Hannan and Freeman

Structural Inertia and Organizational Change
Author(s): Michael T. Hannan and John Freeman

Source: American Sociological Review , Apr., 1984, Vol. 49, No. 2 (Apr., 1984), pp. 149-
164
Published by: American Sociological Association
Stable URL: https://www.jstor.org/stable/2095567
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STRUCTURAL INERTIA AND ORGANIZATIONAL CHANGE*
MICHAEL T. HANNAN JOHN FREEMAN

Stanford University University of California, Berkeley
Theory and research on organization-environment relations from a population

ecology perspective have been based on the assumption that inertial pressures on
structure are strong. This paper attempts to clarify the meaning of structural inertia
and to derive propositions about structural inertia from an explicit evolutionary
model. The proposed theory treats high levels of structural inertia as a consequence
of a selection process rather than as a precondition for selection. It also considers
how the strength of inertial forces varies with age, size, and complexity.
Most prominent organization theories ex- argue that selection processes tend to favor
plain variability in organizational charac- organizations whose structures are difficult to
teristics, that is, diversity, through reference to change. That is, we claim that high levels of
the history of adaptations by individual organi- structural inertia in organizational populations
zations, Earlier (Hannan and Freeman, 1977), can be explained as an outcome of an
we challenged this view and argued that adap- ecological-evolutionary process.
tation of organizational structures to envi- In addition to deriving structural inertia as a
ronments occurs principally at the population consequence of a selection process, this paper
level, with forms of organization replacing explores some of the details of inertial forces
each other as conditions change. This initial on organizational structure. It considers how
statement of population ecology theory rested inertial forces vary over the life cycle, with
on a number of simplifying assumptions. A organizational size, and with complexity, and
major one was the premise that individual or- suggests some specific models for these de-
ganizations are subject to strong inertial forces, pendencies.
that is, that they seldom succeeded in making
radical changes in strategy and structure in the
BACKGROUND
face of environmental threats.
How strong are inertial forces on organi- Our earlier formulation of an ecological theory
zational structure? This question is substan- of organizational change pointed to a variety of
tively interesting in its own right. It is also constraints on structural change in organi-
strategically important, because the claim that zations:
adaptation theories of organizational change
... for wide classes of organizations there
should be supplemented by population ecology
are very strong inertial pressures on
theories depends partly on these inertial forces
structure arising from both internal ar-
being strong.
rangements (for example, internal politics)
Many popularized discussions of evolution
and from the environment (for example,
suggest that selection processes invariably
public legitimation of organizational ac-
favor adaptable forms of life. In fact the theory
tivity). To claim otherwise is to ignore the
of evolution makes no such claim, as we made
most obvious feature of organizational life.
clear earlier (Hannan and Freeman, 1977;
(Hannan and Freeman, 1977:957)
Freeman and Hannan, 1983). This paper goes
beyond our earlier theory in acknowledging Some of the factors that generate structural
that organizational changes of some kinds inertia are internal to organizations: these in-
occur frequently and that organizations some- clude sunk costs in plant, equipment, and per-
times even manage to make radical changes in sonnel, the dynamics of political coalitions,
strategies and structures. Nevertheless, we and the tendency for precedents to become
normative standards. Others are external.
* Direct all correspondence to: Michael T. Han- There are legal and other barriers to entry and
nan, Department of Sociology, Stanford University, exit from realms of activity. Exchange rela-
Stanford, CA 94305. tions with other organizations constitute an in-
The work reported here was supported by Na- vestment that is not written off lightly. Finally,
tional Science Foundation grants SES-8109382 and
attempting radical structural change often
ISI-8218013. We would like to acknowledge the
threatens legitimacy; the loss of institutional
helpful comments of Terry Amburgey, Gary Becker,
Jack Brittain, Glenn Carroll, James Coleman, Susan support may be devastating.
Olzak, Jeffrey Pfeffer, Arthur Stinchcombe, and We continue to believe that inertial pres-
three referees on earlier drafts. sures on most features of organizational
American Sociological Review 1984, Vol. 49 (April: 149-164) 149

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150 AMERICAN SOCIOLOGICAL REVIEW
structure are quite strong-much stronger than sponse to endogenous processes, but that such
most theorists acknowledge. Moreover, the changes are only loosely coupled with the de-
assumption that organizations rarely make sires of organizational leaders and with the
fundamental changes successfully has proven demands and threats of environments (March
to be a useful strategic simplification. It has and Olsen, 1976; March, 1982; Weick, 1976).
allowed a rich and evocative set of ecological Progress in explaining organizational diver-
theories and models to be applied to the prob- sity and change requires understanding both
lem of changes in organizational form over time the nature of organizational change and the
(see, e.g., Brittain and Freeman, 1980; Carroll, degree to which it can be planned and con-
1983; Carroll and Delacroix, 1982; Freeman, trolled. Here we concentrate mainly on the
1982; Freeman and Hannan, 1983; Freeman et first issue: does most of the observed variabil-
al., 1983). ity in organizational features reflect changes in
However, the claim that organizational existing organizations, whether planned or not,
structures rarely change is the subject of dis- or does it reflect changes in populations with
pute. March (1981:563) summarizes his review relatively inert organizations replacing each
of research on organizational change by as- other? In other words, does change in major
serting: features of organizations over time reflect
mainly adaptation or selection and replace-
Organizations are continually changing,
ment?
routinely, easily, and responsively, but
The selection and adaptation perspectives
change within organizations cannot be arbit-
are so different that it is hard to believe that
rarily controlled . . . What most reports on
they are talking about the same things. Scott
implementation indicate . . . is not that or-
(1981:204) claims that they are not:
ganizations are rigid and inflexible, but that
they are impressively imaginative. ... the natural selection perspective seems
to us to be particularly useful in focusing
The contemporary literature contains at least
attention on the core features of organi-
three broad points of view on organizational
zations, explaining the life chances of
change. Population ecology theory holds that
smaller and more numerous organizations,
most of the variability in organizational
and accounting for changes in organizational
structures comes about through the creation of
forms over the long run. By contrast the
new organizations and organizational forms
rational selection or resource dependency
and the replacement of old ones (Hannan and
approach emphasizes the more peripheral
Freeman, 1977; Freeman and Hannan, 1983;
features of organizations, is better applied to
McKelvey, 1982). A second view, which might
larger and more powerful organizations, and
be called rational adaptation theory, proposes
stresses changes occurring over shorter pe-
that organizational variability reflects designed
riods of time.
changes in strategy and structure of individual
organizations in response to environmental This contrast provides a useful point of de-
changes, threats, and opportunities. There are parture for an attempt to clarify the conditions
numerous variants of this perspective which under which the two perspectives apply.
differ widely on other dimensions. Contin-
gency theories emphasize structural changes
TRANSFORMATION AND
that match organizational structures to
REPLACEMENT
technology-environment pairs (Thompson,
1967; Lawrence and Lorsch, 1967). Resource- All accepted theories of biotic evolution share
dependence theories emphasize structural the assumption that innovation, the creation of
changes that neutralize sources of envi- new strategies and structures, is random with
ronmental uncertainty (Pfeffer and Salancik, respect to adaptive value. Innovations are not
1978). An institutionally oriented version of produced because they are useful; they are just
this perspective holds that organizational produced. If an innovation turns out to en-
structures are rationally adapted to prevailing, hance life chances, it will be retained and
normatively endorsed modes of organizing spread through the population with high prob-
(Meyer and Rowan, 1977; DiMaggio and Pow- ability. In this sense, evolution is blind. How
ell, 1983). Marxist theories of organization can this view be reconciled with the fact that
typically assert that organizational structures human actors devote so much attention to pre-
are rational solutions for capitalist owners to dicting the future and to developing strategies
the problem of maintaining control over labor for coping with expected events? Can social
(Edwards, 1979; Burawoy, 1979). The third change, like biotic evolution, be blind?
broad perspective, which might be called ran- Almost all evolutionary theories in social
dom transformation theory, claims that organi- science claim that social evolution has
zations change their structures mainly in re- foresight, that it is Lamarckian rather than

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STRUCTURAL INERTIA AND ORGANIZATIONAL CHANGE 151
Darwinian in the sense that human actors learn consequences may often differ greatly from
by experience and incorporate learning into long-run consequences. In such cases, it does
their behavioral repertoires (see, e.g., Nelson not seem realistic to assume a high degree of
and Winter, 1982). To the extent that learning congruence between designs and outcomes.
about the past helps future adaptation, social
change is indeed Lamarckian-it transforms
STRUCTURAL INERTIA
rather than selects. In other words, major
change processes occur within behavioral To this point we have adopted the frame of
units. reference of the existing literature, which asks
Even when actors strive to cope with their whether organizations learn and adapt to un-
environments, action may be random with re- certain, changing environments; but we think
spect to adaptation as long as the environments this emphasis is misplaced. The most impor-
are highly uncertain or the connections be- tant issues about the applicability of
tween means and ends are not well understood. evolutionary-ecological theories to organi-
It is the match between action and envi- zations concern the timing of changes.
ronmental outcomes that must be random on Learning and adjusting structure enhances
the average for selection models to apply. In a the chance of survival only if the speed of
world of high uncertainty, adaptive efforts by response is commensurate with the temporal
individuals may turn out to be essentially ran- patterns of relevant environments. Indeed, the
dom with respect to future value. worst of all possible worlds is to change
The realism of Darwinian mechanisms in or- structure continually only to find each time
ganizational populations also turns on the de- upon reorganization that the environment has
gree to which change in organizational already shifted to some new configuration that
structures can be controlled by those ostensi- demands yet a different structure. Learning
bly in command. Suppose that individuals learn and structural inertia must be considered in a
to anticipate the future and adapt strategies dynamic context. Can organizations learn
accordingly and that organizations simply mir- about their environments and change
ror the intentions of rational leaders. Then or- strategies and structures as quickly as their
ganizational adaptations would be largely non- environments change? If the answer is nega-
random with respect to future states of the tive, replacement or selection arguments are
environment. On the other hand, if March and potentially applicable.
others are right, organizational change is Three things must be known in order to an-
largely uncontrolled. Then organizations swer questions about the applicability of selec-
staffed by highly rational planners may behave tion theories to populations of organizations.
essentially randomly with respect to adapta- The first issue is the temporal pattern of
tion. In other words, organizational outcomes changes in key environments. Are typical
may be decoupled from individual intentions; changes small or large, regular or irregular,
organizations may have lives of their own. In rapid or slow? The second issue is the speed of
this case it is not enough to ask whether indi- learning mechanisms. How long does it take to
vidual humans learn and plan rationally for an obtain, process, and evaluate information on
uncertain future. One must ask whether orga- key environments? The third issue is the re-
nizations as collective actors display the same sponsiveness of the structure to designed
capacities. changes. How quickly can an organization be
The applicability of Darwinian arguments to reorganized?
changes in organizational populations thus de- To claim that organizational structures are
pends partly on the tightness of coupling be- subject to strong inertial forces is not the same
tween individual intentions and organizational as claiming that organizations never change.
outcomes. At least two well-known situations Rather, it means that organizations respond
generate loose coupling: diversity of interest relatively slowly to the occurrence of threats
among members and uncertainty about and opportunities in their environments.
means-ends connections. When members of an Therefore, structural inertia must be defined in
organization have diverse interests, organi- relative and dynamic terms. It refers to com-
zational outcomes depend heavily on internal parisons of the typical rates of change of the
politics, on the balance of power among the processes identified above. In particular,
constituencies. In such situations outcomes structures of organizations have high inertia
cannot easily be matched rationally to chang- when the speed of reorganization is much
ing environments. lower than the rate at which environmental
When the connections between means and conditions change. Thus the concept of inertia,
ends are obscure or uncertain, carefully de- like fitness, refers to a correspondence be-
signed adaptations may have completely unex- tween the behavioral capabilities of a class of
pected consequences. Moreover, short-run organizations and their environments.

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Our definition of structural inertia implies public goals, the basis on which organizations
that a particular class of organizations might mobilize resources initially and gain support
have high inertia in the context of one envi- from society is their claim to accomplish some
ronment but not in another. For example, the specific set of ends (e.g., making a profit,
speed of technical change in the semiconductor treating the sick, producing basic scientific re-
industry has been very high over the past search).
twenty years. Firms that would be considered Creating an organization means mobilizing
remarkably flexible in other industries have not several kinds of scarce resources. Organization
been able to reorganize quickly enough to keep builders must accumulate capital, commitment
up with changing technologies. of potential members, entrepreneurial skills,
One of the most important kinds of threats to and legitimacy (see Stinchcombe, 1965). Once
the success of extant organizations is the cre- such resources have been invested in building
ation of new organizations designed specifi- an organizational structure, they are difficult to
cally to take advantage of some new set of recover. Although one can sell the physical
opportunities. When the costs of building a assets of a disbanded organization and some-
new organization are low and the expected times its name, most resources used to build it
time from initiation to full production is short, are lost when it is dissolved. Not only are the
this kind of threat is intense (unless there are costs of starting an organization nontrivial, but
legal barriers to the entry of new organi- organizations continually use substantial por-
zations). If the existing organizations cannot tions of their resources in maintaining and re-
change their strategies and structures more producing their structures rather than in per-
quickly than entrepreneurs can begin new or- forming collective action. Just as in the case
ganizations, new competitors will have a of biotic creatures, there is a substantial
chance to establish footholds. Other things metabolic overhead relative to the amount of
being equal, the faster the speed with which work performed. Thus the creation of a perma-
new organizations can be built, the greater is nent organization as a solution to a problem of
the (relative) inertia of a set of existing collective action is costly compared to other
structures. alternatives.
Even such a successful and well-managed Why do individuals and other social actors
firm as IBM moves ponderously to take ad- agree to commit scarce resources to such ex-
vantage of new opportunities. Granted, IBM pensive solutions to problems of collective ac-
eventually moved into the market for tion? A number of answers to this question
minicomputers and microcomputers and ap- have been put forth (see Scott, 1981:135-63,
pears poised to dominate them. Still, the pro- for an insightful review). The new institutional
tracted period of assessing these markets, economics argues that organizations arise to
waiting for technologies to stabilize, and reor- fill the gaps created by market failure (Arrow,
ganizing production and marketing operations 1974). Williamson's (1975) influential analysis
created the opportunity for new firms to be- proposes that organizations are more efficient
come established. As a consequence, the than markets in situations in which economic
structure of the computer industry is almost transactions must be completed in the face of
certainly different than it would have been had opportunism, uncertainty, and small-numbers
IBM been willing and able to move quickly. bargaining. Although sociologists tend to deny
The point is that IBM did change its strategy that organizations arise mainly in response to
somewhat, but this change took long enough market failures, they tend to agree that organi-
that new firms using different strategies and zations have special efficiency properties, but
structures were able to flourish. emphasize their efficiency and effectiveness
for coordinating complex tasks (Blau and
Scott, 1962; Thompson, 1967).
REPRODUCIBILITY, INERTIA,
Although these efficiency arguments are
AND SELECTION
plausible, it is not obvious that they are cor-
As we have emphasized elsewhere, organi- rect. Many detailed accounts of organizational
zations are special corporate actors. Like other processes raise serious doubts that organi-
corporate actors, they are structures for ac- zations minimize the costs of completing many
complishing collective action as well as repos- kinds of transactions. Indeed, there appears to
itories of corporate resources. Unlike other be a strong tendency for organizations to be-
collective actors, organizations receive public come ends in themselves and to accumulate
legitimation and social support as agents for personnel and an elaborate structure far be-
accomplishing specific and limited goals. Al- yond the technical demands of work.
though individual members often manipulate Moreover, many organizations perform very
organizations to serve private goals and orga- simple tasks that involve low levels of coordi-
nizations pursue other goals in addition to their nation. In contrast, collections of skilled work-

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ers collaborating in ad hoc groups can often Coleman (1974) has argued that corporate ac-
complete quite complex tasks. From the per- tors favor other corporate actors over individ-
spective of the performance of a single, com- uals. We add that corporate actors especially
plex collective action, it is not obvious that a favor other corporate actors that give signals of
permanent organization has any technical ad- procedural rationality and accountability.
vantage. Testing for accountability is especially in-
We emphasize different kinds of competen- tense during organization building, the process
cies. The first of these is reliability. Organi- of initial resource mobilization. Potential
zations have unusual capacities to produce members want assurance that their invest-
collective products of a given quality re- ments of time and commitment will not be
peatedly. In a world of uncertainty, potential wasted. When membership involves an em-
members, investors, and clients may value re- ployment relation, potential members often
liability of performance more than efficiency. want guarantees that careers within the organi-
That is, rational actors may be willing to pay a zation are managed in some rational way.
high price for the certainty that a given product Potential investors (or supporters) also assess
or service of a certain minimum quality will be accountability. In fact, the profession of public
available when it is needed. Reliability depends accountancy arose in the United States in re-
on the variance of performance (including its sponse to the desires of British investors in
timeliness) rather than its average level. American railroads for assurances that their
Organizations have higher levels of reliabil- investments were being managed in appropri-
ity than ad hoc collectives in two senses: one ate ways (Chandler, 1977). Demands for ac-
cross-sectional and the other temporal. Cross- counting rationality in this narrow sense are
sectional reliability means that an outcome both widespread and intense in modern
chosen at random from a population of organi- societies. For example, the federal government
zations will have a lower variance than one will not allocate research grants and contracts
chosen at random from a population of other to organizations that have not passed a federal
kinds of producers. Temporal reliability means audit, meaning that they have given evidence
the variability over time in the quality (includ- of possessing the appropriate rules and proce-
ing timing of delivery) of an outcome is lower dures for accounting for the use of federal
for those produced by organizations than for funds.
those produced by ad hoc groups. Overall, we Accountability testing is also severe when
argue that the distinctive competence of orga- resources contract. Members and clients who
nizations is the capacity to generate collective would otherwise be willing to overlook waste
actions with relatively small variance in qual- typically change their views when budgets and
ity. services are being cut.
Organizations have a second property that In our judgment, pressures for account-
gives them an advantage in the modern world: ability are especially intense when (1) organi-
accountability. The spread of general norms of zations produce symbolic or information-
rationality in the modern world (Weber, 1968) loaded products (e.g., education, branded
and a variety of internal and external con- products versus bulk goods)-see DiMaggio
tingencies demand that organizations be able to and Powell (1983); (2) when substantial risK
account rationally for their actions. This means exists (e.g., medical care); (3) when long-term
both that they must be able to document how relations between the organization and its em-
resources have been used and to reconstruct ployees or clients are typical; and (4) when the
the sequences of organizational decisions, organization's purposes are highly political
rules, and actions that produced particular out- (Weber, 1968). Our arguments presumably
comes. It does not necessarily mean that orga- apply with special force to organizations in
nizations must tell the truth to their members these categories. Still, we think that pressures
and to the public about how resources were towards accountability are generally strong
used or how some debacle came about. What and getting stronger. The trend toward litigat-
matters is that organizations can make inter- ing disputes and pressures for formal equality
nally consistent arguments that appropriate in modern polities intensifies demands for ac-
rules and procedures existed to reproduce ra- countability. All organizations seem to be
tional allocations of resources and appropriate subject to at least moderate levels of account-
organizational actions. ability testing.
Norms of procedural rationality are perva- We argue that the modern world favors col-
sive in the modern world. Organizational lective actors that can demonstrate or at least
legitimacy, in the sense of high probability reasonably
that claim a capacity for reliable per-
powerful collective actors will endorse an or- formance and can account rationally for their
ganization's actions (Stinchcombe, 1968), de- actions. These forces favor organizations over
pends on ostensible conformity to these norms. other kinds of collectives and they favor cer-

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tain kinds of organizations over others, since come moral and political rather than technical
not all organizations have these properties in issues. Attempts at redesigning structures in
equal measure. Selection within organizational organizations built on moral commitment are
populations tends to eliminate organizations likely to spark bursts of collective opposition
with low reliability and accountability. The premised on moral claims in favor of the status
selection processes work in several ways. quo. Even if such opposition does not prevail,
Partly they reflect testing by key actors and it delays change considerably.
environments in the organization-building As a brake on structural change, in-
stage. Potential members, investors, and other stitutionalization applies both to the organiza-
interested parties apply tests of reliability and tion as a whole and to its subunits. But what
accountability to proposed new ventures. Such about the diversity among sets of differentiated
testing continues after founding. Unreliability activities within the organization? Some kinds
and failures of accountability at any stage in a of organizations perform diverse sets of activi-
subsequent lifetime threatens an organi- ties, sometimes in parallel and sometimes se-
zation's ability to maintain commitment of quentially. Military organizations provide a
members and clients and its ability to acquire striking example; they maintain "peacetime"
additional resources. and "wartime" structures.' Similarly, labor
unions gear up for organizing drives or for
Assumption 1. Selection in populations of or-
waves of strikes and then return to more placid
ganizations in modern societies favors forms
bread-and-butter collective bargaining. Man-
with high reliability of performance and high
ufacturing firms sometimes concentrate on re-
levels of accountability.
designing products and at other times concen-
When does an organization have the ca- trate on marketing an extant set of products.
pacity to produce collective outcomes of a Each phase of organizational activity involves
certain minimum quality repeatedly? The most mobilizing different kinds of structures of
important prerequisite is so commonplace that communication and coordination. In a real
we take it for granted. Reliable performance sense these kinds of organizations can be said
requires that an organization continually re- to use different structures in different phases.
produce its structure-it must have very nearly Does this mean that these organizations have
the same structure today that it had yesterday. somehow escaped inertial tendencies? We
Among other things, this means that structures think not, at least from the perspective of at-
of roles, authority and communication must be tempts at building theories of organizational
reproducible from day to day. change. These organizations have multiple
routines; they shift from one routine (or set of
Assumption 2. Reliability and accountability
routines) to another in a fairly mechanical
require that organizational structures be highly
fashion. We think that organizations have high
reproducible.
inertia both in the sets of routines employed
A structure can conceivably be reproduced and in the set of rules used to switch between
repeatedly by negotiation and conscious deci- routines.
sion making. The members of an organization According to Nelson and Winter (1982:96)
with such practices might happen to decide routines are the "source of continuity in the
each day to re-create the structure that existed behavioral patterns of organizations." They
the previous day. But this seems unlikely. Re- are patterns of activity that can be invoked
producibility is far more likely under different repeatedly by members and subunits. One way
conditions. In general, organizations attain re- of conceiving of routines is as organizational
producibility of structure through processes of memory-an organization's repertoire of
institutionalization and by creating highly routines is the set of collective actions that it
standardized routines. can do from memory. Nelson and Winter em-
The first solution, institutionalization, is a phasize that organizations remember by doing.
two-edged sword. It greatly lowers the cost of Like knowledge of elementary algebra or high
collective action by giving an organization a school Latin, collective knowledge is the basis
taken-for-granted character such that members of organizational routines and decays rapidly
do not continually question organizational pur- with disuse. Even occasional use reveals some
poses, authority relations, etc. Reproduction decay in recall and demonstrates the need to
of structure occurs without apparent effort in reinvest in learning to keep skills at their
highly institutionalized structures. The other
edge of the sword is inertia. The very factors
I Janowitz (1960) discusses various conflicting
that make a system reproducible make it re- demands of organizing military activities in
sistant to change. In particular, to the extent peacetime and war. Etzioni (1975) discusses the
that an organization comes to be valued for shifts in control problems that arise in armies and
itself, changes in structural arrangements be- labor unions as a result of such changes.

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former levels. Organizations that have tions in changing environments. But, as we

the capacity to use a broad repertoire of argued earlier (Freeman and Hannan, 1983),
routines do so by virtue of large investments in organizations that frequently try to reorganize
keeping their routines sharp. For example, may produce very little and have slight chances
peacetime armies devote a great deal of their of survival. Here the issue is the cause of
resources to simulating wartime situations and structural inertia rather than its consequences.
training. Armies that fail to make such an in- Our argument is that resistance to structural
vestment experience great difficulty in making change is a likely by-product of the ability to
the transition to battle readiness. reproduce a structure with high fidelity:
The fact that organizational routines decay
Assumption 3. High levels of reproducibility of
with disuse implies that organizations face the
structure generate strong inertial pressures.
classic specialism-generalism dilemma in de-
ciding how many routines to maintain at any The three assumptions form the core of our
fixed level of resources. Generalists (those first argument. Taken together they imply:
with many routines) are no less inert than spe-
Theorem 1. Selection within populations of or-
cialists in the manner in which they adapt to
ganizations in modern societies favors organi-
environmental change in the sense that they
zations whose structures have high inertia.
still use a limited number of routines. As Nel-
son and Winter (1982:134) put it: This theorem states that structural inertia can
be a consequence of selection rather than a
... it is quite inappropriate to conceive of
precondition. All that is required is that some
firm behavior in terms of deliberate choice
organizations in an initial population have high
from a broad menu of alternatives that some
levels of reproducibility (hence high levels of
outside observor considers to be "available"
inertia) and that selection pressures be rea-
to the organization. The menu is not broad, it
sonably strong. Under such conditions, selec-
is narrow and idiosyncratic . . . Efforts to
tion pressures in modem societies favor orga-
understand the functioning of industries and
nizations whose structures are resistant to
larger systems should come to grips with the
change, which makes selection arguments all
fact that highly flexible adaptation to change
the more applicable.
is not likely to characterize the behavior of
individual firms.
A HIERARCHY OF INERTIAL FORCES
We think that it is a reasonable first approxi-
mation to think of organizations as possessing So far we have considered organizations as
relatively fixed repertoires of highly repro- unitary actors, either adapting to their envi-
ducible routines. Then the present argument ronments or remaining inert. This is simplistic
can be applied either to the organization as a in that it ignores the obvious fact that some
whole, where the issue is the diversity of the parts of organizations change more quickly
repertoire, or to the individual routine. than others and that adaptive changes are
Thus we argue that the properties that give sometimes not difficult to discern or imple-
some organizations reproducibility also make ment. Universities, for example, are constantly
them highly resistant to structural change, changing the textbooks used for instruction.
whether designed or not. As we noted above, They do so in an adaptive way, keeping up with
this means that some aspects of structure can the constantly evolving knowledge bases of
be changed only slowly and at considerable their various fields. Persuading a university
cost (many resources must be applied to pro- faculty to abandon liberal arts for the sake of
duce structural change). Such structures have vocational training is something else again.
a dead-weight quality; there are large lags in Why would the university's curriculum be so
response to environmental changes and to at- difficult to change? A number of answers come
tempts by decision makers to implement quickly to mind. The curriculum embodies the
change. Since lags in response can be longer university's identity with reference both to the
than typical environmental fluctuations and broader society and to its participants (i.e.,
longer than the attention spans of decision faculty, students, staff, administration,
makers and outside authorities, inertia often alumni). The kinds of courses offered and the
blocks structural change completely. frequency with which they are offered serve as
The inertia of reproducible organizations is a statement of purpose which is articulated
usually viewed as a pathology. A classic state- with society's value system. The curriculum
ment of this position is Merton's (1957) essay also represents one of the bases on which re-
on the "dysfunctions of bureaucracy." High sources are distributed. A change toward a
levels of inertia may produce serious mis- more vocationally oriented set of courses
matches between organizational outcomes and threatens entrenched interests. Professors of
the intentions of members and clients in situa- classics and other humanistic fields which

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would have a lesser role in such an institution of the specific actions taken by the bureau,
can be expected to resist such a change. The the second of the decision-making rules it
curriculum is difficult to change, then, because uses, the third of the institutional structure it
it represents the core of the university's orga- uses to make those rules, and the deepest of
nizational identity and underlies the distribu- its general purposes.
tion of resources across the organization. In
these ways, it can be said to lie at the univer- The layers supposedly differ in characteristic
sity's "core." speeds of response.
This view of organizations as having a core We conceptualize organizational structure as
which is more difficult to modify than more composed of hierarchical layers of structural
peripheral parts of its structure is not new. As and strategic features that vary systematically
Parsons (1960:59-69) pointed out, organi- in flexibility and responsiveness. Our theory
zational authority hierarchies are not continu- emphasizes the claims used to mobilize re-
ous; qualitative breaks occur between the sources for beginning an organization and the
technical, managerial, and institutional levels. strategies and structures used to maintain
The technical system is that part of the organi- flows of scarce resources. Thus we classify
zation that directly processes the "materials" items of structure according to their bearing on
used by the organization. The resources used resource mobilization. From the perspective of
by the technical system to do the organi- resource mobilization, the core aspects of or-
zation's basic work are allocated by a broader ganization are (1) its stated goals-the bases on
organizational apparatus, the managerial or which legitimacy and other resources are
administrative system, which also relates those mobilized; (2) forms of authority within the
technical activities to the public served. While organization and the basis of exchange be-
each depends on the other, the managerial tween members and the organization; (3) core
level stands in a superordinate position. It both technology, especially as encoded in capital
controls and services the technical level's op- investment, infrastructure, and the skills of
erations, while the reverse is less often the members; and (4) marketing strategy in a broad
case. sense-the kinds of clients (or customers) to
The third part, the institutional system, ar- which the organization orients its production
ticulates the whole organization with the and the ways in which it attracts resources
broader society. Parsons emphasized its role in from the environment. The four characteristics
legitimating the organization. Boards of trus- stand in a rough hierarchy, with publicly stated
tees and directors are responsible for long-run goals subject to the strongest constraints and
policy and for the conduct of the organization marketing strategy the weakest. Thus we ex-
with regard to its reputed goals. Because the pect the likelihood of change by transformation
institutional and managerial levels of the orga- to decline as one proceeds up the hierarchy.
nization stand prior to the technical level in These four properties provide a possible
controlling the flow of resources, any impor- basis on which to classify organizations into
tant change in their operations leads to changes forms for ecological analysis. An organi-
in the details of the operations of the technical zation's initial configuration on these four di-
system, while the reverse is less often true. mensions commits it to a certain form of envi-
Thompson (1967) adopted these distinctions ronmental dependence and to a long-term
in arguing that organizations are built in such a strategy. Once an organization has made a
way as to protect structural units carrying out public claim to mobilize resources, has in-
the primary technology from uncertainties duced individuals to cede some control in re-
emanating from the environment. Thompson, turn for specific inducements, has invested in
however, drew core-periphery distinctions physical and human capital of specific types,
with reference to the organization's operating and has designed a product or service to appeal
technology. Since we think that the importance to a certain audience, it has greatly limited its
of technology in determining structure varies range of feasible transformations.
greatly across kinds of organizations, we em- Although organizations sometimes manage
phasize institutional characteristics more than to change positions on these dimensions, such
technical ones. In this way our approach is changes are both rare and costly and seem to
closer to Parsons than to Thompson. subject an organization to greatly increased
An argument similar to ours has been ad- risks of death. Thus these characteristics serve
vanced by Downs (1967:167-68) in his use of as a possible basis for selection and replace-
the metaphor of organizational depth: ment within populations of organizations.
Although the four properties listed above
. . . organizations have different structural encompass much of organizational strategy
depths. Our analysis recognizes four "orga- and structure, they do not come close to
nizational layers." The shallowest consists exhausting the dimensions of structure that

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interest social scientists. In particular, the list As Stinchcombe (1965) pointed out, new orga-
does not include structure in the narrow sense nizations typically have to rely on the cooper-
of numbers and sizes of subunits, number of ation of strangers. Development of trust and
levels in authority structures, span of control, smoothly working relationships take time. It
patterns of communication, and so forth. Nor also takes time to work out routines. Initially
does it contain what Scott (1981) calls periph- there is much learning by doing and comparing
eral structures, the detailed arrangements by alternatives. Existing organizations have an
which an organization makes links with its en- advantage over new ones in that it is easier to
vironment and tries to buffer its technical core continue existing routines than to create new
(for example, interlocking directorates and ones or borrow old ones (see the discussion in
joint ventures). Nelson and Winter, 1982:99-107). Such
We think that properties of organization arguments underlie the commonly observed
charts and patterns of specific exchanges with monotonically declining cost curve at the firm
actors in the environment are more plastic than level-the so-called learning curve.
the core set. They tend to change as organi- In addition, the reliability and accountability
zations grow and decline in size, as of organizational action depend on members
technologies change, and as competitive and having acquired a range of organization-
institutional environments change. They can specific skills (such as knowledge of spe-
be transformed because attempts at changing cialized rules and tacit understandings). Be-
them involve relatively little moral and political cause such skills have no value outside the
opposition within the organization and in the organization, members may be reluctant to in-
environment and do not raise fundamental vest heavily in acquiring them until an organi-
questions about the nature of the organization. zation has proven itself (see Becker, 1975).
In short, inertial forces on these aspects of Once an organization survives the initial period
structure and on peripheral or buffering activi- of testing by the environment, it becomes less
ties tend to be weaker than those on core fea- costly for members to make investments in
tures. organization-specific learning-early success
Most organization theories assume that pe- breeds the conditions for later success. Thus
ripheral structures are premised on and collective action may become more reliable
adapted tQ a core structure. Changes in core and accountable with age simply because of a
structures usually require adjustment in the pe- temporal pattern of investments by members.
ripheral structures. However, the reverse is Moreover, the collective returns to invest-
ments in organization-specific learning may
not true.2 If a core structure is subject to strong
selection pressure, peripheral structures will take time to be realized, just like the case for
also be subject to at least weak (indirect) other forms of human capital. For both of these
selection. In such cases, ecological theory reasons, the levels of reliability and account-
applies at least indirectly to changes in periph- ability of organizational action should increase
eral structures. The tighter the coupling be- with age, at least initially.
tween the core and peripheral structures, the Once members have made extensive invest-
more direct is the applicability of our theory. ments in acquiring organization-specific skills,
Overall we are inclined to agree with Scott the costs of switching to other organizations
that evolutionary-ecological theories apply rise. Consequently the stake of members in
more appropriately to core properties than to keeping the organization going tends to rise as
others. But we think that is because the it ages.
strength of inertial pressures differ rather than Finally, processes of institutionalization also
because selection pressures on core and pe- take time. In particular, it takes time for an
ripheral structures differ. organization to acquire institutional reality to
In addition to varying by aspects of its members and to become valued in its own
structure, the strength of inertial forces may right.
also vary with life-cycle phase, size, and
complexity. The remainder of the discussion Assumption 4. Reproducibility of structure in-
considers these issues. creases monotonically with age.
Theorem 2. Structural inertia increases
LIFE-CYCLE VARIATIONS IN INERTIA monotonically with age. (From Assumptions 2
and 4)
Newly created organizations apparently have
Theorem 3. Organizational death rates de-
lower levels of reproducibility than older ones.
crease with age. (From Assumption 4 and
Theorem 1)
2 Hawley's (1%8) principle of isomorphism makes
a similar argument concerning the relationship be-
tween "key functions" and other organizational Theorem 3, often called the "liability of
structures. newness" hypothesis (Stinchcombe, 1965), has

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been well documented empirically (see also, perhaps, by age), at which failure to dele-
Freeman et al., 1983). Death rates appear to gate power sharply limits viability. In such a
decline approximately exponentially as organi- threshold model, organizations may be quite
zations age. One explanation for this finding is responsive below the threshold level of size.
that reproducibility rises roughly exponentially Above the threshold, organizations tend to
with age over the early years in an organi- have higher inertia. Or the relationship be-
zation's life. tween size and inertia may be roughly continu-
Processes of external legitimation also take ous. Downs (1967:60) argues that for the case
time. Although an organization must have of public bureaus: ". . . the increasing size of
some minimal level of public legitimacy in the bureau leads to a gradual ossification of its
order to mobilize sufficient resources to begin action . . . the spread and flexibility of its op-
operations, new organizations (and especially eration steadily diminish." Whether there is a
new organizational forms) have rather weak threshold as we have suggested or a continuous
claims on public and official support. Nothing relationship as Downs suggested, it seems
legitimates both individual organizations and clear to us that size does affect inertia.
forms more than longevity. Old organizations
Assumption 5. The level of structural inertia
tend to develop dense webs of exchange, to
increases with size for each class of organi-
affiliate with centers of power, and to acquire
zation.
an aura of inevitability. External actors may
also wait for an initial period of testing to be Assumption 5 seems to suggest that selection
passed before making investments in exchange arguments are more appropriate for large orga-
relations with new organizations. Thus pro- nizations than for small ones, contrary to wide-
cesses of institutionalization in the environ- spread opinion (Aldrich, 1979; Perrow, 1979;
ment and exchange relationships with relevant Scott, 1981; Astley and Van de Ven, 1983).
sectors of the environment may account for the However, the situation is more complex than
relationships stated in Theorems 2 and 3. The this. The likelihood that an organization ad-
argument to this point cannot distinguish be- justs structure to changing environmental cir-
tween the internal and external sources of the cumstances depends on two factors: the rate of
relationships. undertaking structural change and the proba-
bility of succeeding in implementing change,
given an attempt. Assumption 5 suggests that
SIZE AND INERTIA
the first quantity, the rate of attempting
We argued above that dampened response to change, is higher for small organizations. But
environmental threats and opportunities is the what about the second quantity?
price paid for reliable and accountable collec- It is helpful in answering this question to
tive action. If this argument is correct, organi- complicate the model slightly. Fundamental
zations respond more slowly than individuals change-change in core aspects of structure-
on average to environmental changes. How- rarely occurs over night. More commonly, an
ever, some organizations are little more than organization spends some period of time reor-
extensions of the wills of dominant coalitions ganizing, either by design or happenstance.
or individuals; they have no lives of their own. Usually there is a period of time during which
Such organizations may change strategy and existing rules and structures are being disman-
structure in response to environmental changes tled (or successfully challenged) and new ones
almost as quickly as the individuals who con- are being created to replace them. Similarly,
trol them. Change in populations of such orga- existing links with the environment are cut and
nizations may operate as much by transforma- new links forged. During such periods, organi-
tion as selection. zations have elements of both old and new
Except in exceptional cases, only relatively structures. The presence of multiple rules and
small organizations fit this description. An or- structures greatly complicates organizational
ganization can be a simple tool of a dominant action; so too does a shifting set of envi-
leader only when the leader does not delegate ronmental relations. Such changes increase the
authority and power down long chains of likelihood of conflict within an organization as
command. Failure to delegate usually causes contending parties seek to shape rules to bene-
problems in large organizations. Indeed, the fit their self-interests.
failure of moderate-sized organizations is often Fundamental reorganization may sometimes
explained as resulting from the unwillingness occur gradually and imperceptibly, but some-
of a founder-leader to delegate responsibility as times sharp breaks with the past can be dis-
the organization grew. cerned, and one can identify the approximate
One way to conceptualize the issues in- time of onset of the reorganization. One clear
volved is to assume that there is a critical size, example is a declaration of bankruptcy in order
which may vary by form of organization (and to obtain relief from creditors during a period

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of attempted reorganization. In many other enter the state of reorganization, but are also
circumstances, organizational leaders an- more likely to exit this state by death.
nounce planned shifts in strategy and structure Finally, there is the issue of success at im-
such as entries into new markets and internal plementing change (the rate of moving from
restructuring. In such cases it may be helpful to " reorganization" to "new structure"). An or-
introduce a new state into the model: the state ganization undertaking reorganization can suc-
of attempting fundamental reorganization. Fig- cessfully make the transition to the new state
ure 1 depicts the possible transitions in this or it can drift back to its original structure,
expanded state space. The parameters associ- assuming that it does not die. The model in
ated with each transition, the r's, are instan- Figure 1 contains two rates that pertain to
taneous transition rates. In terms of this repre- these processes: rc, the rate of moving to the
sentation, Assumption 5 states that the rate of new structure, and rb, the rate of returning to
moving to the state of reorganization decreases the old one. The effect of size on these rates is
with size. But it says nothing about the other unclear. On the one hand, the greater inertia of
rates. large organizations might lower the rate of suc-
The processes of dismantling one structure cesses at reorganization, On the other hand,
and building another make organizational ac- successes at reorganization might depend on
tion unstable. Consequently, the variance of the magnitude of resources applied to the task.
quality and timeliness of collective action de- Since large organizations typically have more
cline during reorganization. resources than small ones, this line of reason-
ing suggests that the rate of achieving
Assumption 6. The process of attempting reor-
structural change increases with size.
ganization lowers reliability of performance.
The relationship between size and the rate of
Assumptions 1 and 6 together imply: structural change is indeterminate in our
theory for two reasons. The first is ignorance
Theorem 4. Attempts at reorganization in-
about the effects of size on rates of completing
crease death rates.
structural reorganization, conditional on hav-
Organizations undergoing structural ing attempted it. The second source of inde-
transformation are highly vulnerable to envi- terminacy is the implication that small organi-
ronmental shocks. Large size presumably en- zations are more likely to attempt structural
hances the capacity to withstand such shocks. change but are also more likely to die in the
Small organizations have small margins for attempt. Although our analysis does not offer
error because they cannot easily reduce the an answer to the main question about size and
scope of their operations much in response to inertia, it does not support the widespread
temporary setbacks. Indeed, the claim that view that ecological arguments are particularly
death rates decrease with size is nothing more appropriate for the study of change in popula-
than a restatement of the idea advanced earlier tions of small organizations.
(Hannan and Freeman, 1977) that longer time The model in Figure 1 may be substantively
spans must be used to study replacement in interesting in its own right, assuming that ap-
populations of large organizations. proximate information on dates of leaving
states of reorganization can be obtained. it
Assumption 7. Organizational death rates de-
provides a framework for addressing a variety
crease with size.
of questions about inertia and change. It has
We assume that size has qualitatively similar the advantage of transforming what have been
effects on all three death rates in Figure 1: rd, mainly rhetorical questions about the applica-
re, and rf. Thus small organizations are as- bility of the ecological perspective into specific
sumed to be more likely than large ones to research questions.
Consider again the question of life-cycle
variations discussed in the previous section.
ra
Recall that we assume that reproducibility in-
ORIGINAL r NEW
creases with age (Assumption 4) because
STRUCTURE REORGANIZATION STRUCTURE
routines become worked out, role relations
rb
stabilize, and so forth. What effect, if any, does
structural reorganization have on these pro-
d re f
cesses? We think that reorganization is some-
DEATH
times tantamount to creating a new organiza-
tion (with a given level of resources). When
Figure 1. State Space for the Process of Funda- reorganization is that fundamental, work
mental Change in Organizational groups are reshuffled, bringing strangers into
Structure (The r 's are instantaneous tran- contact, routines are revised, and lines of
sition rates) communication are reshaped. In this situation

45.32.171.230 on Thu, 20 Jan 2022 03:33:33 UTC
reorganization robs an organization's history of terms of shifts in age-dependencies in organi-

survival value. That is, reorganization reduces zational death rates.
the reliability of performance to that of a new External processes may also account for the
organization. The stability of the previous tendency of death rates to decline with age.
structure does not contribute to reducing vari- For example, we mentioned the tendency for
ability with new sets of procedures, role re- organizations to acquire legitimacy simply by
lations, etc. virtue of longevity as well as the fact that it
If internal processes are solely responsible takes time for organizations to develop endur-
for the tendency of organizational death rates ing exchange relations with key actors in the
to decline with age (Theorem 3), the death rate environment. Some sorts of changes in strat-
for an organization that has just entered the egy and structure strain external relations, es-
state "new structure" should be no lower than pecially when the changes imply a shift in os-
the death rate of a completely new organization tensible goals. But, simple structural reorgani-
with that structure (and levels of resources). In zation, without any apparent change of goals,
this sense, reorganization sets the "liability of does not rob an organization's history of its
newness" clock back towards zero. value for public legitimacy and does not neces-
sarily upset exchange relations with the envi-
Assumption 8. Structural reorganization pro-
ronment. Old organizations can presumably
duces a liability of newness.
count on their existing exchange partners for
In order to make this argument concrete, we support during and following such structural
consider its implications for one kind of change.
parametric model for liability of newness. A If the liability of newness reflects internal
variation of the Makeham model fits data on processes, the death rate will jump with
age-variations in organizational death rates structural changes. In contrast, if the decline in
well (Freeman et al., 1983; Carroll and Dela- the death rate with age reflects mainly the op-
croix, 1982). This model has the form eration of external processes of legitimacy and
exchange, the death rate will not jump when
r d(t I t o) = a + Pe - -Wl -. o),
structural changes do not imply a change in
where to is the time of founding and y is posi- basic goals. That is, arguments about internal
tive. The liability of newness in this model is and external processes lead to different pre-
expressed by f3, because the initial death rate dictions
is about the effect of structural reorgani-
a + f8 and the asymptotic death rate is a. zation on the death rate. Therefore the study of
Imagine an organization created at time to that such effects may shed light on the relative im-
successfully changes its structure at tn, thatportance
is, of internal and external processes in
it enters the state "new organization" at that accounting for age variation in the death rate in
time. The argument that the liability-of- selected organizational populations.
newness clock is set back towards zero implies Finally, there is no reason to suspect that the
that its death rate at time t approximates that of death rate declines with duration in the state
a new organization with the same structure. In "reorganization." Quite the contrary-as the
particular, suppose that the death rate of a new length of time over which reorganization is at-
organization with structure like this one has the tempted increases, the costs (especially the
following age-dependence in death rates opportunity costs) of reorganization increase.
As the fraction of organizational resources de-
rd(t I to) = a' + f'e-v'(' -to), voted to reorganization increases, the capacity
where y' : 0. Then for the case of an organiza- of the organization to produce collective prod-
tion born at to that switches to this structure at ucts declines along with its capacity to defend
tn > to, the death rate is given by itself from internal and external challenges.
Hence protracted periods of reorganization
rd(tltn) = a' + /3'e-V'('-'t).
disrupt organizational continuity and increase
That is, development over the period (to, tn) has the risk of death.
no impact on its death rate, other things being
Assumption 9. The death rate of organizations
equal.
attempting structural change rises with the du-
The argument in the preceding paragraphs
ration of the reorganization.
can be viewed as one way to formalize some
long-standing notions about organizational A model consistent with this assumption is the
crises. Child and Kieser (1981:48) put the issue classic Gompertz model:
as follows: "To some extent, a crisis suc-
cessfully overcome may represent a new birth, re(t I t r) = Oek(t -t),
in the sense that changes initiated are suffi- where tr is the time of entering the state of
ciently radical for a new identity to emerge." reorganization and k > 0. This sort of model
We suggest that such questions be viewed in can perhaps elucidate another claim in the or-

45.32.171.230 on Thu, 20 Jan 2022 03:33:33 UTC
ganizations literature. March (1981:567), re- zation that reverts to the old structure at t4. In a
ferring to the, work of Hermann (1963) and collection of histories like those in Figure 2,
Mayhew (1979), states that one would see that strategic action to promote
survival exposes an organization to great risks
. . . organizations facing bad times will fol-
(thereby "reducing its life expectancy"). But,
low riskier and riskier strategies, thus simul-
because the death rate declines rapidly with
taneously increasing their chances of sur-
duration in the new structure, a successful
vival and reducing their life expectancy.
transformation eventually leads to a lower
Choices that seek to reverse a decline, for
death rate (seeming to "increase chances of
example, may not maximize expected value.
survival")--even lower than the death rates of
As a consequence, for those that do not sur-
organizations that retain the original structure.
vive, efforts to survive will have speeded up
However, it is not clear that structural change
the process of failure.
necessarily increases unconditional life ex-
It is hard to imagine how an action can both pectancy. This depends on the various rates.
increase a survival probability and increase the Still, introducing the competing risks of death
death rate in conventional models for the death and reorganization allows one to deal sys-
rate (since life expectancy is a monotonically tematically with this complicated problem.
decreasing function of the death rate). How-
ever, the framework introduced above is con-
ENVIRONMENTAL CHANGE,
sistent with this sort of pattern.
SIZE, AND INERTIA
Consider the case in which the death rate of
organizations in some environment rises pre- Assumption 5 states that large organizations
cipitously at a certain moment t1 (due perhaps are less likely than small ones to initiate radical
to some discontinuous change in the environ- structural change. Does this mean that larger
ment). The death rate of organizations that re- organizations have greater inertia, as Downs
tain their structures, rd, will gradually decline (1967) and others have claimed? If inertia is
to an asymptote that is considerably higher equated with low absolute rates of initiating
than the asymptotic rate in the old environ- structural change, it does. When inertia is
ment. viewed in comparative terms, as we argue it
Suppose that some organizations in the should be, the relationship of size to inertia is
population attempt structural change at t 1. more complicated than the literature has indi-
Consider two kinds of trajectories of death cated.
rates by age. The dashed trajectory in Figure 2 According to Assumption 7, the death rate
depicts the death rate of an organization that declines with size. This statement is equivalent
successfully implements the new structure at to the proposition that time-scales of selection
t3.. The dotted trajectory pertains to an organi- processes stretch with size, as we noted ear-
lier. One way to visualize such a relationship is
to consider environmental variations as com-
posed of a spectrum of frequencies of varying
lengths-hourly, daily, weekly, annually, etc.
/.. Small organizations are more sensitive to
high-frequency variations than large organi-
zations. For example, short-term variations in
the availability of credit may be catastrophic to
small businesses but only a minor nuisance to
giant firms. To the extent that large organi-
zations can buffer themselves against the ef-
:1 12 V3 =4 fects of high-frequency variations, their viabil-
ity depends mainly on lower-frequency varia-
Figure 2. Hypothetical death-rate functions for a
population of organizations exposed to a
tions. The latter become the crucial adaptive
shift in selection pressures at t1. The solid problem for large organizations. In other
decreasing curves represent the death words, the temporal dimensions of selection
rates of organizations that retain their environments vary by size.
strategies and structures. The rising solid We proposed above that inertia be defined in
curve represents the death-rate function terms of speed of adjustment relative to the
of organizations that undergo attempts at temporal pattern of key environmental
reorganization at t2. The dashed curve
changes. Although small organizations are less
represents the new (better adapted) strat-
egy and structure at t3. The dotted curve
ponderous than large ones (and can therefore
represents the death-rate function of or- adjust structures more rapidly), the envi-
ganizations that revert to their old strate- ronmental variations to which they are sensi-
gies at t4. tive tend to change with much higher fre-

45.32.171.230 on Thu, 20 Jan 2022 03:33:33 UTCC
quency. Therefore, whether the adjustment sponse to environmental threats and opportu-
speeds of small organizations exceed those of nities.
large ones compared to the volatility of rele- Although slow response does not necessarily
vant environments is an open question. One imply a lower rate of attempting structural
can easily imagine cases in which the reverse is change, it seems likely that this is the ten-
true, in which elephantine organizations face dency. As we noted above, a slow speed of
environments that change so slowly that they response increases the likelihood that the envi-
have relatively less inertia than the smallest ronment will have changed before an organiza-
organizations. tion can complete a process of reorganization.
Knowledge of this fact may dissuade organi-
zational leaders from initiating change and may
serve as a powerful objection to proposed
COMPLEXITY AND INERTIA
change by parties who benefit from the status
The complexity of organizational arrange- quo.
ments may also affect the strength of in- Complex systems have slow response times
ertial forces. Although the term complexity is not because they are any slower than simpler
used frequently in the literature to refer to the systems in detecting environmental threats and
numbers of subunits or to the relative sizes of opportunities but because the process of ad-
subunits, we use the term to refer to patterns of justment takes longer. In terms of the frame-
links among subunits. Following Simon (1962), work developed in earlier sections, this argu-
we identify a simple structure with a hierarchi- ment implies:
cal set of links, which means that subunits can
Assumption 10. Complexity increases the ex-
be clustered within units in the fashion of
pected duration of reorganization.
Chinese boxes (what mathematicians call a lat-
tice). That is, once a complex organization has begun
Hierarchical systems have the property that structural change, it will tend to be exposed to
flows (of information, commands, resources) a longer period of reorganization than a simpler
are localized: an adjustment within one unit organization attempting similar changes. As-
affects only units within the same branch of the sumptions 9 and 10 imply:
hierarchy. Simon (1962) argued that hierarchi-
Theorem 5. Complexity increases the risk of
cal patterns appear frequently in nature ("na-
death due to reorganization.
ture loves hierarchy") because the probability
that a complex assembly is completed in an A complete analysis requires consideration
environment subject to periodic random of the effects of complexity on rates of initiat-
shocks is higher when stable subassemblies ing change and of its effects on success in im-
exist, as in a hierarchy. More complex plementing change (as we discussed above in
structures do not have many stable subas- the analysis of the effects of size). We are not
semblies and thus are vulnerable to shocks yet ready to make any claims about effects of
during the whole developmental sequence. complexity on these rates. Still, the result in
Recent work on population ecology supports Theorem 5 suggests that population-ecological
Simon's argument. For example, May (1974), analysis might be more appropriate for ex-
Siljak (1975), and Ladde and Siljak (1976) show plaining change in populations of complex or-
analytically and with simulation experiments ganizations than in populations of simple ones
that ecological networks are destabilized when because complexity increases inertia by at
links (of predation, competition, or symbiosis) least one mechanism. This result, like that on
are introduced. Both the number of links and size, disagrees with the conventional wisdom.
the complexity of the pattern affect stability.
We think that similar arguments apply to
CONCLUSIONS
structural change within organizations. When
links among subunits of an organization are We have attempted to clarify when it is reason-
hierarchical, one unit can change its structure able to assume that organizational structures
without requiring any adjustment by other have inertia in the face of environmental tur-
units outside its branch. However, when the bulence. We have argued that selection pres-
pattern of links is nonhierarchical, change in sures in modern societies favor organizations
one subunit requires adjustment by many more that can reliably produce collective action and
subunits. Such adjustment processes can have can account rationally for their activities. A
cycles; change in one unit can set off reactions prerequisite for reliable and accountable per-
in other units, which in turn require adjustment formance is the capacity to reproduce a
by the unit that initiated the change. Long structure with high fidelity. The price paid for
chains of adjustments may reduce the speed high-fidelity reproduction is structural inertia.
with which organizations can reorganize in re- Thus if selection favors reliable, accountable

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organizations, it also favors organizations with in our revised theory. It is widely agreed that
high levels of inertia. In this sense, inertia can larger organizations are. more ponderous than
be considered to be a by-product of selection. small ones. We think that analysis of the ef-
Our argument on this point may be considered fects of size on inertia must consider several
an instance of the more general evolutionary kinds of transition rates. One is simply the rate
argument that selection tends to favor stable (in an absolute time scale) of attempting fun-
systems (see Simon, 1962). damental structural change. Another transition
Of course, the claim that selection favors concerns success in implementing change.
organizations with high inertia is not a warrant There is also the effect of attempting change on
for assuming that most organizations have high the death rate. We argue that small organi-
inertia. Selection pressures often may not be zations are not only more likely than large ones
strong enough to screen exhaustively for the to attempt change, but are also more likely to
"most fit" organizations. Moreover, most or- die in the process. Without further information
ganizational populations are replenished more on the magnitudes of the rates, it is not clear
or less continuously by an inflow of new mem- whether small or large organizations have
bers. Younger organizations tend to have less higher overall rates of successfully imple-
inertia than older ones, and new organizations menting change. Our analysis suggests that it is
are more likely to adopt structures that differ premature to conclude that ecological theory
greatly from those that would dominate any may be applied more readily to small than large
steady-state of the process subject to selection organizations. Clearly this matter deserves
and closed to new entries. more theoretical and empirical attention.
Organizational selection operates on many
dimensions besides reproducibility of
structure. If selection pressures on specific
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Structural Inertia and Organizational Change

Author(s): Michael T. Hannan and John Freeman

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MICHAEL T. HANNAN JOHN FREEMAN

Theory and research on organization-environment relations from a population

American Sociological Review 1984, Vol. 49 (April: 149-164) 149

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former levels. Organizations that have tions in changing environments. But, as we

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reorganization robs an organization's history of terms of shifts in age-dependencies in organi-

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