The purpose of this paper is to develop and validate an operational flexibility construct that can serve as a general theory in operations management in the context of the hospital industry. The effects of management capability and competitive intensity on operational flexibility and performance relationships are also explored. We used data collected from a sample of 152 administrators of hospitals in the mid-west region of the USA and performed a systematic series of analyses. Following the transformation model, grounded in the fundamental and powerful concept of operations management, we develop a psychometrically validated, 11-item, three-dimensional (input, process, output) scale of operational flexibility (OF) construct for the hospital industry. As the degree of operational flexibility allowed in any transformation system is influenced by management capability, it is established as a complementary mediator in strengthening the OF-performance relationship in the presence of competitive intensity (i.e. moderator). The paper concludes with limitations and directions for future research.