Organizational Ecology by Erlan Bakiev, Ph. D. Zirve University Spring 2012

Organizational Ecology (OE) Organizational ecology (OE) is also known as organizational demography and the population ecology of organizations OE refers to the study of “life” in an organizational habitat OE is a theoretical and empirical approach in the social sciences that is especially used in Organizational Studies. Organizational ecology utilizes insights from biology, economics, and sociology, and employs statistical analysis to try to understand the conditions under which organizations emerge, grow, and die.

OE History Introduced in 1977 by Michael T. Hannan and the late John H. Freeman in their The population ecology of organizations (American Journal of Sociology) Later refined in their 1989 book Organization Ecology, organizational ecology examines the environment in which organizations compete and a process like natural selection occurs. This theory looks at the death of organizations (firm mortality), the birth of new organizations (organizational founding), as well as organizational growth and change.

OE History Cont. In the 1970s and 1980s, the Total Quality Movement (TQM) played a large and active role in many organizations as the “new wave” of quality moved from Japan across the seas to the United States, Canada and beyond.

OE History Cont. Major theory and research in organizational ecology are reviewed, with an emphasis on the organization and population levels of analysis and processes of organizational foundings, mortality, and change (Singh and Lumbsden, 1990) The main approach to organizational foundings examines the roles of density dependence and population dynamics.

OE History Cont. According to Singh and Lumbsden (1990) there are six theoretical approaches which examine organizational mortality : fitness set theory, liability of newness, density dependence, resource partitioning, liability of smallness, the effects of founding conditions.

OE History Cont. Organizational ecology contains a number of more specific 'theory approaches: including: Inertia and change Niche width Resource partitioning Density dependence Age dependence

OE History Cont. Organizational ecology has over the years become one of the central fields in organizational studies, and is known for its empirical, quantitative character. Ecological studies usually have a large-scale, longitudinal focus (datasets often span several decades, sometimes even centuries).

OE History Cont. The books: The Demography of Corporations and Industries by Glenn Carroll and Michael Hannan (2000) Logics of Organization Theory: Audiences, Codes, and Ecologies by Michael Hannan, Laszlo Polos, and Glenn Carroll (2007), provide the most comprehensive overview of the various theories and methods in organizational ecology.

İnertia and Change This theory fragment holds that organizations that are reliable and accountable are those that can survive (favored by selection). A negative by-product, however, of the need for reliability and accountability is a high degree of inertia and a resistance to change. A key prediction of organizational ecology is that the process of change itself is so disruptive that it will result in an elevated rate of mortality.

İnertia and Change Cont. Theories about inertia and change are fundamental to the research program of organizational ecology, which seeks a better understanding of the broader changes in the organizational landscape. Given the limits on firm-level adaptation, most of these broader changes thus come from the entry and selective replacement of organizations. Hence organizational ecology has spent considerable effort on understanding the founding and mortality rates of organizations.

Niche theory The theory fragment on niche width distinguishes broadly between two types of organizations: generalists and specialists Specialist organizations maximize their exploitation of the environment and accept the risk of experiencing a change in that environment. On the other hand, generalist organizations accept a lower level of exploitation in return for greater security (Hannan and Freeman 1977: 948).

Niche theory Cont. Niche theory shows that specialization is generally favored in stable or certain environments. However, the main contribution of the niche theory is probably the finding that “generalism is not always optimal in uncertain environments” (Hannan and Freeman 1977: 958). The exception is produced by environments which “place very different demands on the organization, and the duration of environmental states is short relative to the life of the organization” (Hannan and Freeman 1977: 958)

Resource Partitioning The relationship between generalists and specialist organizations is further developed in the resource-partitioning model which includes predictions about the founding and mortality rates of both specialists and generalists as a function of market concentration.

Resource Partitioning Cont. The theory can be illustrated by describing two environments. Environment A stands for an un-concentrated mass market and environment B represents a concentrated mass market. In environment B, generalists will always attempt to address the center of the market where most resources peak. After all, in the center of the market these generalists can thrive by exploiting economies of scale

Resource Partitioning Cont. İn environment B, despite the very concentrated generalists market, the resource space outside this market [i.e. in the periphery of the market] is larger than in environment A, where the generalist market is less concentrated (Carroll 1985:1272). The abundance of resource in the periphery can then become hospitable to specialist organizations, and the market becomes effectively partitioned. Carroll concluded that “more available resources should translate into better chances of success for specialists when they operate in the more concentrated market” (Carroll 1985:1272).

Density Dependence Organizational ecology also predicts that the rates of founding and mortality are dependent on the number of organizations (density) in the market. The two central mechanisms here are legitimation (the recognition or taken-for-grantedness of that group of organizations) and competition.

Density Dependence Cont. Legitimation generally increases (at a decreasing rate) with the number of organizations, but so does competition (at an increasing rate). The result is that legitimation processes will prevail at low numbers of organizations, while competition at high numbers.

Density Dependence Cont. The founding rate will therefore first increase with the number of organizations (due to an increase in legitimation) but will decrease at high numbers of organizations (due to competition). The reverse holds for mortality rates. Thus, the relationship of density to founding rates has an inverted U shape and the relationship of density to mortality rates follows a U-shaped pattern.

Age Dependence How an organization's risk of mortality relates to the age of that organization has also been extensively examined. Here, organizational ecologists have found a number of patterns: Liability of newness. Here, the risk of failure is high initially but declines as the organization ages.

Age Dependence Cont. Liability of adolescence. The risk of mortality will be low at first as the organization is buffered from failure due to support by external constituents and initial endowments. But when these initial resources become depleted, the mortality hazard shoots up and then declines following the liability of newness pattern.

Age Dependence Cont. Liabilities of aging. Here, the risk of failure increases with organizational age. This could be due to a liability of senescence (internal inefficiencies arising from the aging of the organization) or a liability of obsolescence (a growing external mismatch with the environment).