Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
Validity Assessment of the Co-evolution Theory in Unstable
Political Environment, With Particular Reference to the
Central Bank of Egypt
Alaa Mohamed Nabil Gamie1
The aim of this research is to assess the validity of the co-evolution theory by studying
the central bank of Egypt’s (CBE) strategy evolution in relation to its political,
th
economic and social environment in the aftermath of the 25 of January 2011
revolution. Thus, the present research attempts to answer each of the following
questions: “Does the corporate strategy co-evolve with the environmental conditions
in an unstable political environment? What are the strategic decisions adopted to face
the external pressures? Is the co-evolution process sequential or synchronous?” The
primary model has been modified to achieve the final one explaining the co-evolution
process between the CBE and its environment to face the environmental and
institutional pressures. The final model highlighted the imbalance of the co-evolution
process, indicating that the effect of the environment is stronger than the
organization’s response to the environmental and institutional pressures.
1- Introduction
As an open social system, any business is influenced by its external environment which
is extremely turbulent and presents different sources of pressures. According to PREST
model of Lemaire (2000.2013), the environment generates three types of pressures: the
Politico-Regulatory pressures, Economic-Social and Technological. This research
focuses on Politico-Regulatory pressures and Economic-Social pressures, i.e., the
political, economic and social environment. The political changes called, "the Arab
Spring" especially the 25th January 2011 Revolution in Egypt, are the substance of this
research. The Arab political environment has recently become the least predictable
elements in the company's macro environment.
This research aims at verifying the relevance of the coevolution theory by studying the
evolution of the strategy of the Central Bank of Egypt (CBE) in relation to its political,
economic and social environment in the light of the revolution of January 25 th of 2011 .
The period of the study began in 2005 in which elections were judged as fraudulent by
the people, through 2010, which saw the martyr Khaled Said who represented the first
spark of the Egyptian revolution. The year 2011 is the turning point, in which the
1
Miss. Alaa Mohamed Nabil Gamie, Demonstrator (Teaching & Research Assistant), Department of
Business Administration (French Section), University of Alexandria, Alexandria, Egypt. E-mail:
alaamoh22@hotmail.com
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Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
Egyptian people revolted and he gathered in Tahrir Square to realize their dream:
"bread, freedom, social justice and human dignity." The years 2012-2014 represent the
"post-revolution" period, Egypt has been under military rule for half a year, followed by
the Muslim Brotherhood who took power for one year until 30th of June 2014 "the day of
revolution "which ended with the fall of President Morsi.
The events of the revolution - considered an institutional change - represented a shock
to the Egyptian economy; the central bank was forced to react to these environmental
and institutional pressures to save the Egyptian economy. This type of interaction
between the CBE and its environment is theoretically represented by the ESO model
(Milliot, 2013 and 2014). The ESO model is a tripartite model inspired by various works
and was developed by Milliot (2013 and 2014), who explains the interaction between
the external environment (E = environment), action plans (S = strategies) and capacity
of implementation (O = organization). This research is interested in the study of the
bidirectional relationship between environment and business strategy which is
characterized by two distinct managerial attitudes to external forces. The first is based
on the principle of adequacy (Chandler, 1962; Learned et al., 1965) which invites
decision makers of the company to respond or adapt to PREST pressures. The second
is based on the principle of intent (Hamel and Prahalad, 1989) which shows that a
strategic choice and its implementation may modify one or more aspects of the
environment. According to the ESO model this interaction is recorded in a sequential
approach. On the other hand, Lewin joined the coevolution in a synchronous process by
defining it as "organizations coevolve with respect to their environments while at the
same time environment coevolve with respect to the organization." From here, the
research question appears, Is the coevolution a sequential or synchronous process?
The research question is: "Does the strategy of companies coevolve with environmental
conditions in an unstable political environment? What are the strategic decisions taken
in relation to external forces? "
2- Literature Review
The study of the two-way relationship between the political, economic and social
environment in Egypt that has seen a lot of disruption in recent years, on one hand, and
the strategic change of the central bank of Egypt (CBE), on the other, is located in a
tripolar theoretical framework. This mutual relationship can be explained by the coevolution theory. Co-evolution is considered as an "organization-environment" system.
Lewin considered the co-evolution process as a synchronous process by defining it as
"organizations coevolve with respect to their environments while at the same time
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Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
environment coevolves with respect to the organization." The unidirectional vision of
cause and effect was therefore replaced by two-way vision of mutual causality. We will
use in our research two support theories to study this two-way relationship: the “neoinstitutionalism” theory which represents the effect of political, economic and social
environment on the strategy of the CBE, and the “strategic choice” theory which
represents the strategic responses of the CBE to face environmental pressures.
The January 25th revolution is a turning point contributing to institutional and strategic
change. This research examines the coevolution over a period of time that continued for
10 years. Since the coevolution is a cycle of action and reaction in seeking stability and
formatting, the CBE tries, therefore, to comply with the dominant institutions and
institutionalized rules. This “conformism” gives it legitimacy and subsequently stability
(DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Institutions and institutionalized
rules were changed due to the revolution which caused radical change in the ideas and
ideologies of the Egyptian society. Therefore, the bank was forced to change its
strategies to face institutional pressures.
2.1)
Theories Utilized in Both Periods of Research
 Pre-Revolution Period
The Economic neo-institutionalism (North, 1986) and the strategic choice (Child, 1972;
Oliver 1991) represent the most appropriate framework for studying the interrelationship
between environment and the CBE during the "pre-revolution" period. Before the
revolution, the institutions have been shaped primarily by the ideology of the
government, i.e., by the most powerful actors in the political regime and businessmen.
These powerful actors may be considered as institutional entrepreneurs who establish
and change the rules of play (game rules). During this period, the role of society and the
strength of public opinion have been neglected. The idea of “legitimacy” in the eyes of
society had no importance. The CBE has gained stability through its membership in a
well-developed and implemented institutional framework. Moreover, the bank has
played a crucial role in the political stability of the institutional environment, because it
was transformed to an organization whose overall objective is the perpetuation of these
institutions. On the other side, the strategy of the central bank is not the simple product
of the institutional environment. As part of the coevolution and strategic choice, the
organization adapts not only to its institutional context, but it also plays a role in
modeling this context. The CBE, as a powerful organization, tries to integrate its
objectives and procedures directly into the environment in the form of institutionalized
rules using different strategic responses.
The institutions, in this period, were tools of enhancing "system’s power," i.e, they
appear as neutral routines and practices that favor certain agents and disadvantage
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Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
others. This has contributed to the revolution that represents institutional change. The
society revolts because it considers that the institutionalized rules and institutions have
become problematic. Economists see that change happens when institutions fail to
represent effective solutions to governance problems, while other social institutionalists
reject this explanation and are interested in how the institutions become pathways that
lead to these failing solutions.
 Post-Revolution Period
The sociological neo-institutionalism (DiMaggio and Powell, 1983; Meyer and Rowan,
1977) and the strategic choice (Child, 1972; Oliver 1991) are the framework with which
we can study the mutual relationship between the institutional environment and CBE
during the "post-revolution" period. After the revolution, the Egyptian people have
imposed their ideology and their standards as new institutionalized rules. Public opinion
and the society have gained more importance and represented new sources of
institutionalized rules. During the transition period, the CBE has been very disruptive.
The collapse of the institutional framework within which the CBE was rooted represents
one of the main reasons for the internal instability of the bank. To restore stability, the
CBE has been forced to be legitimate in the eyes of society and public opinion shaping
the new institutional framework. This legitimacy is gained through the isomorphism and
integration in this new institutional matrix which requires a strategic change. After the
revolution, the CBE faced conflicts and paradoxes due to the contradiction between the
old and the new institutional framework and the institutional matrix that was established
by the revolution, and also by the pluralistic institutional character of the environment
which forced the CBE to react using different strategic responses (Oliver, 1991).
2.2)
A primary Model of the Two-Way Relationship Between the CBE and Its
Environment
The figure below shows the model based on the literature which can explain the
bidirectional relationship between the political, economic and social environment, on
one hand, and the CBE and its strategic responses to institutional pressures, on the
other. This model is considered as primary; it does not confirm the relevance of the
coevolution theory and does not respond to the question “is coevolution sequential or
synchronous?". It simply guides the analysis of the situation of the CBE in order to find
the answer of the research question.
Egyptian society is divided into three main sub-environments: (a) The political
environment that represents the state, the government, the constitution, laws and the
scope of the revolution. (b) The economic environment which represents the backbone
of the state as it includes the economic policies and businessmen. (c) The social
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Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
environment which represents civil society, its ideologies, and public opinion.
Coevolution is characterized by multi-dimensionality, i.e., there is a kind of coevolution
within the national environment between the different sub-environments. In addition,
there is a coevolution between the two entities, i.e., the environment and the central
bank. This study represents a nested prospect of coevolution, as it studies the effect of
the interaction between sub-environments on one hand, and the coevolution between
the bank and the national environment, on the other. These bidirectional relationships
represent a nonlinear cycle, i.e., each entity influences the other one and at the same
time it is influenced by other entities that are in the system. This state of affairs
represents a condition of "organic solidarity" rather than "mechanical solidarity", using
the famous Durkheimian concepts.
The strategy in this research is divided into two concepts: (a) The objectives of the CBE
and (b) the instruments used, called strategic actions to achieve these goals. The
distinction between dependent and independent variables in a coevolutionary research,
according to Lewin and Volberda, is less significant. This research, considered
coevolutionary, applies the same concept with a simple modification; the absolute
distinction between dependent and independent variables in coévolutionary research is
less significant. In other words, the same variables may have both names. As part of
our research, we study, first, the effect of economic, political, social and institutional
environment on achieving the objectives of the CBE, meaning that environmental forces
and institutional pressures will be considered as independent variables, while the
objectives of the CBE are considered as dependent variables. The interactive effect
between the various environmental forces (considered as independent variables in the
first phase of research) produces an additive effect on achieving each objective of the
CBE. Second, the degree of achievement of objectives requires the CBE to react to
environmental and institutional pressures. In other words, the degree of objectives
realization of the CBE determined by its environment influences the strategic actions of
the bank which in turn influences the economic, political and social environment. In this
latter perspective, the objectives of the CBE become independent variables that
influence the environment, which turns to a dependent variable, through strategic
actions of the CBE which are considered as mediating variable. Strategic actions were
called otherwise the instruments used by the CBE in order to achieve the objectives
defined as the control and manipulation of environmental forces.
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Figure (1): Bidirectional
relationship
between
the
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Hotel Republique, Paris, France
CBE and its13political,
economic
andPlaza
social
ISBN: 978-1-922069-82-5
environment
Environment
Central bank of Egypt
CBE’s objectives:
Economic
environment
• Corruption
• Businessmen and
powerful actors
• Financial
independence
Social
environment
• Ideas, ideologies
and standards
• Institutional
change
• Terrorism
• Public Opinion
Institutional environment
• Independence of the CBE vis-à-vis the
government
• Corruption
• Political instability
• Institutional change
Strategic responses
• Complying
• Negotiation
• Avoidance
• Challenge
• Handling

Stabilizing general price
level and a low inflation
rate

Avoidance of the collapse
of the Egyptian pound
exchange rate

High level
reserves

Banking system safety
of
foreign
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Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
3- The Methodology and Model
This research is based on the “constructivist paradigm” by adopting the
interpretation process of a phenomenon through a case study. The case study is
defined by Eisenhardt (1989) as a research strategy that focuses on
understanding the dynamics exhibiting within the organization. According to Yin
(1989), the case study is a suitable method when the researcher wants to cover
contextual conditions and not just study the phenomenon, which is the case of
our research. This research presents an idiographic character since the
phenomena are studied within a situation. The coevolution between the strategy
of the CBE and the economic, political and social environment is derived from the
January 25 revolution context. The development of knowledge will be supported
through hybrid exploration. It is to carry back and forth between observations and
theoretical knowledge throughout the research (Thietart, 2007). This research is
interested in understanding in depth the coevolution process especially by
examining a paradox in literature. The research adopts an abductive approach,
since is based on the knowledge generated from literature to make sense of
empirical observations preceded by round trips between the field and the theory.
 Data collection (the investigation strategy): The nature of the data collected is
both qualitative and quantitative data to strengthen the study according to the
principle of triangulation. The qualitative approach takes into account the
specificities and differences of context (and Savail Zardet, 2004) and can
promote dynamic observation of a phenomenon. In the meantime, the
quantitative approach is commonly used because most of the objectives of the
CBE is measurable. Internal secondary data will be collected through
documentation, and external secondary data sources will be collected through
the Internet, prints and articles published by the CBE.
 Data analysis: Since time is a crucial component in the research, longitudinal
analysis is the most appropriate method to study the evolution of coevolution
process over time. According to Pittegrew (1990) this type of study allows to
analyze the multiple faces of the change and its influences. Wacheux (1996)
defines a longitudinal approach as a spatial and temporal analysis of a complex
phenomenon by conditions, events, actors and implications. Time is considered
as an important variable, operationalized in chronological order. The time interval
helps us to study the effect of the political break on the coevolution process. The
total duration of the research is divided into two main intervals: pre-revolution
(Before Action) 2005-2010, post-revolution (After Action) 2011-2014.
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Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
 Hybrid research: This research is about the “process”, since it is interested in
understanding, description and analysis of the coevolution process in the CBE
due to the revolution in Egypt from 2011 until 2014. More simply, it aims to
describe and analyze how the strategy evolves over time. To follow the progress
of the strategy of the CBE and its environment, it breaks down the elements. This
decomposition is considered a reflection on the content. It is therefore necessary
to know, from a research on the content, the categories that constitute a process
before conducting a procedural study (Thietart, p.136). Therefore, this research
is hybrid.
4- Findings and Discussion
The Central Bank of Egypt (CBE) is the institution that is at the top of the banking
system. It is responsible, according to the Constitution and Law No. 88 of 2003 of
the banking and monetary system, for the development and implementation of
monetary and banking and credit policy that ensures price stability, which is
considered a main objective of monetary policy. Since the outbreak of the
revolution of the 25th of January 2011, the CBE has served under exceptional
conditions that extend to the transition period under the Supreme Council of
Armed Forces (SCAF) (2011-2012) and even after the transfer of power to the
Islamists (2012-2013).
Faced with this economic disruption, the CBE was forced to change its monetary
management strategy to cope with environmental change. It should be noted that
the political, economic and social aspects of the revolution have affected either
directly or indirectly the strategy of the CBE.
As part of the research, the objectives of the CBE are subdivided into 4 goals to
achieve:
a) Stabilizing general price level and a low inflation rate: The CBE is committed, in
the medium term, to achieve low inflation rate and a general level of price
stabilization that build confidence and maintain high investment rate.
b) Avoidance the collapse of the Egyptian pound exchange rate: The CBE is
committed to support and maintain the exchange rate of the Egyptian pound
against the dollar which represents one of the most important aspects of the
general price level stability.
c) A high level of foreign reserves: The CBE is committed to maintain an adequate
level of foreign exchange reserves and gold to fight against external shocks and
ensure the availability of consumer goods and means of production (Strategic
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Proceedings of Annual Paris Business Research Conference
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ISBN: 978-1-922069-82-5
Products), in addition to an adequate level of international reserves which
provides stability of the exchange rate of the national currency.
d) The safety of the banking system: The CBE follows the guidelines adopted by the
Basel II Committee to promote the safety and soundness of banks and the
banking system. The bank collateral is measured by several indicators such as
the solvency ratio, the weight of bad loans in the total loan portfolio, the level of
hedging devices loan losses, and the return on equity and deposit rates.
The environment is considered by the new institutionalism, as cultural rather than
technical or economic. Organizations react to conform to the institutional
pressures by imitating the best known practices in society. The forces and
institutional pressures are generated by the institutions defined by North as rules,
standards and reinforcing characteristics that determine economic performance.
Compliance (conformism) with institutional rules provides a certain legitimacy
and stability to the organization which limits its different strategic choice.
a)




Through literature forming the theoretical framework of this research and
discourse on the current situation in Egypt, the operational definition of
environmental and institutional pressures include:
Independence of the CBE vis-à-vis the government: we judge the degree of
independence of the CBE according to 4 criteria:
The independence of leaders: CBE is independent when the government does
not intervene in the process of the appointment of officers. The unlimited term of
office reflects a weak independence vis-à-vis a strong government because the
governor and leaders are revocable at any time. Similarly, independence
increases as the mandates duration of the CB leaders does not coincide with that
of the politicians. In addition, avoidance of conflict of interest increases the
independence of the CBE, in other words, the lack of separation between the
Bank's management power and monetary policy can never generate a strong
independence.
The operational independence: It is the freedom of the CBE to determine the
objectives of monetary policy and the instruments used to achieve them.
Financial independence: The CBE is independent when it is not obliged to
finance public spending.
Independence "de facto": This is the ability of CBE to spread its message to the
financial community, the political class and public opinion, regardless of the
government discourse.
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Proceedings of Annual Paris Business Research Conference
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ISBN: 978-1-922069-82-5
b) Corruption: The World Bank defines corruption as "the abuse of public power in
order to achieve private ends." The concept of public power in this definition
limits the application of corruption in the government sector. That is why
Transparency international (TI) proposed a more comprehensive definition as it
defines corruption as "the abuse of power conferred to achieve private ends”.
The corruption in Egypt has several reasons including:
 Non-respect for the rule of law. There is often the issue of laws favoring certain
groups at the expense of the public interest. The implementation of the law and
court decisions were often governed by political influence and financial capacity
of the individual.
 Bureaucracy and complex procedures have caused the spread of subornation as
it gave the opportunity to certain employees to extort citizens.
 The difficulty of understanding the general budget and the special funds are the
main reasons for the weakness of popular control over budgets and reports
published by the government.
 The lack of adequate and effective protection for witnesses and informers of
corruption and the lack of a comprehensive legal framework to prevent conflicts
of interest gave the opportunity to a large number of officials to exploit their
positions in order to realize profit.
c) Institutional change: The outbreak of January 25th revolution, has created a new
institutional framework based on new rules and standards. The new institutional
slogan called "bread, freedom, social justice and human dignity" refuses
corruption, conflict of interest and lack of transparency and forces the CBE to
comply with its rules in order to gain legitimacy and stability.
d) Political instability: the outbreak of the revolution of 25th of January represented a
political and economic earthquake which has negatively affected the security
situation and tourism.
The coevolution theory has not provided sufficient explanation of our case study:
The CBE has failed to shape the economic, political and social environment in
favor of its interests. The influence of the institutional and political environment
has greatly limited the strategic actions of the CBE and the institutional
framework developed during the pre-revolution period dominated the economic
and political situation even after the outbreak of the revolution of 25 th of January.
This failure is interpreted by the strong dependence of the CBE vis-à-vis the
political sphere. The written constitution after the revolution has not strengthened
the independence of the CBE, because it was written by a founding committee
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Proceedings of Annual Paris Business Research Conference
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ISBN: 978-1-922069-82-5
whose most members are Islamists who do not represent the revolutionary
thought (trend) and the new institutional framework formulated by the revolution
of 2011. We note, in our research, that the CBE was under the indirect
leadership of the government. The same could be said about performance of the
CBE, even after the outbreak of the revolution of 25 th of January. This has led to
the increase of government intervention in the conduct of monetary, banking and
credit policy, and supervision of the banking system. The CBE has also lost its
financial independence as it became the main funder of the budget deficit. The
level of funding provided by the CBE exceeded the maximum determined by law.
The erosion of the independence of the CBE reflects the concept of determinism
explained by Child (1997); the decision makers at the CBE do not have complete
freedom in decision making. They are obliged to follow certain paths. Institutional
and political pressures were therefore stronger than managerial intentionality
highlighted by Lewin and Volberda. This conclusion is also confirmed by the
PREST model (Figure 2), which explicitly presents the process of coevolution
with the arrows that come from the environment to the organization presenting
the pressures and environmental forces, and those coming out of the
organization to the environment included the organization's responses to
environmental pressures. We also note that the arrows that represent
environmental pressures are drawn in bold, while those representing the
reactions of the organization are dotted, indicating that environmental forces on
the organization are stronger than the power of the organization to shape the
environment to its advantage.
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Proceedings of Annual Paris Business Research Conference
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ISBN: 978-1-922069-82-5
Figure (2): PREST model
Political and
regulatory
pressures
Technological
pressures
competition
Reference
area
redeployment
Adaptation
Social and economical pressures
Source: Lemaire (2000, 2013)
The coevolution process is characterized by the path dependence which is a
form of determinism; the response of the bank to environmental and institutional
pressures depends on its history. The strategic choice process is also
characterized by path dependence because some policy decisions made in a
given time may limit the options available to policymakers in the future and may
also limit the future ability of the organization to change its strategy. The CBE
was forced to finance the budget deficit of the state, regardless of the fact that
this decision puts it in a critical situation. This financing action is explained by the
environmental determinism; the CBE has been exposed to external pressures
represented by a government that intervenes in its affairs and destroyed its
independence. Therefore, the CBE has become increasingly dependent on the
currency issue to provide government funding, which increased inflationary
pressures. The decision to mint money is a continuation of the chain of
determinism; this decision is explained by the determinism of progress i.e., the
decision taken at a given time (the budget deficit financing) limited the options
available in future. The path dependence variables do not figure in the
relationships of hard sciences. In addition, Douglas North (1986) emphasized the
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ISBN: 978-1-922069-82-5
path dependency in the definition and evolution of institutions. Therefore, history
is a key factor in our analysis.
Human relationships are more complicated than the relationships between
biological organisms. Human relations are governed and limited by culture,
norms, ideologies and ideas of individuals. In addition, individuals sometimes
create bureaucratic systems socially organized that limit its actions. Their cultural
values and institutionalized norms can be internalized and therefore the choice of
mangers will be limited by their own interpretations and beliefs rather than
external constraints. By observing the annual reports of the CBE, we note that
the concept of compliance with Basel II standards is indicated only in the latest
report of 2012/2013 developed under the leadership of Mr. Hisham Ramez, the
current governor of the CBE. In this context the role of the leader of the
organization and his ideas appears clearly in how to respond. The reporting
language change under the leadership of a new governor which indicates that
the strategic choices of managers are limited by their own interpretations and
beliefs, which reinforces the relevance of the use of strategic choice theory that
emphasizes the roles of leaders and managers who have the power to influence
the organization. In addition, individuals' decisions are guided by their limited
rationality (Simon 1978) i.e. the CBE announced the establishment of a new
mechanism to provide foreign exchange to banks in frequent auction "FX
Auctions" in which the price is determined depending on supply and demand. It
was supposed that this mechanism would contribute to an exchange rate that
would achieve the competitiveness of Egyptian exports, attraction of foreign
exchange and limited import demand. However, currency auctions represent in
reality the starting signal speculations about the devaluation of the Egyptian
pound value, as they have caused the emergence of the black market exchange.
The capacity of the CBE to shape the environment to its advantage was
therefore influenced by the limited rationality of the decision makers.
Organizational relationships are also characterized by the conflict of interest: The
CBE is rooted in a political and economic environment composed of several
organizations, stakeholders and politicians whose interests overlap, therefore the
CBE's strategic choices are limited by this intra-organizational political process.
The conflict of interest is clear in the post-revolution period: The CBE was
between two opposing forces, the people and its new institutional framework that
rejects corruption, defends the rights of the poor and promotes social justice, on
one hand, and the old dominant institutional framework rooted by politicians and
powerful businessmen that promotes wild capitalism, on the other. The current
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Proceedings of Annual Paris Business Research Conference
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ISBN: 978-1-922069-82-5
results indicated an increase in the poverty rate in Egypt during the period 20002013, which explicitly shows the uneven distribution of revenues and the
increase in the consumer price index, as a result of the submission of the CBE to
the old institutional framework. However, the CBE is obliged to comply with the
demands of the revolution in order to gain legitimacy in the eyes of the people.
So it hid the nonconformity behind a facade of compliance with the manipulation
of the inflation rate. The technique of manipulating the inflation rate is simply to
reduce the share of products whose prices rise and increase the share of
products whose prices fall. This ultimately contributes to an inflation rate
calculated below the actual inflation felt by consumers in their daily lives. The
CBE follows, according to this kind of reaction to the institutional and sociological
pressures, the technique of “concealment” (oliver 1991) as a strategic response.
In addition, the CBE’s rooting in an institutional context dominated by powerful
corrupt politicians forced CBE to extend loans without guarantees to
entrepreneurs near the regime. The strategic choice of the CBE is recognized
and made by a process whereby the holders of authorities react with external
stakeholders. We must pay attention to the compliance of choice to their
expectations. This decision process is also known by the intra-organizational
political process (Child 1997) which explains the determinism of action which
means that decision-makers (the power holders) do not have complete freedom
in their decision making.
A political interpretation can also explain the failure of the CBE to shape the
environment: The 25th of January revolution failed to take power in order to
impose its institutional framework with the force of authority.
At the same time, we cannot ignore the success of the CBE - even if partial - to
impose its power. It was noted that the annual reports of the CBE since the
outbreak of the 2011 revolution are more detailed and information is presented
more clearly which enhances transparency. The CBE also decided to remodel
the board of directors to avoid conflicts of interest. Finally, the CBE has liquidated
the development fund of the banking system which represented one of the main
forms of corruption. These strategic choices are explained by the fact that the
CBE is rooted in a highly institutionalized environment (Meyer and Rowan)
governed by institutionalized rules adopted automatically and supported by public
opinion or the force of law.
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Proceedings of Annual Paris Business Research Conference
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5. Summary and Conclusion
Based on our results, we can conclude that the coevolution theory does not
effectively and adequately explain the two-way relationship between the CBE
and its political, economic and social environment because the environmental
effects on the organization are sometimes stronger than the reaction of the
organization facing such pressures.
Lewin describes the coevolution as a synchronous process by defining it as
"organizations coevolve with respect to their environments at the same time the
environment coevolves with respect to the organization.” The ESO model has
described the two-way relationship between the environment and the
organization as a sequential approach. From here the research question
appears. Is the coevolution sequential or synchronous? This research defines the
coevolution as a continuous flow of action, which means, a continuous sequential
process of interaction between the organization and the environment based on
action and reaction. CBE’s reactions to environmental and institutional pressures
of revolution were not around, or immediately after January 25th, 2011. The CBE
has taken most of these decisions considered strategic choice during the years
2012 and 2013, which shows the existence of a gap between the action and
reaction. We can see that the coevolution tends to be a sequential process, not a
synchronous process. According to this sequential process, it therefore rejects
the idea of Futuyma and Slatkin (1983) that the coevolution process is
characterized by simultaneity since it is almost impossible that two social entities
evolve simultaneously. In addition, the sequential approach and the temporal gap
between action and reaction during the process of coevolution in organizational
and human sciences can be interpreted by the famous theory of cultural lag
developed by William F. Ogburn (1922) in his article Social changes with respect
to cultural and original nature. According to Ogburn, material aspects of cultural
change are rapidly accepted by individuals, while non-material aspects of cultural
and social change face strong resistance. The change of norms, ideologies,
values, and the establishment of a new institutional framework after the 25
January 2011 revolution requires a lot of time to take root in Egyptian society.
Based on the findings discussed above, the primary model (Figure 1) which
explains the two-way relationship between the CBE and its environment will be
modified to explain the theory of coevolution from the research point of view. The
new model (Figure 3) is presented in the form of a cycle to show that the co15
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
volution is a continuous flow of action; it has also divided the process of
coevolution in two phases - the first phase and the second phase of coevolution
– in order to integrate the coevolution in a sequential process. Coevolution is
therefore defined as a continuous flow of action. In addition, we note that the
arrow that shows the effect of the environment on the CBE is drawn in bold to
show that environmental forces on the CBE are stronger than its power to shape
the environment to its profit which disrupts the coevolution process.
In conclusion, It is important to mention the essential points of difference
between our model and that of Lewin.
a) Lewin integrated the coevolution in a synchronous approach while we integrated
the coevolution in a sequential approach by adding the two concepts of the first
phase and second phase of coevolution.
b) We integrated into our model the concept of strategic responses developed by
Oliver (1991) to clarify the response of the organization to face institutional and
environmental constraints.
c) Our model highlights the imbalance of the coevolution process, stating that the
environmental effect is stronger than the reaction of organization to
environmental pressures.
The environmental hegemony over organizational strategy, as manifested by the
findings of the present research, goes hand in hand with the newly discovered
principles of quantum physics. Especially with regard the social and
organizational world, the whole largely determines the behavior of the parts and
yet the parts behavior remains largely probabilistic. The precision clockwork
closed system approach of classical physics seems to loose ground to the new
principles of relativity and quantum theory.
16
Figure (3): Coevolution
process of
between
the Business
CBE and
its Conference
Proceedings
Annual Paris
Research
environment
13 - 14 August
2015, Crowne Plaza Hotel Republique, Paris, France
1st phase of
coveolution
ISBN: 978-1-922069-82-5
L’environnement
Economic environment
• Corruption
• Businessmen and powerful
actors
• Financial independence
Central bank of Egypt
Social environment
• Ideas, ideologies and
standards
• Institutional change
• Terrorism
• Public Opinion
Institutional environment
• Independence of the CBE vis-à-vis the government
• Corruption
• Political instability
• Institutional change
2nd phase of
coevolution

CBE’s objectives:
Stabilizing general price level and a low
inflation rate

Avoidance of the collapse of the Egyptian
pound exchange rate

High level of foreign reserves

Banking system safety
Strategic responses
• Complying
• Negotiation
• Avoidance
• Challenge
• Handling
17
Proceedings of Annual Paris Business Research Conference
13 - 14 August 2015, Crowne Plaza Hotel Republique, Paris, France
ISBN: 978-1-922069-82-5
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