Ecological Approaches Why are there so many kinds of organizations? Org ecologists explain how social, economic, and political conditions affect the relative abundance and diversity of organizations and account for their changing composite over time Empirically oriented: Cumulative findings

Ecological Approaches Three common observations – Diversity is a property of aggregates of organizations that has no analogue at the level of the individual organization – Organization often have difficulty devising and executing changes fast enough to meet the demands of uncertain, changing environments – The community of organizations is rarely stable

Ecological Approaches Research Focus – Population and community levels – Rates of founding and failure as diversity Population – A set of organizations engaged in similar activities and with similar patterns of resource utilization – Forms as a result of processes that isolate or segregate one set of organizations from another

Ecological Approaches Organizational communities – Functionally integrated systems of interacting populations – The outcomes for organizations in any one population are fundamentally intertwined with those of organizations in other populations that belong to the same community system

Ecological Approaches Structural inertia theory vs critics – Determinism and loss of human agency Determinism opposed to voluntarism or probablism – Level of analysis Individual actions to organizations vs Individuals actions to organizational populations Changes in organizational populations – Variation, selection, retention, and competition

Ecological Approaches Assumptions – Individuals do matter – But individual cannot always determine in advance which variations will succeed – Individuals have difficulty changing existing organizations’ strategies and structures quickly enough to keep pace with the demands of uncertain, changing environments

Demographic Process Traditional approach to founding and failure – Individual traits? – Managerial inexperience, incompetence, inadequate financing? Ecological approach – Volatile nature of organizational populations and communities – Focus on socio, economic, and political factors

Kelly & Amburgey (1991)

Structural Inertia Theory What is the main thesis of this theory? How does this theory view organizations? What are two main questions? 1) How changeable are organizations? 2) Is change beneficial for organizations?

Structural Inertia Theory Organizations are relatively inert entities for which adaptive response is not only difficult and infrequent, but hazardous as well Change in individual organizations are viewed as contributing less to population-level change than organizational founding and failure

Structural Inertia Theory Organizational ecologists focus on the influence of organizational and environmental factors on rates of organizational changes, as well as the survival consequences of different kinds of changes

Structural Inertia Theory Selection processes explain change in organizational populations – Inertia is viewed as consequence of selection processes, not antecedent – Organizations with inert features are more likely to survive

Structural Inertia Theory “Core” and “Periphery” Structure – Core features have higher levels of inertia, lower levels of change Organizations may change change – Inertia relative to environmental change – Structures of organizations have high inertia when the speed of reorganization [changes in core features]is much lower than the rate at which environmental conditions change

Age and Size Dependence in Rate of Organizational Change Organizational age and size resistant to change But could organizations be fluid with age and size?

Fluidity with Age and Size But could organizations be fluid with age and size? – Singh et al (1988) Discontinuous pattern of org change Left-censored organizations – Theoretical support Internal complexity, differentiation, specialization are associated with the adoption of innovation (Haveman, 1993) Slack resource theory Size and market power

Repetitive Momentum Organization’s history of change (Amburgey and colleagues) – Organizational learning routinizes change – Repetitive momentum The tendency to maintain direction and emphasis of prior actions in current behavior Address a dynamic effect of prior change The likelihood of change high immediately after each additional change, but declines with increases in the time since that type of change last occurRed

Future research on size and age Age and size reveal little coefficients Attention to how age and size affect rates of change or the conditions under which fluidity, inertia, or momentum will predominate Use of more direct measures of the underlying processes

Is Change Beneficial? Relationship between core features and liability of newness (Stinchcombe, 1965) – Attempting core change to survive produces a renewed liability of newness by robbing an organization’s history of survival value Reliability, accountability, legitimacy undermined Structural inertia theory predicts that organizations may fail as a result of their attempts to survive

Organizational Change and Failure Organizations do not necessarily fail as a result of their efforts to change But they do not necessarily improve their organizational survival chances, either More research needed in – Adaptiveness of organizational change – Left-censored organizations – Right-censoring problem – On-going organizational performance

Reconciling Adaptation and Selection Organizations appear to change frequently in response to environmental change, and often without any harmful effects Rates of change are often not constrained by age and size as predicted by structural inertia theory The evolution of organizational populations shaped jointly by processes of selection and adaptation and their interaction

Organizational Learning How experiential processes shape organizational survival How ageing influences organizational failure by modelling more directly experiential learning constructs invoke by the liability of newness and ageing hypotheses

Organizations’ Operating and Competitive Experience Learning curve Competency traps Exploration of new routines and exploitation of old ones (March, 1991) Experiential processes in organizational adaptation and selection processes Between-organization differences in learning

Key TopicsKey VariablesKey Predictions Organizational Founding Spatial heterogeneity Variation in social, institutional and economic conditions across regions produce unobservable region-specific proneness to experiencing the founding of particular organizational forms Entrant’s similarity to incumbents Avoidance of direct competition pushes entrants away from similar organizations, while complementary differences pull them together; agglomeration economies pull entrants toward competitors Age Dependence Organizational ageLiability of newness: failure rates decline with age as roles and routines are mastered and links with external constituents are established Liability of adolescence: failure rates rise with age until initial buffering resource endowments are depleted, then decline with further increase in age Liability of obsolescence: failure rates increase with age as their original fit with the environment erodes Liability of senescene: failure rates increase with age as internal friction, precedent and political pacts accumulate, impending action and reliable performance

Key TopicsKey VariablesKey Predictions Size Dependence Organizational size Liability of smallness: failure rates decline with size, which buffers organizations from threats to survival Structural Inertia Organizational change Change: structural inertia increases as organizations age and grow, lowering rates of organizational change Failure: the failure rate increases after a core change, but then declines with the passage of time; the disruptive effects change increase (decrease) with organizational age (size) Organizational Momentum Cumulative organizational change The rate of an organizational change of the same type increases with the number of prior changes of the same type, but then declines with the passage of time since the last change of the same type Organizational Learning Organizational operating experience Initial increases in operating experience lower failure rates as organizations move down learning curves for their routines, but further increases reduce responsiveness to changing environmental demands, raising failure rates Organizational competitive experience The greater an organization’s historical exposure to competition, the lower its failure rate

Niche Width Dynamics Specialists vs Generalists Resource Partitioning – In environments characterized by economies of scale, competition among generalists to occupy the center of the market where resources are most abundant frees peripheral resources that are most likely to be used by specialists – Increasing market concentration increases the failure rate of generalists operating in the center of the market and lowers the failure rate of specialists operating at its periphery

Niche Width Dynamics Specialists vs Generalists Resource Partitioning – In environments characterized by economies of scale, competition among generalists to occupy the center of the market where resources are most abundant frees peripheral resources that are most likely to be used by specialists – Increasing market concentration increases the failure rate of generalists operating in the center of the market and lowers the failure rate of specialists operating at its periphery

Population Dynamics and Density Dependence Population dynamics – The number of prior foundings and failures in a population Density dependence – The number of organizations in a population

Elaborations of the Density Dependency Model Criticisms – assumption (equal competition) questioned – methodology questioned: unobserved heterogeneity in population – Weighted emphasis on generality Elaborations (Table 1.2.6) – Legitimation and population – Focus on organizational-level differences within populations

Density and Institutional Processes Cognitive – Zucker (1977): institutionalization is a cognitive phenomenon reflected in taken-for-granted assumptions Density dependence theory – Emphasizes “only” cognitive legitimacy Legitimacy defies measurement: focus on observables Indirect measurement vs direct measurement Legitimation: variable or process?

Density and Institutional Processes Sociopolitical – Meyer & Rowan (1977) and DiMaggio & Powell (1983) : legitimacy is embedded in relational networks and normative codes of conduct Institutionalization as both a sociopolitical process through which certain organizational forms come to be regarded as obligatory, and as a state in which organizational forms are buttressed by legal mandate or by widely shared cultural, professional and political norms and values.

Institutional Embeddedness and Sociopolitical Legitimacy Baum & Oliver (1992) – Argues that density dependence model focuses exclusively on cognitive legitimacy and interdepencies among organizations within populations and neglects the evolution of a population’s interdepencies with surrounding organizations and institutions – Institutional embeddedness Interconnections between a population and its institutional environment (Dimaggio & Powell, 1983; Fombrun, 1986; 1988)

Institutional Embeddedness and Sociopolitical Legitimacy Baum & Oliver (1992) – Relational density The number of formal relations between the members of a population and key institutions in the population’s environment Tests proxy-vs-process prediction Proxy view supported Ecological explanations of the underlying institutional processes suggested

Non-density-based Measures of Legitimacy Certification contests, certification, accreditation, credentialing activities signal reliability, raising the sociopolitical legitimacy of organizational forms as well as their cognitive legitimacy Print media as basic source of information diffusion

Density and Competitive Processes Logic – If all organizations in a population are not equal competitors, then population density may not provide the most precise measure of the competition faced by different organizations in a population Localized competition Level of analysis Organizational niche overlap

Localized Competition Organizations compete most intensely with similar-sized organizations The emergence of large organizations should be accompanied by a decline in the number of medium-sized organizations, while small ones flourish as their most intense competitors are removed from the environment Size-localized competition may also play a role in the consolidation of organizational populations over time

Localized Competition Localized competition models imply a pattern of disruptive or segregating selection in which competition between like entities for finite resources leads eventually to differentiation This mode of selection increases organizational differentiation by producing gaps in the distribution of the members of a population along some organizational dimension

Level of Analysis Location as a key factor Appropriate level of analysis selected – Different levels of spatial aggregation imply different assumptions about how general processes of legitimation and competition unfold – Competitive processes in organizational population may be heterogeneous, operating most strongly in local competitive arenas – The greater the geographic segmentation of a population’s environment, the more geographically localized competitive processes in the population will be

Level of Analysis The greater the geographic segmentation of a population’s environment, the more geographically localized competitive processes in the population will be (Carroll & Huo, 1986) Institutional and political constraints Nature of a population’s activities Any thoughts on “level of analysis”?

Organizational Niche Overlap Baum & Singh (1994) – Resource overlap model The potential for competition between any two organizations is directly proportional to the overlap of their targeted resource bases, or organizational niches Each member of a population conceived as occupying a potentially unique organizational niche that delineates its location in a multidimensional resource space Organizational niche: the intersection of resource requirements and productive capabilities at the organizational level Organizational niche is a result of adaptation

Accounting for Concentration Common path – Slow growth – Rapid increase to a peak – Decline in the number of population numbers – Increased competition Density dependency model – Project the shape of the growth trajectory – Limited in explaining later decline in numbers and increase in concentration – 5 elaborations

Density Dependence Model Density delay – Delayed population density effect Mass dependence – Population mass: the sum of the sizes of all organizations in the population; population size weighted by organizational size Competitive intensity – The sum of the age x size interaction for all population members

Density Dependence Model Changing basis for competition – Coupled clocks Density becomes decoupled from legitimacy and competition as a population matures – Dynamic selection and scale-based selection

Changing Basis of Competition Coupled-clocks Dynamic Selection and Scale-based Competition

Population-level Learning Exploitation (individual organizations) Exploration (population-level) Levinthal and March (1993) “the best strategy for any individual organization is often to emphasize the exploitation of successful exploration of others”

Population Operating and Competitive Experience An organization may be able to use other organization’s operating experience to improve its efficiency Advantages – An organization has a limited ability to learn – An organization has limited resources to experiment – A great deal of variety without violating internal or external standards of consistency and reliability

Key TopicsKey VariablesKey Predictions Niche width Dynamics Specialist strategyExploit a narrow range of resources and are favored in fine- grained and concentrated environments Population Dynamics Generalist strategyTolerate widely varying environmental conditions and are favored in coarse-grained, high variability environments Prior foundingsInitial increases in prior foundings signal opportunity, stimulating new foundings, but further increases create competition, suppressing new foundings Prior failuresInitial increases in prior deaths free up resources, stimulating new foundings, but further increases signal a hostile environment suppressing new foundings Density Dependence Population densityInitial increases in density increase the institutional legitimacy of a population, increasing foundings and lowering failures, but further increases produce competition, suppressing foundings and increasing failures Population-level Learning Population operating experience An organization’s failure rate declines as a function of the operating experience of its population at the time of its entry and of the population’s increasing operating experience after the organization’s founding Population competitive experience An organization’s failure declines as a function of its population’s history of competitive outcomes at the time of its entry and of the population’s increasing competitive experience after the organization’s founding

Big OT questions: Why do organizations exist? Why are firms the same/different? What causes changes in organizations? Why do some firms survive and others don’t? Emerging issue?