Structural Inertia and Organizational Change

STRUCTURAL INERTIA AND ORGANIZATIONAL CHANGE,
By Michael T. Hannan and John Freeman:
Review and Application

Michael Hannan and John Freeman, in their paper Structural Inertia and Organizational Change, present an argument regarding the ability of organizations, of various size and age among other aspects, to change course either at their core or their peripheries. Using the base biological principle of the Theory of Natural Selection as a guide, the framework for an organization to change, and even more so what hinders an organization from being able to change is theorized. The hindrance of change is referred to by the authors as “structural inertia”, the Newtonian concept that an object, or in this case an organization, will remain at rest (or in motion) unless acted upon it by an outside force. This paper was published in 1984, and perhaps because of its importance, many of the ideas presented have disseminated throughout popular research since, making the hypotheses proposed here familiar and anticipated. However, Hannan and Freeman elucidate upon a few points that are especially revealing when one regards organizational change including the ruminations of whether “social change, like biotic evolution, [can] be blind”, and the concept of “organizations arise[ing] to fill the gaps created by market failures” and what are the characteristics of such organizations, as well as the assertion that organizational size lessens the probability of death (Hannan & Freeman, 1984). These three specific concepts, though fresh and interesting, (and the focus of this review) do not fully encompass the depth of the theory presented here, which in summary is that organizations are subject to selective pressures, just as organisms are in the natural world, from their environment and from within, the influence of which varies dependent upon the size, age, reproducibility, and accountability of the organization.
At the start of their paper the authors present a section titled “Transformation and Replacement” beginning it with an excellent explanation of Natural Selection:

Innovations are not produced because they are useful: they are just
produced. If an innovation turns out to enhance life chances, it will be
retained and spread through the population with high probability. In this
sense, evolution is blind. (Hannan & Freeman, 1984)

Thusly they provide the basis for an extremely interesting debate about whether or not organizations, change upon the supposed conscious directives of their human occupants, or whether organizational change can occur as blindly as evolution does in the natural world. Key to understanding these concepts is comprehending that just because evolution proceeds blindly it does not do so without purpose. Evolution is purposeful in that it is constantly moving organisms toward a genetically “more fit” version of themselves. Like the constant evolutionary pressure on an organism to become more fit, individuals within an organization can apply a similar pressure to attempt to drive organizational change or strategy. However, in turn these pressures may manifest themselves in totally unexpected ways throughout a firm, therefore resulting in a random evolution toward more fit processes and structure in an organization. So, organizational change, like evolution in the biosphere, is blind when instituted with the objective of improving the organizations’ fitness. Conscious innovations however are subject to human motivations which may hinder their viability toward the organization as a whole. For example, new policies introduced may be self-serving to a certain individual within, and not contribute to the overall fitness of the organization; recent political endeavors by the US government illustrate a real world example of this. The lesson, for organizational leaders, is that strategy must always serve to improve the organizations’ fitness (make the firm a better competitor) and the successful structures, and processes, resulting from the implementation of such strategies should then be further selected and reinforced by top management to perpetuate and accentuate the effects of such successes. Until of course environmental conditions require leaders to again formulate and implement new strategy, following which the same process of “cream of the crop rising to the top” can occur, and failures can be adjusted or abandoned.
Just as the authors’ correct application of biological principles was evident in their presentation of evolutions blindness, so is the concept of organizations arising out of ashes of market failures, or their own firm’s failures, will regenerate more fit than before because it offers the opportunity for restructuring into a more competitive machine. This hypothesis is best demonstrated through metaphor. For example, one can visualize an industry as a forest ecosystem populated with different species of firms each operating within their own niche, competing for resources, and continually struggling for survival or dominating the competition and thriving. Now imagine that a fire rips through that community decimating resources, injuring species, restructuring the environment (not unlike the current global economic crises we are experiencing now). Every occupant of this ecosystem will now experience the scramble to reorganize in order to compete effectively in the new environment because structures and processes that once conferred competitive advantage may no longer apply, or may in fact be detrimental to a species’ fitness. One of these detrimental factors, according to Hannan and Freeman, may be size meaning that the larger an organization the lesser it’s ability to adapt to revolutionized market conditions, such as insurance giant AIG, or even GM, is experiencing today. This is especially true if the giant is resistant to radical restructuring, known in the business world as declaring bankruptcy. When a cataclysmic event changes an environment the first species to successfully repopulate the area have certain characteristics, one of which is crucial to prompt evolution enabling successful adaptation to the new environment. These species are known as R-Selected, the first-movers of Mother Nature with smaller body sizes, decreased investment in their numerous offspring, and the crucial aspect of which should be applied to a firm is that of short maturity time, which in turn would decrease the time of generational cycle giving more fit adaptations the ability to quickly proliferate throughout the gene pool. An organization can accomplish this feat by decreasing the cycle time for their strategic initiatives, (also committing as few resources as possible to each new initiative thereby decreasing the cost of innovation which in such a situation, if too high can prove deadly) that way effective processes and structures will show quickly and can then be selected and perpetuated effectively evolving the organization to the new environment as quickly as possible. The counter to R-selected species, are K-selected species which have a longer generation time, larger body sizes at maturity, later in life reproduction strategies, and increased investment in offspring. Organizations though, unlike organisms in nature, have the ability to switch from R to K-selected if consciously undertaken by management as a requirement to making the organization a better competitor for the long run. So following a cataclysm a firm should reflect R-selected characteristics, but as the environment becomes more stable the firm should move toward a more K-selected strategy to carry it through the long-run.
Sustainably successful productivity in an organization is usually a key goal of its leaders and with this longevity comes an increase in size which in turn leads to a high level of inertia in an organization, or a resistance to core changes. Though size is stated as a weakness of a firm Hannan and Freeman also see it as a strength, for they assert that this large size reduces the possibility of organizational death. Interestingly this theory parallels that of K-selected species because with a firms’ longevity also comes the increased investment in new generations (increased R & D spending, and available organizational slack), and the longer maturity time (or long-run strategic initiatives). So it is these abilities, congruent with size increases but distinctive, impart important resistance to negative environmental pressures, and allow a firm to remain highly competitive in the face of anything less than a cataclysmic event. The numerous generational cycles that a mature firm has undergone enables the Natural Selection process to mold it into perhaps the fiercest competitor within its industry. The firm becomes similar to the Great White Shark, the Alligator, and the Crocodile, who are extremely resistant to disease and other threats (human technologies are disregarded in this case) because they are ancient species who reached the pinnacle of their evolutionary processes millions of years ago, and who are able to weather ice ages and asteroid collisions that wiped out numerous other species. So the more generational cycles, or strategic implementations (not necessarily size), an organization experiences, as long as the costs of such are monitored to be adequate and not exorbitant, the better a competitor it will become making it more resistant to organizational death, and the increase in size is just a side effect. (Anonymous, 2000)
In conclusion, the application of Natural Selection theory to organizational processes and structure in the attempts to explain and enhance organizational strategy changes can be highly successful as the correlations between biological systems, from the level of organisms to the biosphere, can be used in direct comparison. It is important to remember though that everything in nature exists on a bell-shaped curve or on a sliding scale, and everything is continually dynamic the only absolute being that nothing is absolute; there is no such thing as static, and to sustain profitability and productivity one must always be selecting to keep evolution always moving forward toward increased fitness. Therefore organizational leadership must take a lesson from Mother Nature and act as that agent of random selection always assisting their firm in achieving a better state of fitness, through regularly examination and renewal of strategic initiatives and implementation and constant adjustment, to maintain productive organizational homeostasis and repeatedly reach organizational goals.

RESOURCES
Anonymous. (2000, June 15). Biosphere Field Notebook. Chiracahuas National Monument, New Mexico: N/A.
Hannan, M. T., & Freeman, J. (1984). Structural Inertia and Organizational Change. American Socioligical Review , 49, 149 - 164.