Organizational Adaptation

Area of Inquiry (1/3): Why Organizations Pursue Adaptation

The pursuit of adaptation is addressed with perspectives associated with the RBV, behavioral theory, and evolutionary economics. The main focus within this area of inquiry is on adaptation as a decision-making outcome, which emanates directly from the dominant theories leveraged (Cyert & March, 1963; Nelson & Winter, 1982).

Resources, search, and behavioral change as a theme often evokes organizations relating to their environments through the pursuit of new opportunities. In this respect, organizations as action generators (Starbuck, 1983) pursue adaptation by developing resources and capabilities through evolutionary processes (Ahuja & Katila, 2004) or accumulated experiences that promote opportunity recognition and action (Eggers, 2012). Likewise, search initiatives are particularly important to pursuits of adaptation since they exhibit learning capabilities that produce stronger performance (Walter, Lechner, & Kellermanns, 2016). Case in point, Ahuja and Katila (2004) illustrate how organizations develop innovative search processes that lead to resource creation by intentionally acting on situational triggers (technology exhaustion and international expansion).

In the behavioral stream, opportunity recognition implies a learning orientation based on balancing the “exploitation of old certainties” with the “exploration of new possibilities” (March, 1991: 71). In addition, cognitive schema direct managerial attention to particular aspects of the environment in order to spot innovative opportunities (Li, Maggitti, Smith, Tesluk, & Katila, 2013). Evolutionary economics adds a modest element of constraint to this discussion by highlighting the internal challenges of overcoming past histories to find new opportunities (Denrell & March, 2001). In this respect, Salvato and Rerup (2018) expose the regulatory actions that individuals mobilize within organizations to enact flexible routines when two conflicting goals constrain organizational adaptation.

Related research on routines, capabilities, and knowledge expands upon notions of opportunity recognition and focuses on the competitive benefits of adaptation through enhanced resource positions or improved strategic decisions. It is within this theme that strategy scholars elaborate upon the microfoundations of competitive advantage (Helfat & Martin, 2015; Teece, 2007) and how cognitive capabilities allow organizations to move quickly into new markets to pursue new technologies. Eggers and Kaplan (2009) demonstrate that the focus of attention not only helps an incumbent organization to seize technological opportunities, but its interaction with organizational characteristics also determines the speed of entry in a novel sector. For them, “managerial cognition is a dynamic capability that can shape adaptation by established firms” (Eggers & Kaplan, 2009: 461). Behavioral perspectives rely on the assumptions of bounded rationality and satisficing behavior in search of adaptation (Cyert & March, 1963). Building on this tradition, subsequent research suggests that the careful management of communication channels that structure attention (Ocasio, 1997) and the ambidextrous structures that balance exploration and exploitation (Benner & Tushman, 2002) can improve decision making and facilitate adaptation. Additionally, evolutionary theories expand upon notions of overcoming internal routines to discuss how knowledge can be reproduced to translate an advantage from one setting to another (Amburgey & Miner, 1992). In the franchisor–franchisee context, Winter, Szulanski, Ringov, and Jensen (2012) studied how a franchisee, by adjusting its routines to nonstandard products, increased its odds of failure, providing a counterintuitive example of a setting where strict routine replication provides a survival advantage, thus encouraging scholars to “revisit . . . prevalent normative advice that favors ex ante adaptation” (p. 681).

Taken together, studies within these first two themes emphasize the intentional and relational aspects of adaptation but at times come accompanied with a view of organizations as having the agency to adapt to their environments without much resistance (which potentially presumes preordained effectiveness in decision making—raising a difficulty stemming from a “functionalist adaptation fallacy”). This hyperagentic view results in organizational convergence often being inferred through either the presence of strong performance (an assumption that performance equates to adaptation, raising a difficulty in accounting for “adaptation without strong performance”) or the observation of consistent iterative adjustments (a difficulty being that routine, “continuous change” is not always indicative of adaptation).

As studies of the pursuit of adaptation move to higher levels of analysis, the emphasis shifts toward adaptation as conditioned by both internal and external factors. In studies under the theme governance and stakeholder management, constraints on the adaptation process emerge from boundedly rational actors that interpret their decision environments heterogeneously (Gavetti & Levinthal, 2000). Along these lines, strategy scholars found that adaptation through strategic alliances is highly conditioned by initial successes (Doz, 1996) or that strong internal belief systems may crowd out the capabilities needed to pursue new technologies. Tripsas and Gavetti (2000) showed that Polaroid, despite possessing the knowledge and resources (e.g., patents on digital imaging), could neither innovate nor react to the digitization of the photo industry (note, however, that this kind of research on the antecedents of nonadaptation cannot generalize to explaining adaptation; pointing at a difficulty of “asymmetric causality”). Furthermore, whether or not organizations pursue new opportunities also depends on the ability to integrate managers’ attention across hierarchies (Joseph & Ocasio, 2012) and on the appropriate identification of environmental changes as opportunities or threats (Barr, Stimpert, & Huff, 1992; Gilbert, 2006). Barr (1998), in a study of the pharmaceutical industry, shows that familiarity with an event shapes managerial interpretations and that strategic responses are “not undertaken until the stimuli is interpreted as having a direct impact on the performance or well-being of the organization” (p. 660). In this way, the agency of organizations becomes increasingly influenced by the (perceived) dynamics in the environment (raising a difficulty as “adaptation depends on environments”).

In addressing why adaptation is pursued, the heavy emphasis on decision making and agency has pushed the examination of competitive and institutional pressures into the background. External triggers for change that induce varied responses are emphasized by strategy scholars. For example, in hostile financial environments subject to intense international competition, organizations that are triggered by extraorganizational factors but respond by incremental breaks with past behaviors were able to sustain superior performance (Stopford & Baden-Fuller, 1994). Likewise, in Vergne and Depeyre (2016), configurations of cognition and capabilities conditioned adaptive responses of U.S. defense organizations responding to the 9/11 attacks, but adaptation and performance, although positively correlated in their study (Pearson’s r = .53, p < .05), form distinct constructs (with such distinction potentially circumventing the difficulty of “adaptation without strong performance”). Simultaneously, the authors identify that diversified defense organizations intentionally avoided adaptation toward military endeavors in favor of alternative lines of business, such as commercial information technology (the difficulty here being that organizations can engage in “strategic nonadaptation”).

Area of Inquiry (2/3): What Internal Factors Preclude or Enable Adaptation

Whether adaptation is pursued relates to the strategic intent of organizations and their ability to change; however, streams most closely linked to organizational theory interpret adaptation differently, often with an emphasis on adaptation as an outcome. That’s why the theoretical shift to contingency theory and organizational sociology conceptualizes adaptation as either performance (Lawrence & Lorsch, 1967), legitimacy (J. Meyer & Rowan, 1977), or survival (Hannan & Freeman, 1977), with a corresponding focus on what organizations can modify internally to achieve these outcomes under constraints.

The theme of resources, search, and behavioral change approached from a contingency perspective emphasizes the search for the appropriate structural fit between an organization and its environment. For instance, Hill and colleagues (1992) use the concept of fit as a critical moderator explaining the classical relationship between (related and unrelated) diversification and financial performance. Contingency research underscores the functionality of fit and describes organizations as adapting their structures to gain and regain fit (Donaldson, 1987). As such, “regaining” fit emphasizes adaptation as both relational and conditioned in that alignment to environments produces stronger performance only under certain circumstances (Cardinal, Turner, Fern, & Burton, 2011). In these cases, adaptation is implied by performance, again potentially conflating the two (difficulty: “adaptation without strong performance”).

Sociologists specify how internal factors connect the organization with external demands. Neoinstitutionalists demonstrate that organizations seek conformance with stakeholder expectations (DiMaggio & Powell, 1983), while network perspectives emphasize the role of embeddedness in social ties that both enables and constrains the flow of information (Uzzi, 1997). Resource dependence perspectives describe survival as an adaptive response that results from mutual dependence, which Xia (2011) outlines through a study of cross-border alliances that have greater survival odds when cross-border trading between countries is stronger. In contrast, while organizational ecologists initially downplayed the role of agency in favor of the accountability and reliability of organizational forms (Hannan & Freeman, 1984), more recent studies suggest that organizations have some capacity to search and learn in order to reinforce survival odds (Le Mens, Hannan, & Pólos, 2011), with survival itself serving as a proxy for convergence between organizations and their environment (Dobrev, Ozdemir, & Teo, 2006). If survival can at times reflect adaptation, it can also reflect the absence or multiplicity of selection pressures that apply to organizations. In an integration of neoinstitutional and resource dependence perspectives, Durand and Jourdan (2012) highlight how organizations in the film industry adapt their behavior to minority players’ demands in an effort to rebalance power relationships with dominant players (thereby revealing the difficulty that “adaptation depends on competition”).

The theme of routines, capabilities, and knowledge emphasizes adaptation as intentional and conditioned, with a focus on the deployment of environment-specific organizational templates. For instance, contingency perspectives highlight the superior performance achieved when particular export strategies are deployed in suitable markets (Aulakh, Rotate, & Teegen, 2000) or through appropriate uses of managerial discretion (Peteraf & Reed, 2007). Siggelkow’s (2002) in-depth case study of Vanguard exposes important processes around the organization’s core competencies and their interdependencies, suggesting that an organization’s ability to adapt may not be observable until opportunities present themselves (difficulty: “unobservable adaptive ability”). Organizational sociologists within this theme demonstrate the benefits of developing capabilities by maintaining social ties (McEvily & Zaheer, 1999) or by deploying internationalization strategies to specific institutional contexts (K. Meyer, Estrin, Bhaumik, & Peng, 2009). In addition, categorization scholars demonstrate that organizational templates and identities can be strategically targeted to various and specific audiences to impart value (Lo & Kennedy, 2014; Paolella & Durand, 2016; Wry, Lounsbury, & Jennings, 2014). VSR models also depict organizations as agents of change in contexts where distinct selective environments pull organizations in contrarian directions (A. Henderson & Stern, 2004). In these lines of work, performance, positive evaluations, and survival are used to indicate adaptation in response to demands emanating from multiple environments or audiences. Clearly, the assumption that organizations are adapting, at any given point in time, to one single environment is quite problematic (difficulty: “environmental multiplicity”).

The theme of governance and stakeholder management further emphasizes the role of environments on adaptation. Contingency perspectives focus on enablers of adaptation by elaborating on the importance of deploying appropriate business models in specific environments (Zott & Amit, 2008), theorizing on the importance of congruence between organizations and environments (Priem, 1994; Randolph & Dess, 1984), and identifying the benefits of alignment for competitive advantage (Powell, 1992). Conversely, the institutional perspective, while predominantly focused on organizational fields, examines the ways in which organizations struggle to make internal changes and deal with mimetic, coercive, and normative isomorphic pressures (DiMaggio & Powell, 1983). Examples are reflected in interactions between organizational identities and regulatory compliance that may constrain adaptation (Fiss & Zajac, 2006; Fox-Wolfgramm, Boal, & Hunt, 1998) and in mimicry for organizations seeking legitimacy when entering new markets (Haveman, 1993). Along this vein, neoinstitutionalists see adaptation as conditioned by the evaluations of stakeholders, with its convergent character coming from constrained choices to conform to institutional contexts (Greenwood & Hinings, 1996). Murillo-Luna et al. (2008) specifically show that proactive organizational behavior is influenced by external pressures in the context of sustainability initiatives. Conformity and isomorphism, dictated by institutional logics, both underpin convergence toward organizational templates (Greenwood, Díaz, Li, & Lorente, 2010), again indicating that some decisions (acts of conformity) reflect adaptation (difficulty: “functionalist adaptation fallacy”). VSR models emphasize convergence through homeostasis, where internal and external selection pressures regulate strategic change, which can ultimately manifest in coevolutionary lock-in, as Burgelman (2002) outlines in his study of Intel (difficulty stems from the likely presence of “coevolution across levels”).

Area of Inquiry (3/3): What Environmental Factors Urge Adaptation

As external pressures compel organizations to adapt, the agentic perspectives prominent in accounts discussed previously fade and wane. Contingency theory, organizational sociology, and VSR models again feature prominently in this area of inquiry; however, the focus of attention shifts to accounts of the forces in the environment that kick-start the adaptation process.

Competitive and institutional pressures characterize environmental factors urging adaptation, with fit leveraged as a primary construct in contingency theories, albeit through multiple definitions. Venkatraman (1989) identified six distinct forms of fit: as mediation, moderation, matching, gestalt, deviance, and consistency. The inclusion of deviance in this list opens opportunities to analyze economic and institutional environments as potential rejecters of organizational change. Along the line of change being rejected, Chung and Beamish (2010) discuss the ineffectiveness of continuous ownership changes among international joint ventures, which produce instability and poor performance among partners.

For neoinstitutionalists, organizations have limited agency due to social norms and expectations. Haveman and Rao (1997) track the evolution of the early thrift industry through a study of entries, exits, and organizational form changes to demonstrate the interplay between selection forces in the technical environment and adaptation within institutional constraints. A key finding is that “over time, the effect of form change became beneficial” (Haveman & Rao, 1997: 1633), thereby pointing to a difficulty in modeling “adaptation as transitory” and dynamic, as opposed to stable and discrete, in extant research. VSR models provide similar depictions, although in many cases strategic choice and environmental selection are seen as interrelated (Levinthal, 1991; Lewin & Volberda, 1999). Such views suggest that as organizations change, they simultaneously influence the economic and institutional environments in which they reside, adding pressure to neighboring peer organizations (Durand, 2001; Lewin & Volberda, 1999; Spisak, O’Brien, Nicholson, & van Vugt, 2015) and bringing to bear the idea that organizations and environments influence one another (difficulty: “coevolution across levels”).