Presentation on theme: "How do organizations evolve?"— Presentation transcript:
1 How do organizations evolve? Bus 374Dr. Rajiv Krishnan Kozhikode
2 Structural Inertia and Organizational Change Revisiting Hannan & Freeman’s (1977) arguments on inertia.Inertia as an outcome of selection not a pre-condition for selectionBut, selection actually favors the inert organizations.
3 A recap of the two dominant views on organizational change Selection:Variability is a result of new organizations and organizational forms replacing old onesAdaptation:Variability is a result of strategic adaptation by individual organizations in response to changes in the environment
4 How does biotic evolution view this problem? Change/innovation is a random process (e.g., through mutation and recombination)If an innovation by any chance increases life chances, it will be retained and it tends to be widely adopted.But managers have been known to constantly strive to innovateSo is organizational change not as random as biotic change?
5 Loose coupling between managerial intentions and organizational change According to March and colleagues’ random transformation theory, organizations change occurs as an endogenous process and it is decoupled from managerial intent and environmental demands.i.e., organizations have their own livesOrganizations might change, but neither in perfect alignment with the environment, nor in line with managerial motives
6 Timing of changeInstead of asking do organizations change, ask when do they change.Adaptation makes sense only if it is delivered on timeElse, organizations might be constantly striving to change, only to find that every new configuration is outdated.
7 Three important considerations Temporal pattern of change in the environmentSpeed of the learning mechanismSpeed of applying learning to change effortsThus, inertia is not simply inability to change, but inability to change at the rate suitable to the environment.Consider IBM’s foray into PC business, or Sony’s foray into portable digital music players
8 Some important selection expectations from organizations ReliabilityLesser variance in performance is valuedBoth cross-section and temporal reliability prevailsi.e., actions of organizations from same industry resemble one another than they do with organizations of a different typeAn organization’s action in period one resemble its action in another periodAccountabilityAccountable organizations are valuedOrganizations need to stand by their actionsReproducibilityReliability and Accountability requires reproducibility
9 How is it related to inertia and survival? Reproducibility generates structural inertiaHence, selection favors inert organizationsReorganization attempts reduces reproducibilityReorganization attempts increases death rateThe longer the length of the reorganization attempt, the lesser the survival chance
10 Age, Size and inertia Reproducibility increases with age So, inertia increases with ageInterestingly, death rate decreases with age (i.e., liability of newness)Inertia also increases with sizeBigger organizations survive longer
12 Inspiration from Lewis Carroll’s “Through the looking glass” Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else – if you run very fast for a long time, as we’ve been doing.” “A slow sort of country!” said the Red Queen. “Now, here, you see, it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
13 Competitive experience, adaptation and survival Cost of search are high than the benefits, so generally organizations do not search.Red-queen competition will force organizations to adopt in an incremental manner… not necessarily through managerial actionRed queen competitors co-evolveBut over time, competency traps might developIf competition was in the distant past, organizations that survived that competition might get cocky and wont search.But, if competition is more recent, they might have to search to stay aheadSo Red Queen can be maladaptive
14 Results from Chicago Banking Industry Banks with more competitive experiences recently were less likely to failBanks with more competitive experiences in the distant past were more likely to failBanks competing with other banks with more recent competitive experiences tend to failBanks with greater variance in duration of competitive activity tend to fail
15 That’s it for this weekFor next week, we will look at how organizations interact with one another