Ecology and Strategy: Volume 23

At its core, this volume tackles the contradictory views of the performance-enhancing effects of organizational flexibility and inertia head on, and in doing so, contributes to the development of theory and empirical evidence at the interface of strategic management and organizational ecology. In addition to the inertia–flexibility nexus, the volume explores a wide range of additional connections between these two perspectives across nine topical areas that both ecological and strategic management researchers have examined: (1) Entrepreneurship, (2) Top Management Teams, (3) Organizational Change, (4) Organizational Learning, (5) Technology Strategy, (6) Competitive Strategy, (7) Cooperative Strategy, (8) Scale and Scope, and (9) Industry Evolution.

Although recent public attention has focused on boom-and-bust cycles in industries and financial markets, organizational theorists have made only limited contributions to our understanding of this issue. In this chapter, I argue that a distinctive strategic insight into the mechanisms generating boom-and-bust cycles arises from a focus on entrepreneurial inertia – the lag time exhibited by organizational founders or investors entering a market niche. While popular perceptions of boom-and-bust cycles emphasize the deleterious effect of hasty entrants or overvaluation, I suggest instead that slow, methodical entries into an organizational population or market may pose far greater threats to niche stability. This proposition is explored analytically, considering the development of U.S. medical schools since the mid-18th century.

We challenge the premise that the CEO's job is to keep the corporation alive and thriving at all costs and under all circumstances. We briefly review the differing normative views of strategic management theorists and organizational theorists about organizational inertia. We then develop an economic model of incumbent behavior in the face of challenger competition that accommodates complementary assets. The model predicts and describes conditions under which organizational inertia, as subsequent organizational failure, is optimal. We then extend the logic and propose that the failure of entrepreneurial firms does not necessarily imply the failure of entrepreneurs. We conclude with a call to study “exit” as a viable strategic option.

The “upper echelon” literature has mainly produced static empirical studies on the impact of top management team composition on organizational outcomes, ignoring the dynamics of industrial demography. Organizational ecology explicitly studied the dynamics of organizational diversity at the population level, however largely ignoring how the entry and exit of executives shapes organizational diversity over time. In this paper, we try to integrate both streams of demography research and develop a multi-level behavioral theory of organizational diversity, linking selection processes at both levels of analysis. The behavioral mechanism connecting the two levels of analysis is the stylized empirical fact that small groups, including top management teams, routinely reproduce their demographic characteristics over time. We argue that, under certain conditions, the potent forces of team homogenization coevolve with those of population-level selection to sustain between-firm diversity.

Scholars working in the strategy area have long held that one of the primary ways in which organizations adapt to external changes is through strategic choice. Inasmuch as a new CEO can result in a new strategic direction for the firm, the CEO turnover event itself is an important way by which organizations can signal an alteration in the direction of the firm. In this chapter, we explore how and why CEO turnover has become one of the most powerful indicators of adaptation the firm can make and propose a research agenda to guide future work on CEO turnover.

One area in which strategy and organizational ecology converge is organizational change. This essay weaves together salient themes in my (and my co-authors’) various writings on organizational change, and is anchored in the research literature of the last twenty years. Among other ideas developed here, I point out that there is now a convergence of agendas in strategy and ecology, with an important role being played by intraorganizational ecology. I develop the distinction between strong and weak selection approaches to organizational ecology. While the strong selection view does not find empirical support, there is stronger support for the weak selection view. I lay out some key features of an emerging evolutionary synthesis for the study of strategy and organization, and develop an evolutionary approach to organizational change.

Family controlled businesses (FCBs) have been found to out-survive and out-earn non-FCBs, and their market valuations reflect that. This edge may be attributed in part to the agency- and stewardship-related consequences of ownership – consequences that via organization governance and design allow many family businesses not only to reap advantages of continuity and focus (“exploitation”), but also to reorient themselves when needed (“exploration”). These capacities rest on qualities such as owners’ discretion, knowledge and incentives, and their stewardship over the mission, core capabilities, people, and external relationships of the firm. We suggest a research agenda to investigate these issues.

Learning theory explains how organizations change as a result of experience, and can be used to predict the competitive strength of individual organizations and competitive pressures in organizational populations. We review extant learning theoretical propositions on how competitive strength is affected by experienced competition, founding conditions, and observed failures of other organizations. In addition, we propose that niche changes are an important source of learning. We test these propositions on data from the Norwegian general insurance industry. We find that historical density increases failure rates, contrary to some earlier findings, and also that the effect of founding density supports the density delay rather than trial-by-fire hypothesis. We find that failures of others before and during the lifetime of the organization reduce failure rates, and niche changes reduce failure rates for joint-stock companies but not for mutual firms. Overall the findings suggest that organizations learn more cheaply from the failures of others than from their own experiences, and that the stresses of competition can overwhelm the learning effects of competition.

Management theory has paid scant attention to the nature and reconciliation of the tension between exploration and exploitation, in spite of its central importance to strategic renewal. This paper uses Hurst's (1995) ecocycle to frame the tension and employs complexity theory to examine how the tension manifests itself across levels and time. Improvisation is advanced as a process to reconcile and manage the tension between exploration and exploitation.

A recent stream of research in strategy has demonstrated the effect of boundary of the firm decisions on firm performance by integrating concepts and methods from organizational ecology with predictions from transaction cost economics (e.g. Silverman et al., 1997; Bigelow, 1999; Nickerson & Silverman, 2003; Argyres & Bigelow, 2005). This work has confirmed that managing organizational boundary choices (or governance structures) efficiently has ramifications for firms’ survival chances. But further questions delineating the conditions under which governance structure alignment has a greater or lesser effect on firm survival remain. In this paper, we consider how selection pressures may differ according to a firm's adoption of either a mature or an evolving technology. Using ecological insights regarding competitive intensity and sub-population density, we test for the evidence of the role of sub-population organizational (governance) structure within a technology class. We present preliminary results using an 18-year panel of the population of U.S. automobile manufacturers from 1916 to 1934.

The primary preliminary findings: Within a population, individual misalignment diminishes survival. However, the aggregate governance structure of firms within a technology sub-population has a greater effect on the survival of a focal firm than the governance choice of the individual firm. These findings suggest that governance choices in aggregate within technologically localized sub-populations may influence firm survival. Further, this paper adds to a body of work that utilizes ecological concepts to extend organizational theory.

Where are the ultimate sources of technological breakthroughs? What makes a firm more likely to invent a breakthrough or to exploit external breakthroughs? We develop an evolutionary model of invention as a process of recombinant variation and selection. Our contributions are to highlight the skewed outcome distributions resulting from evolutionary search and to develop theory that can be tested by modeling the higher moments of search processes. Recent methodological and data collection advances make such testing possible. We motivate further research, develop our model's strategic implications, and discuss how managers might create and respond to breakthroughs.

We investigate the competitive consequence of vertical integration on organizational performance using a comprehensive dataset of U.S. motion picture production companies, which includes information on their vertical scope and competitive overlaps. Vertical integration appears to change the dynamics of competition in two ways: (i) it buffers the vertically integrated firms from environmental dependence and (ii) it intensifies competition among non-integrated organizations. In contrast to the existing literature, our results suggest that vertical integration has implications well beyond both the level of the individual transaction and even the internal efficiency of the integrated firm.

We investigate the dynamics of competitive repositioning of firms in the deregulated U.S. airline industry (1979–1995) in terms of a firm's target market, strategic posture, and resource endowment relative to other firms in the industry. We suggest that, despite strong inertia in competitive positions, the direction of repositioning responds to external and internal alignment considerations. For external alignment, we examined how firms changed their competitive positioning to mimic the positions of similar, successful firms, and to differentiate themselves when experiencing intense rivalry. For internal alignment, we examined how firms changed their position in each dimension to align with the other dimensions of positioning. This internal alignment led to convergent positioning moves for firms with similar resource endowments and strategic postures, and divergent moves for firms with similar target markets and strategic postures. The evidence suggests that repositioning moves in terms of target markets and resource endowments are more sensitive to external and internal alignment considerations, but that changes in strategic posture are subject to very high inertia and do not appear to respond well to alignment considerations.

In this paper, we explore the conditions under which organizations that compete in both market and non-market domains might engage in collective strategy. We study low-power FM radio activists in the U.S., who employed a collective strategy both within and across geographic communities to gain the right to broadcast in low-power broadcast spectra. By comparing and contrasting two stages of the micro-radio movement, we argue that, under certain conditions, for collective strategy to be viable, organizations competing on the dimensions of both ideology and resources must recognize themselves as members of an identity group, based on their common struggle against a stronger, more salient enemy. We highlight the role of collective strategies in the processes of organizational ecology, and discuss the generalizability of our argument.

Interorganizational partner selection decisions are plagued with uncertainty. When making partnering decisions, firms strive to answer two questions: does the prospective partner have resources which can be used to generate value in the relationship; and will the partner be willing to actively share these resources and cooperate in good faith? Answers to these questions help reduce three types of uncertainty – partner capability uncertainty, partner competitiveness uncertainty and partner reliability uncertainty. For a relationship to benefit both partners, they have to possess complimentary resources of comparable quality, avoid explicit competition as well as be willing to engage in the cooperative behaviors within the confines of their relationship. In this paper, we examine the importance of prospective partners’ characteristics (differences in size, status and specialization) as well as their network characteristics (existence of a common partner and membership in the same clique) to the formation and longevity of their social relationships, as these characteristics reduce firms’ value generation and partner reliability uncertainty.

This paper extends organizational ecology by making an attempt to disentangle the consequences of scale and scope economies for organizational survival under different product market configurations. We test our hypotheses by analyzing the mortality rates of 643 UK motorcycle producers during the 1899–1993 period. The findings obtained offer two specific contributions. First, by separating the performance impact of scale from scope economies we clarify the complex mechanisms behind the survival consequences of different organizational strategies. Second, we show how the intensity of both scale and scope forces is relative to the aggregate market-level product configuration. The implications of these findings for organizational ecology and strategic management, and their cross-fertilization, are further discussed.

Research on diversification has produced insights into possible linkages between organizational scale and scope and firm performance. However, the paucity of research on strategy implementation has hindered our understanding of the broader performance implications of diversification. We extend the resource-based view and diversification research by examining how firms can exploit diversifying investments designed to achieve scale and scope economies. Successful firms more effectively structure their resource portfolio, bundle resources into capabilities, and leverage these capabilities when implementing a diversification strategy. We develop a model linking strategies by which firms expand product and geographic market scope to the actions they take to manage resources. We examine three actions – internal development, acquisitions, and strategic alliances – and discuss the implications of these actions using the resource management framework.

This paper explores how two understudied characteristics of a firm's product portfolio, namely, aging of products and (non)innovativeness of products, affect firm survival. The influence of these product portfolio characteristics on organizational mortality can be observed both at the firm and at the industry levels. Paradoxically, the portfolio's influence at the firm and at the industry levels may go in opposite directions. Specifically, I predict that portfolios with aging products make their firms weaker competitors and survivors. However by weakening these firms, “aging” portfolios reduce competitive pressures at the industry level and, therefore, improve firm survival indirectly by changing industry vital rates. In contrast, firms with innovative product portfolios should be stronger survivors. At the same time, they are likely to intensify competition in the industry and, as a result, diminish survival chances of all firms, including those with innovative products. The analyses of all firms’ product portfolios in the worldwide optical disk drive industry, 1983–1999, support these predictions.

This paper describes how firm characteristics evolve in different industries. In particular, it reports on relationships between industry performance and competitor diversity in the American economy from 1981 to 1997. Industry performance is measured using a prospective measure of performance (Tobin's q) and a measure of performance that reflects historical competence (accounting profitability). Competitor diversity is characterized by differences in size, operating margin, asset composition, and asset utilization. The results indicate significant diversity among competitors in both high- and low-performance industries. The study suggests that low industry performance may be associated with processes of transition in competitor characteristics.