees, who are – unlike core employees – not exposed to training and will, therefore, remain within the periphery. Some instead argue that this is too simplistic a model, and core and peripheral status is flexible and changes in accordance with demands within the company. Furthermore, it is also suggested that employers often contract ‘peripheral’ workers to fill high-skilled, specialist gaps in the ‘core’ workforce.