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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.

Seeking an answer to the question “how does organizational identity change?” we analyze the visual identity marker of universities, namely logos, as time-related artifacts embodying visual scripts. Engaging with the Stinchcombe hypothesis, we identify five processes to the creation of visual identities of organizations: In addition to (1) imprinting (enactment of the contemporary script) and (2) imprinting-cum-inertia (persistent enactment of epochal scripts), we also identify (3) renewal (enactment of an up-to-date epochal script), (4) historization (enactment of a recovered older epochal script), and (5) multiplicity (simultaneous enactment of multiple epochal scripts). We argue that these processes work together to produce contemporary heterogeneity of visualized identity narratives of universities. We illustrate this, first, with a survey of the current-day logos of 814 university emblems in 20 countries from across the world. Second, drawing on archival and interview materials, we analyze the histories of exemplar university logos to illustrate the various time-related processes. Therefore, by interjecting history – as both time and process – into the analysis of the visualization of organizational identity, we both join with the phenomenological and semiotic analysis of visual material as well as demonstrate that history is not merely a fixed factor echoing imprinting and inertia but rather also includes several forms of engagement with temporality that are less deterministic. Overall, we argue that enactment engages with perceptions of time (imaginations of the past, present, and future) and with perceptions fixed by time (epochal imprinting and inertia) to produce heterogeneity in the visualization of organizational identity.

Past theorizing and empirical work suggest that long-standing strategic leaders generate harmful attention and information-processing effects in their organizations, which in turn impair organizational learning and performance. In contrast, our argument is that longevity and its attendant inertia foster useful transformational and strategic persistence for organizations pursuing stretch goals. Through attentional vigilance and restricted focus, inertia may create the cognitive profile necessary for effective learning when organizations pursue the seemingly impossible. We empirically examine our ideas in the context of the French royal navy and the naval battles it had with the British in the seventeenth and eighteenth centuries. More specifically, we focus on two distinct but related stretch periods during which the French royal navy was tasked with building a powerful naval force and using it to gain naval supremacy over Great Britain. Given its exceptionally weak starting position at the beginning of the two studied periods and its desire to displace the established and advantaged navy of the era, the French had a lofty task. Our results are supportive of the stability argument, with leader longevity and inertia being positive for outcomes.

Although studies of “core competence” appear frequently, the concept lacks a clear definition that allows one to operationalize it and use it to develop falsifiable predictions. We propose a definition based on the phenomenon that core competence is typically applied to – adaptations to different external context. Sourcing insight form the paradigm of organizational ecology, we develop arguments rooted in theories of structural inertia and environmental imprinting. Empirical analyses of failure rates of entrants in the Italian automobile industry confirm our propositions that core competence is a source of competitive advantage when industry entry is based on relevant capabilities and a source of inertia and obsolescence when core competences need to be substantially altered. We conclude that whether core competence materializes as a dynamic capability or exposes the firm to liability to selection and obsolescence is a random process. Its outcome hinges on environmental variation and the resulting firm-environment (mis)alignment and is thus largely beyond managerial control.

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.

In this chapter, we analyze the information content of data on inflationary expectations derived from the Israeli bond market. The results indicate that these expectations are unbiased and efficient with respect to the variables considered. In other words, we cannot reject the hypothesis that these expectations are rational.

The existence of continuous data of this type, which is unique to the Israeli economy, enables us to test a number of hypotheses concerning the nature of price adjustment. The study found that expected inflation is a primary factor in the explanation of current inflation. This result is in agreement with the neo-Keynesian approach according to which the adjustment of prices is costly, and as a result, price increases in the present are determined primarily by expectations of future price increases. It was also found that inflation in Israel is better explained by the neo-Keynesian approach than by the classical approach or the “lack of information” approach according to which current inflation is determined by past, rather than current, inflationary expectations.

Another issue examined in this study is whether inflationary inertia existed in Israel during the 1990s. From conventional estimation of an inflation equation (i.e., using future inflation as proxy for expectations), one can get the impression that there was strong inflationary inertia during this period. However, when data on inflationary expectations from the bond market were used in the estimation, this inertia (i.e., lagged inflation) became negative (and insignificant). This finding raises the possibility that inflationary inertia that is found elsewhere is not a structural phenomenon but an outcome of lack of reliable data on inflationary expectations.

This chapter investigates the predictability of the European monetary policy through the eyes of the professional forecasters from a large investment bank. The analysis is based on forward-looking Actual and Perceived Taylor Rules for the European Central Bank which are estimated in real-time using a newly constructed database for the period April 2000–November 2009. The former policy rule is based on the actual refi rate set by the Governing Council, while the latter is estimated for the bank’s economists using their main point forecast for the upcoming refi rate decision as a dependent variable. The empirical evidence shows that the pattern of the refi rate is broadly well predicted by the professional forecasters even though the latter have foreseen more accurately the increases rather than the policy rate cuts. Second, the results point to an increasing responsiveness of the ECB to macroeconomic fundamentals along the forecast horizon. Third, the rolling window regressions suggest that the estimated coefficients have changed after the bankruptcy of Lehman Brothers in October 2008; the ECB has responded less strongly to macroeconomic fundamentals and the degree of policy inertia has decreased. A sensitivity analysis shows that the baseline results are robust to applying a recursive window methodology and some of the findings are qualitatively unaltered from using Consensus Economics forecasts in the regressions.

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.

This chapter estimates a regime switching Taylor Rule for the European Central Bank (ECB) in order to investigate some potential nonlinearities in the forward-looking policy reaction function within a real-time framework. In order to compare observed and predicted policy behavior, the chapter estimates Actual and Perceived regime switching Taylor Rules for the ECB. The former is based on the refi rate set by the Governing Council while the latter relies on the professional point forecasts of the refi rate performed by a large investment bank before the upcoming policy rate decision. The empirical evidence shows that the Central Bank’s main policy rate has switched between two regimes: in the first one the Taylor Principle is satisfied and the ECB stabilizes the economic outlook, while in the second regime the Central Bank cuts rates more aggressively and puts a higher emphasis on stabilizing real output growth expectations. Second, the results point out that the professional forecasters have broadly well predicted the actual policy regimes. The estimation results are also robust to using consensus forecasts of inflation and real output growth. The empirical evidence from the augmented Taylor Rules shows that the Central Bank has most likely not responded to the growth rates of M3 and the nominal effective exchange rate and the estimated regimes are robust to including these additional variables in the regressions. Finally, after the bankruptcy of Lehman Brothers the policy rate has switched to a crisis regime as the ECB has focused on preventing a further decline in economic activity and on securing the stability of the financial system.

Why and in what direction do organizations change?¹ Early responses to these questions generally fell into two camps. Adaptationist scholars proposed theories based on the assumption that organizations have wide latitude to change their structure, strategy, and scope. In the adaptationist view, organizations are able to change in the direction dictated by their environment or by the choices of organizational decision makers, whether in the pursuit of rational action (e.g., Lawrence & Lorsch, 1967; Williamson, 1985) or blind action (Weick, 1979). In its extreme form, the adaptationist view implied that firms can and do adapt nearly frictionlessly, suggesting that if there is a performance penalty associated with inappropriate organization, misaligned firms will change so as to reduce or eliminate this misalignment. Alternatively, selection-based theories, notably structural inertia theory within organizational ecology, contended that inertial forces tend to stymie attempts at organizational change (Hannan & Freeman, 1984). In its extreme form, the selectionist view implied that firms can rarely change successfully; instead, if there is a performance penalty associated with misalignment, misaligned firms will be “selected out” of the population.