Volume Flexibility in Services: The Costs and Benefits of Flexible Labor Resources

Organizations can create volume flexibility---the ability to increase capacity up or down to meet demand for a single service---through the use of flexible labor resources (e.g., part-time and temporary workers, as compared to full-time workers). Although organizations are increasingly using these resources, the relationship between flexible labor resources and financial performance has not been examined empirically in the service setting. We use two years of archival data from 445 stores of a large retailer to study this relationship. We hypothesize and find that increasing the labor mix of temporary or part-time workers shows an inverted U-shaped relationship with sales and profit while temporary labor mix has a U-shaped relationship with expenses. Thus, although flexible labor resources can create volume flexibility for a firm along multiple dimensions, it is possible to have too much of a good thing. This paper was accepted by Serguei Netessine, operations management.