Organizations On-the-go: Linking Welfare Effects to Strategy
July 30, 2013 draft – 13,457 words
Iva Petkova
Columbia University,
COI Working Paper
Abstract
In this study, I am interested in discovering alternatives to the Weberian type in which extant
management practices are recombined in ways that lead to new goals. The analysis suggests that
the emergence of collaborative community forms based around projects and inter-organizational
networks facilitates recombinations in practice that are consequential to the success of new
organizations in hypercompetitive domains. These non-commercial goals, related to knowledge
sharing and learning are then proposed as part of a framework for linking welfare effects to
strategy.
Keywords: emergence, learning, networks, projects, teams.
_____________________________________
INTRODUCTION
The evolution of new organizations has attracted growing theoretical and empirical attention in
the past two decades, but little research has studied the microsociological processes of the
emergence of novelty in organizations with new goals, such as welfare effects connected to
learning. The selection-adaptation debate is the main source of division in organization theory
and developments here greatly affect how research approaches novelty scientifically (Cyert and
March, 1963; Stinchcombe, 1965; Hannan and Freeman, 1977; Aldrich, 1979; Williamson, 1991;
Nelson and Winter, 1982; Powell, 1990; Carroll et. al., 1990).
1
Researchers know from data that “profound changes are occurring in the postindustrial
environment and that new organizational forms are emerging within it” (Heydebrand, 1989: 348;
cf. Bell, 1976; Drucker, 1993; Piore and Sabel, 1984). However, until recently,
conceptualizations of management intentionality were not the foci of analysis in most theories on
evolution of form (see, Lewin and Volberda, 1999). The question asked by Heydebrand in 1989,
“what is really new under the sun?” (1989: 333) remains to be investigated.
The majority of studies undertaken in the past two decades have typically followed a line of
reasoning in which the question of interest was tracking new forms, industries and organizations.
Reported by Clegg and Hardy in their introduction of the Handbook of Organization Studies in
1996, debates on defining organizational novelty are fueled by three questions: “What are the
different kinds of organizational forms?”, “How do these forms arise?”, and “How do these
forms work?” In the absence of organizing paradigms that are sufficiently distinct, Weber’s
bureaucratic organization contained in Chandler’s (1962) multidivisional enterprise is still is the
prototype that fleshes out discussion on novelty as it embodies a real-world pattern of organizing
that overpowered preceding forms.
The problem in arriving at a framework that links the emergence of novelty with novel
organizational goals is that the elements of novelty in contemporary organization should be
distinct from theorizations of novelty offered in the past (e.g., Green, 1983; Cohen et. al., 1972).
This means that Max Weber’s ideal type should be avoided for comparison. Hecksher (1994) has
argued that Weber’s (1968) form itself is not an actual representation of organizational reality. It
is but a “convincing demonstration” (1994: 27) that social organization develops in evolutionary
stages. Davis and Marquis have seconded this proposition by arguing that the “social structures
that matter will often be organizational structures” (2005: 334) and we know from earlier
contributions "every evolutionary economic problem requires a social institution to solve it"
(Shotter, 1981: 2). The integration of world capital markets (Useem, 1996) the emergence of the
Internet as a channel for conducting business and for building brands represents an integrative
macro change that can facilitate the emergence of novel organizations and novel goals and
practice on meta level.
2
Empirical research on new organizations begins has tended in the past two decades to start with
doing away with the Weberian type. Empirical submissions also tend to randomize on the theme
of novelty and researchers prefer to choose individual examples of organizations as the new form
of interest to be theorized (examples are ABB, GE, Seiko, British Airways, J&J, HP, or Toyota,
among many others). Out of these examples organizational scholars have weaved a rich tapestry
of labels to appeal to the diverse palates of academic and practitioner audiences. Examples are
the boundaryless company (cf. Hischhorn & Gilmore, 1992; Ashkenas, Ulrich, Jick, & Kerr,
2002), virtual corporation (Davidow & Malone, 1992), network organization (Miles & Snow,
1995), chaotic form (Smith & Zeithaml, 1996), disaggregated design (Day & Wendler, 1998),
and web (Hagel, 2002).
The richness of the methodology in empirical accounts makes it difficult to find consistent
characteristics of a new organization. An overwhelming 90% of all articles submitted between
1991 and 2001 in Administrative Science Quarterly, have followed an empirical turn as reported
by David and Marquis in 2005. The submissions contributing to a theoretical line of inquiry were
based on population ecology foundations. However, the empirical submissions were “broadly
topical and […] theoretically eclectic” (2005: 334). Walsh et. al. (2006: 658) reported that
“[N]etworks, learning, embeddedness, trust, knowledge, management and cognition” are the
rhetorical concepts researchers use to make sense of organizations today.
Some authors (Heckscher, 1994: 17) have noted that the examples are “(largely partial and shortlived) examples of organizations that seem deliberately to violate bureaucratic principles”.
Illinitch et. al. (1996: 211) have also suggested that macro factors, such as intensifying
competition and advances in information technology have forged a particularly strong belief in
organization research that a “seemingly endless reorganization” in forms is happening. Another
word of caution from Bartlett and Ghoshal (2002) is that that when global activities in large
firms are legally consolidated and geographically dispersed on a global scale, it is difficult to get
to the point of newness when it may obscure a variation on a theme. Empirical studies have
shown that new organizations can use new practices that can still be associated with greater use
of formalized rules and Weberian levels of centralization. A comparative study by Dunford et. al.
in 2007 reported that organizational changes in the top 2,011 Australian firms related to proxies
3
such as adoption of broad new organizational practices indicated “lack of evidence for systemic
transformation” (2007: 220).
New organizations are, in short, distinct not only with regard to their structural characteristics,
but also in their impact on the environment, their stakeholders and clients, and peer organizations
to which their practice appeals. Emerging steps in the direction of linking organizational form
with organizational innovation is done by Walsh et. al. who argue the need to study “competitive
advantage by studying bureaucratic organization” (2006: 659). In 2012, Romanelli and Fiol
suggest that theories of organization should look at the emergence of collective identity in new
organizations. In 2011, Wry, Lounsbury and Glynn take the debate a step further by relating
what they call “collective identity stories” to “growth stories”. In 2012, Volberda et. al. advance
a meta-narrative attempting to investigate the relationship between the influence of
environmental and institutional demands on organizational design and firm performance.
This paper adds to the debate by studying the evolution of theorizing on new organizations and
forms by contrasting the predictions of organizational scholars – then called futurologists between the 1970 and today. By comparing these submissions with recent empirical research on
novelty, the paper advances a framework that a collection of practices that have surfaced in
contemporary organizations. These practices, observed in project based organizations and interorganizational networks are associated with novel goals, such as welfare effects that extend to
knowledge sharing and the pursuit of codification of tacit knowledge instead of the pursuit of
immediate commercial goals. The paper argues that this inter-penetration of new practices
indicates the evolution of new forms.
WHAT IS NEW UNDER THE SUN?i
Seminal submissions: Future Form
“In the risky business of futuristics,” Achrol argued in 1997, “it is safest to start with what we
already know” (ibid: 57). One of the first exercises in reimagining organizational novelty was
offered by Toffler in 1970. He argued that “we are witnessing not the triumph, but the
breakdown of bureaucracy” (1970: 113). Writing twenty-five years before James March (1995),
Toffler distinguished novelty in the intended organizational design of a ‘disposable’
4
organization. He suggested that bureaucracy is linked to the stage of socioeconomic development
and that if we experience accelerating rates of organizational change, this means that the political
economy in question is also changing.
Toffler charges disposable organizations with the ability to “change their internal shape with
frequency […] Vast organizational structures are taken apart, bolted together again in new forms,
then rearranged again. Departments and divisions spring up overnight only to vanish in another
and yet another reorganization” (1970: 116). This massive rate of turnover is sustained internally
by the assemblage of problem-solving teams from different functional departments that can
attend to problems and emergent tasks. Toffler argued that “teams do not necessarily replace
permanent functional structures, but they change them beyond recognition, draining them both of
people and power” (ibid: 121, emphasis added).
Toffler’s framework is particularly stimulating, because if perched against Weber's bureaucracy,
it suggests that new organizations may have low Weberian levels of centralization and
formalization, but at the same time, Toffler dissuades the reader from believing that this way of
organizing results in a state of organizational permanency. Toffler asserts that “the more rapidly
the environment changes, the shorter the life span of organizational forms” (ibid: 122). To
achieve permanency, in short, may not necessarily mean to achieve commercial success. This
Tofflerian submission is later echoed by Karl Weick (1977) who suggests that if an orgaization
exhibits ‘total flexibility’, the outcome may be chaos.
Eight years after Toffler, there was a turn in the study of organizations, referenced by the
collective attempt of strategy scholars to understand the role of knowledge within firms. In 1978,
Selznick and Nonet proposed that the levels of formalization and centralization in new
organizations would decline. They argued that “rule-boundedness” will be superseded by the
avoidance of codified routine and that the purpose of a form can change from fixed to flexible. In
1995, Nonaka and Takeuchi indicated that it is necessary to study processes of learning in
organizations because an increasing number of contemporary organizations are considered to be
“knowledge creating” companies.
5
In 1980, Ouchi introduced a meso approach to organizational innovation by arguing that the
incongruence of goals - or, the content of strategy - may become a serious problem for
contemporary organizations. He argued that this problem of double agency can be overcome by
achieving organic solidarity in organizations and erecting “clan” units. Clans would be located
within bureaucracies or corporations and are characterized by the belief “that individual interest
is best served by a complete immersion of each individual in the interests of the whole” (ibid:
136). Ouchi and Jaeger (1979) later found these forms in technologically advanced industries,
where teamwork was common, technologies changed often, and individual performance was
highly ambiguous. Ouchi grounded his observations in Japanese companies, but theorized that
the practice can be transplanted and thrive in other contexts, such as US multinationals.
Ouchi’s “Z”-forms introduced a new dimension in the study of organizations which deals with
the production of what could best be described as "welfare" effects to organizations, such as
learning. This presupposes that instead of the orientation of Chandlerian enterprises to
commercial goals, new types of organizational units should be studied where the orientation is
on learning. The location in the organization of new innovative teams in Ouchi’s (1980) analysis
is not as important as their meso goal. Teams should have the capacity to promote organic
identification with a collective. This hypothesis is later picked up by Kogut and Zander in 1996
who argue from an Ouchian vantage point in their research on knowledge transfer that
knowledge should be “situated not only physically in locality, but also mentally in an identity”
(1996: 502, my emphasis).
The new Ouchian meso identity is an important cultural prerequisite for moderating the effect of
turmoil resulting from ambiguous performance criteria in contemporary organization. Ouchi and
Jaeger argued in 1979 that a unique characteristic of learning teams in organizations (both new
and established) is that the performance of teams itself does not require evaluation, and in fact,
cannot “withstand the scrutiny of contractual relations” that a Williamsonian perspective adheres
to (1979: 214). In 2001, Afuah contributed to this seminal argument by demonstrating that
organizations of the future are flexible learners that quickly build the competences that “match
the type of change that they face” (2001: 1225).
6
Mintzberg (1983) classified five ideal organizational types. His ‘simple structure’ is
characterized by explicit and fixed jurisdiction. Mintzberg’s “machine bureaucracy” is similar to
Weber’s (1968) and, also, Burns and Stalker’s (1961) concepts. More interesting is the
multidivisional form (MDF). It is explained as a “quasi-autonomous structure coupled together
by a central administrative structure” (Mintzberg, 1983: 215). Mintzberg argued that the M-form
often emerges not from decentralization of machine bureaucracy, but from centralization of
independent organizations. This is why he predicted that increasing levels of centralization will
be observed in large Chandlerian corporations, despite the quasi-independence that their internal
units seem to enjoy. The overall result in this framework is complete fragmentation of the Mform.
Mintzberg’s final form is a version of Toffler’s “adhocracy”. In adhocracy ‘regimes’ novelty
arises from processes of re-combination of existing knowledge and skills. This requires the
presence of “multidisciplinary teams, each formed around a specific project of innovation”
(Mintzberg, 1983: 256). This theorization is closer to the “recombination” hypothesis that
contemporary organization and economic sociology research links with the emergence of
innovation ().
Heydebrand (1989) argued that post-bureaucratic novelty is characterized by a movement away
from formal rationality. Weber’s bureaucracy formally exhibits elements of rationality in that it
has low levels of social rationalization and high levels of hierarchical division of labor. The
advent of new technological systems has helped managers to “undermine older social and
technical forms of control” (Heydebrand, 1989: 342). In 1985, Fligstein showed that it is difficult
to measure internal levels of complexity in large organizations, because management is
decentralized and power may reside with sales and marketing departments. Heydebrand (1989)
has not found these internal fragmentation processes to be problematic. He indicates that loosely
coupled profit centers in federated corporations may indicate the emergence of less bureaucratic
forms of delayered organization.
Heydebrand (1989) has also noted that the current multidivisional organization exhibits internal
properties that are far more complex than the divisionalized form that Mintzberg (1983)
described. However, he does not conceptualize the M-form as the final example of novelty in
7
organizations. Consequently, Heydebrand (1989) disagrees with Mintzberg’s (1983) predictions
that prior to its fragmentation the M-form will exhibit high levels of centralization. He argues
that contextual processes related to increasing technological capability in some contexts, such as
electronics and aerospace, will cause decline in the ideal typical Weberian type by improving the
social rationalization of management processes and, thereby, laying the foundations for a new
organizational culture and practice.
Heydebrand also proposes that managerial intentionality will matter greatly in the reengineering
of the M-form. New forms that will follow will “amount to a shift in the mode of administration,
if not production, rather than a monolithic continuation […] in Weber’s master trend of
rationalization” (1989: 339, emphasis added). This hypothesis can be linked with Ouchi’s
hypothesis for the possibility for organizations to learn from ambiguous performance criteria.
Heydebrand also agrees with his predecessors that new forms would be decentralized,
participative and fluid; and, their size will be small, or they may be “small subunits in larger
organizations” (Heydebrand, 1989: 337).
New Developments: Organizations as Collectors of Capability
Most new organizational research builds on the received wisdom of these submissions (Table 1).
[Table 1 – about here]
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Table 1. Bureaucratic vs. post-bureaucratic forms – structural characteristics.
Bureaucratic organization
Purpose
Centralization
Formalization
Decision-making
and performance
Unit size
Form
Hybrid forms
Explicit, fixed. Vision
dictated.
Hierarchically subdivided.
Concentrated power.
Impermanent
forms
Mission-oriented, flexible. Vision
emergent.
Team organization, open
communication, diffusion of
authority, substantive rationality.
Distributed power.
Avoidance of rule-boundedness.
Participative management logics.
Codified, blueprints for
action. Leaders set specific
objectives.
Systematic, routinized,
assumption of stability. Clear
role definitions. Efficiency
oriented.
Preference for large units.
Simple; Machine bureaucracy
(Mintzberg, 1983)
Post-bureaucratic organization
M-form
mutations
Participatory, problem-centered,
assumption of shifting
environment. Fuzzy role
definitions. Adaptation.
Impermanence. Structure
independent of assets.
Preference for small units.
Organic (Burns and Stalker,
1961); Adhocracy (Mintzberg,
1983); Z-clans (Ouchi, 1980); Nform (Hedlund, 1994).
Adhocracy
(Toffler, 1970);
Chaotic
(Volberda, 1996);
Ambidextrous
(Tushman &
O’Reilly, 1996).
Source: Adapted from Nonaka and Selznik (1978) and Child and McGrath (2001).
Research on new organizations and the literature on strategy have headed increasingly in the
direction of explaining the production of new knowledge in organizations. This trend is an
important departure from earlier explanations of “new organizational forms”. Empirical research
proposes that patterns in the production of knowledge may be the explanans to the emergence of
novelty in organizations.
Learning is an important determinant in making use of new knowledge. Boisot and Child (1988)
and Hedlund (1994) have argued that knowledge originates within small groups of learners or at
the level of interorganizational domain of units, because at these levels “articulated knowledge
becomes tacit” (Hedlund, 1994: 76-77). In conventional Weberian hierarchy, small groups of
learners would be formally unsupported to contextualize tacit knowledge, because bureaucracies
are fit to reap returns from systems of knowledge that are formalized. In the turbulent
institutional environments of today, however, management needs “extensive, multidimensional
collection of capabilities” (Volberda, 1996: 362) that mixes close-knit and even formalized intrafirm communication with tacit inter-firm relations.
9
In 1994, Hedlund developed the idea that novelty is related to new capabilities in firms. He
hypothesized that firms capable of developing new competences would possess knowledge that
differs from the one supported by the M-form. Hedlund predicted that these knowledge-intensive
organizations (called N-form) would be managed in ways that allow to recombine the
capabilities across teams, or by fostering a ”[…] multifunctional, multinational, multidivisional”
(ibid: 84) organization. In 1996, Volberda developed the idea of the flexible form. He based in
on “non-routine technology” and argued that it is suited for hypercompetitive domains. The
knowledge capabilities of this form are supported by multifunctional teams and alliances. The
capability of this “flex” form can frequently change and as team and alliances become more
knowledgeable about a shift in demand, new products and functions are introduced.
Both the N-form and the flex form can be likened to Toffler’s ‘disposable’ organization and they
can mutate into a ‘chaotic’ form, which is the final form on Volberda’s (1996) continuum.
Volberda’s chaotic form reminds us of Toffler’s (1970) adhocracy and is, indeed, a very unstable
”kaleidoscope of shifting coalitions, chaotic communication patterns, random combinations, and
general information overload” (Hedlund, 1994: 85). The two examples of new blueprint forms
make extensive use of projects, teams and alliances. Their structure is disembedded from formal
assets. They are driven by assumptions, other than economic performance. Finally, their unit size
is small (Table 1). Before I turn to the two main claimants that tend to exemplify the predictions
for organizational novelty of post-bureaucratic organization, the next section will show examples
of “hybrids” (Table 1).
SHIFTING CONCEPTIONS OF GOVERNANCE IN LARGE FIRMS
In 2007, Palmer, Benveniste and Dunford took a two-stage analysis of the organization literature
between 1992 and 2005 and found that eight recurring practices are increasingly reported as an
organizational change in established “forms”. These practices are “networks and alliances,
outsourcing of non-core activities, disaggregation of business units, de-layering, reduced internal
and external boundaries, flexible work groups, empowerment and short-term staffing” (2007:
1841). Two actions are commonly used to suggest a trend of change in the multidivisional form.
These are arrangements within firms, such as delayering and the use of teams, and involvement
in inter-firm transaction partnerships (cf. Nohria and Eccles, 1992; Powell, 1990). In the large
10
scope of single case-studies, downsizing, delayering and devolving within firms are reported
interchangeably as a new phenomenon in corporate governance. In empirical cases where all
three practices occur, researchers have proposed that the result is a new formii.
Accounts of transformation in the M- form begin with suggesting that there is a growing
experiment with delayering initiatives that has contributed to a decline in the size of large firms.
Zenger and Hesterly have reported in 1997 that the distribution of employment by firm size in
the US for companies from all sectors with more than 10,000 employees has decreased from
25.6% in 1963 to 19.3% in 1987. Delayering initiatives have consistently been explained as
“externalization: disposing of internal units and contracting out functions formerly performed inhouse” (Scott, 2004: 11, own emphasis).
More generally, management scholars have argued that the benefits of vertical integration have
diminished to firms, because time horizons have shortened (Quinn, 1992). Design and cost
pressures have exposed firms to risks associated with non-performing functions in case they
choose to maintain these functions in-house. Slashing non-core functions has the advantage of
producing more compact organizations. Quinn (1992) has suggested that when internal
restructuring and outsourcing are combined, the result is the emergence of “intelligent
enterprises”. These types of organizations can be likened to disposable companies that can play
with their strategic and structural features on-the-go.
Some authors suggest that various types of internal restructuring in large organizations that leads
to decomposition of the prevalent form is a ‘”false”’ premise on which to proclaim novelty
(Heckscher, 1994: 29). It is difficult to find statistics that identify the prevalence of downsizing
and to link downsizing with creation and sharing of knowledge that leads to new organizational
arrangements and internal learning. Delayering itself may symbolize “the crisis of an old and
rigid form” (Castells, 2000: 179).
Some authors link delayering exercises to novelty in the organizational form, because this move
produces profit. Quinn (1992: 57) has argued that Sony and Matsushita were pressured to decommodify their competences and absorb film and distribution companies “to keep afloat
margins and revenues”. Afuah (2001) has noted that when previously un-integrated firms do
11
integrate vertically into an emerging new technology, they will experience superior
performanceiii. In most of the reported cases, the disaggregation related to reducing (or inflating)
the size of large firms by acquisition and slashing down of functions is not explicitly related to
more collective experiment. For example, anecdotal evidence has linked delayering initiatives,
such as outsourcing, to labor arbitrage, because “without doubt, big layoffs often accompany big
outsourcing deals” (Engardio, 2006).
These opinions offer another layer of normativity in the debate on novelty. There has been a
trend in the literature to argue that the net organizational result from outsourcing "non-critical"
functions in companies, such as Nike or Reebok, is the emergence of ‘modular’ forms of
organization. In these forms decision-making processes remain relatively centralized (Dess et.
al., 1995; Lei, Hitt, and Bettis, 1996; Schilling and Steensma, 2001). Modular forms seem to
offer a variation on the multidivisional firm. An excellent description of this normative approach
is shown in Malnight (2001), who compares the evolution in the management practices of Lilly
and Roche during a fifteen year period (1980-1994). Malnight (2001) suggests that increasing
complexity in the two firms’ internal structures is joined by convergence in their processes.
Pharmaceutical firms engage in the same core activities, such as discovery or regulatory
approval, but present a special case of organizational arrangement, because the only processes
that are decentralized are local operating authority and standards. This makes big pharma
companies still loosely federated and highly centralized in core aspects of their value chainsiv.
Even though cross-functional task forces are used to manage operations such as discovery, these
ad-hoc units still use highly routinized process of discovery and decision-making.
Examples from other industries are the international expansion of large accounting firms. These
players follow their clients by “loose strategic alliance of quasi-autonomous firms” (Brown et.
al., 1996: 65) in which operating control is decentralized and the use of rules and procedures is
generally low. This federated structure had to be abandoned in the 1990s, when clients were
prompted by regulations to require more general business advice. Brown et. al. (1996) calls the
new configuration a “professional managerial hierarchy”. The “hierarchy” operates on the basis
of joint decision-making by all previously quasi-independent national firms. The form also uses
executive committees and cross-functional teams, but in these structures the use of formal rules
and procedures is high and decision-making shifts from joint to directive.
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The examples show that the reconstruction of control mechanisms in some large organizations or
multinational federations is likely to result in preserving elements of the Weberian logic along
which these contemporary organizations are organized. This argument has inspired some authors
to offer more conservative gauge on innovation in organizations. Fulk and Desanctis (1995)
argued that delayering amounts to a new form only when hierarchy yields to lateral linkages
between teams that otherwise comprise the functional structures. With the onset of the Internet,
these linkages are facilitated by advances in e-communications that obviate the need for physical
proximity.
Birkinshaw (2000) has noted that, specifically for large multinational firms, lateral organizing
can lead to problems of double agency where the new lateral units convene with functional
arrangements (also, see, Child and Rodrigues, 2003). Palmer, Benveniste and Dunford have
asserted that the problem in large firms is that lateral arrangements have to be maintained
“without the assistance of traditional bureaucratic hierarchies” (2007: 1834).
Writing for Decision Sciences in 1997, Joyce et. al. further observe by using the accounts of 512
employees in 8 diverse organizations that lateral initiatives “improve communication, encourage
consensus decision-making and require interdepartmental interaction prior to decisions" (ibid:
13). The results concur with Toffler (1970) that lateral initiatives do not remove functional
hierarchies, but add non-hierarchical structures to them. The problem is that lateral managers
across Joyce et. al.’s sample (e.g., senior unit, program, project or brand) could not "rely on their
positional power" (ibid: 14) in the system and continued relying on the opinions of their
functional counterparts. Dual reporting stress is, indeed, recounted by respondents.
Another line of empirical research on learning is presented by Brynjolfsson et. al. in 1996. The
authors show that continuous improvement processes and learning from previous mistakes, such
as total quality management (TQM), “can be counterproductive” (1996: 4). At MacroMed – the
medical production firm that the authors studied – the target design of cross-functional teams
interfered with existing functional work-groups and tiered management practice.
These problems show that when existing functional structure remains intact, there is a difficulty
to produce new knowledge and learn from it in large and medium organizations. At the same
13
time, it is reported that the normative importance of adopting lateral mechanisms, such as cross
functional teams by large firms are as significant to organization theory as “the shift that
occurred among large corporations in the 1950s, 1960s and 1970s from functional governance
structures to multidivisional structures” (Zenger and Hesterly, 1997: 216).
There is a similar difficulty in reporting the relative propensity of large or medium organizations
to adopt lateral governance mechanisms. Fulk and Desanctis have noted in 1995 that the trend to
adopt lateral governance mechanisms is “gradual in most firms, dramatic in some, and
nonexistent (or nearly so) in others” (1995: 338). The accounts that do suggest the trend for
“lateralization” in large firms tend to build on non-academic references, such as Gordon’s (1992)
survey in Training Magazine, Verespej’s (1990) article in Industry Week, and Mehta’s (1994) in
Wall Street Journal. These accounts tend to suggest that teams are prevalent and relatively
independent within the larger structure. Gordon’s (1992) study, for example, discovered that
82% of organizations with 100 or more employees reported that they had at least some
employees working in a group identified as a team, further classified as permanent, temporary,
and long-term cross-functional teams.
An interesting conceptual contribution that attempts to resolve the problem of double agency is
by Cross et. al. in 2000. They report that the transition from functional to a team-based structure
in one bank necessitated that a third type of activity – “bringing up boundaries at the work unit
level” (2000: 845) –be implemented jointly with instilling project logics into a functional
enterprise. When the US National Cooperative Bank (NCB) transitioned to what authors describe
as ‘team-like’ structure, it auctioned a variety of teams responsible for the development and
selling of credit instruments, pulling down formalized control. As teams became independent
from the functional structure boundary-spanning activities, such as cross-training team initiatives
involving functional specialists became crucial for the success of the initiative.
The research in this section suggests that despite observing some new exercises in large and
medium firms that involve processes of delayering and renovation of organizational procedures
and process, these initiatives alone cannot produce a novel organizational form because they do
not necessarily lead to the accumulation of new knowledge or facilitate learning from it. The
process of restructuring in large corporations (and smaller firms) requires that new governance
14
mechanisms involving greater openness to learning and accumulation of knowledge be adopted
internally or in relations with others. We need to study novel practices, which Toffler (1970) and
his like-minded Ouchi (1980) and Mintzberg (1983) consider apposite in increasing the
“dialogue among various parts of the organization or create a system of collective
experimentation” (see, Heckscher, 1994: 29). The next two sections offer avenues for
conceptualizing such practices.
RECOMBINING ORGANIZATIONAL PRACTICE AND WELFARE EFFECTS
ORGANIZING AROUND COMMUNITY: PROJECTS
A publication in Business Week in 2006 by Engardio and Einhorn argued that firms today should
adopt initiatives related to the process of “transformational outsourcing”. This practice was
considered to involve the shedding of layers of functional hierarchy, from finance, through
human
resource
management,
accounting,
to
research
and
development
(R&D).
Transformational outsourcing was strategically linked to commercial success –as opposed to
welfare effects - and the authors quotes executives saying that "[T]his isn't about labor cost, the
issue is that if you don't do it, you won't survive." (2006: 3). In the absence of more rigorous
scholarly debate regarding what organizations outsource and how, evidence from Chiesa et. al.
has surfaced in 2004 showing that outsourcing can be successfully managed if contracted to
small firms organized around projects356790-. Chiesa et. al. called these firms knowledge
intensive service firms, or KIS. They offer services from “initial concept definition, through
design, engineering, prototyping, and laboratory testing, to final commercialization and
marketing” (2004: 65).
KIS firms are examples of project forms of organization (PFOs) (DeFillippi and Arthur 1998;
Hobday, 2000; Whitley, 2006). Project-based forms are temporary systems embedded in more
permanent organizational contexts and organized around the performance of a project (Sydow et.
al., 2004). Hobday (2000) distinguishes between ‘project-led’ organizations, such as MNCs,
which host projects as parts of their operations and ‘project-based’ organizations, which are
firms structured around project logics of varying temporality.
Project-based forms, or PBFs, are conceptualized as a new empirical phenomenon and in 1994
Hedlund dubbed them as ‘totally emergent entities’. Project forms are examples of Ouchian
15
forms. Projects move along ambiguous performance criteria, because they are built in mind with
collaborative experimenting. However, the emergent empirical qualities of PBFs make it
challenging to define how these organizations are novel. For example, in an editorial on the first
special issue on project forms in Organization Studies, Sydow et. al. (2004: 1480) noted that
“apparently projects come in many kinds and definitions are quite vague, pointing rather to an
empirical level of interest that a clearly bounded theoretical subject area”.
PBFs vary in the structures and processes they adopt and the technical uncertainty they tolerate.
Whitley (2007) has suggested gauging the novelty of the project form by looking at the duration
and uniqueness in a project. He points out a relationship between the duration of a project and
the singularity of project outputs. In some industries such as film, entertainment, or new media,
PBFs organize around goals that are highly singular and dissolve upon project completion. If
project goals are singular, it is common that the project firm is found only for the duration of the
project, for “organizational convenience” (DeFillippi and Arthur, 1998: 137). In temporary
PBFs, the expectations to continue employment is slim (see, Almeida and Kogut, 2001). These
firms consequently have a low aptitude for retaining project-specific knowledge in a lasting
organization.
A different gauge on novelty by Lindkvist in 2004 proposes to measure the extent to which the
structure and process in projects are organized around project and not functional dimensions. The
idea is that novelty is more likely to persist in organizations founded on multiple roles and
identities. Examples here are Grabher’s observations of the Munich enterprise software industry
in 2004. Roles and outputs in the software industry are not clearly defined and the boundaries
between tasks can permeate the formal structure. Projects that are unique and dissolve with the
completion of deliverables are similar to projects based on multiple roles and identities. The
difference is that highly unique projects tend to begin and end as impermanent structures. They
generate knowledge necessary for the completion of the project, but do not retain it at an
organizational level.
Recently, there has been some evidence that singular PBFs, such as boutique biotech firms, show
perseverance toward a more permanent organizational structure. Whitley (2007) reports that as
markets for drugs develop, small biotech firms continue playing important roles, “instead of
16
being swallowed up by established pharmaceutical companies” (Whitley, 2007; cf. Powell et. al.,
1996), which tends to be the result when a project is hosted by an MNC.
Based on the stability of project roles and singularity of project outputs Whitley (2007) advances
a typology of four PBFs that score differently (high-low) on the two proxies. The craft PBF, in
IT consulting or professional business firms, is characterized by simple goals and stable roles of
participants that comprise them. This is also the form that is most likely to lead to the problem of
double agency. Bresnen et. al. (2005) have studied the way management practices disperse in
four ‘craft’ PBFs - two engineering firms, one oil company, and a large MNC division
organizations. The authors find that the success of the project organizations depends on the
preexisting internal structure of the organizations that engage with practicing the form. In two
examples, attempts to decentralize work arrangements worked against established company
culture and process and, despite the project logic that permeated the functional structure, a
double agency problem surfaced between functional management and “managers on the sites”
(2005: 34).
In 2007, Whitley introduced the ‘precarious’ PBF. This project form is characterized by Ouchian
and Tofflerian instability. Precarious PBFs involve risky and unusual outputs mixed with highly
volatile roles and skills. In precarious PBFs the division of labor is unstable, the organizational
procedures are informal and the problem of double agency is actually an expected result of this
arrangement. Precarious PBFs exist in biotech, software and start-up firms. It is assumed that the
development of a permanent structure in precarious PBFs will be low because the changeability
of goals and the high degree of decentralization of 'precarious' teams can cause problems in the
development and diffusion of organizational routines (see, Bresnen et. al., 2005). However, the
instability in this project arrangement can contribute to learning and knowledge sharing. Whitley
(2007) reports that some biotechnology firms based on precarious project logic are able to
develop permanent structures and continue to operate on the principle of precariousness.
Large MNCs and their divisions can also nest PFOs. However, functional units in MNCs tend to
develop their own ‘thought worlds’ where there is little potential for overlap with project units.
Sydow et. al. (2004: 1478) have argued that it “matters a lot if the project is embedded in
functional or a business unit”, because depending on the configuration, project members will
17
either be let go or be re-absorbed back into the organization at the end of the project and the
project will have limited options of retaining knowledge.
Brady and Davies (2004: 1606) have argued that this problem can be resolved in cases where
large firms experiment with projects that have potential for becoming key new lines of
‘repeatable’ business, “such as turnkey, outsourcing, design–build–operate, or public–private
partnership (PPP)”. During “phase 3” of these projects, the larger firm “hosting” the smaller
structure can attempt to consolidate learning by absorbing project cash-cows into the formal
structure. The larger organization absorbs the project as a cash-cow on assumptions of future
profit. The fact that the project form generates learning spillovers does indicate that large firms,
as Ericsson, can learn and orgainize for welfare effects, as learning organizations.
Network forms of organization are the final unit of analysis that can “host” PBOs. Although “the
constitutive mechanism which turns projects into a network form of organization […] has not
been elaborated until now” (Windeler and Sydow, 2001: 13), attempts have been made to
provide a description of project networks. Windeler and Sydow (2001) have argued that deregulation and privatization of the German broadcasting market fostered a novel from of
production organization in which content production was carried out collaboratively in project
networks. A provider of a programming or a broadcaster triggers the process by stimulating a
producer to form a project. The authors note that actors will enter the project as dyads (e.g.,
director-producer) and work with the rest of the group as a temporary project group.
The difference between network organizations and large firms that host PBFs is that the despite
their shared understanding for the limited project duration, network organizations can’ play’ with
the timeline by re-selecting new members. Uzzi and Spiro (2005) note in their study of project
networks around Broadway musicals that the degree of access of artists to diverse pools of
creative material and talent increases in project networks where the connectivity and
cohesiveness of ties across the network is high. Such situations occur in organizational settings
where the formalization and centralization are low and where lateral coordination allows
knowledge to be shared.
18
A final gauge on novelty in PBFs is to observe the degree to which actors in a project can
‘thrive’ on principles of impermanency. Large firms acquire cash-cows and routinize on project
deliverables. When large firms open up their processes to PBFs, a project structure is necessary
so a common understanding regarding the “’anatomy’ of the intended product” can arise
(Engwall and Westling, 2004: 1563). In subsequent periods, the informal interaction of teams is
no longer a key. The reason for the reversal to old culture is flexible arrangements must have
limited duration to not affect the more stable hierarchical structure. This is why their goals have
little tolerance for sustaining impermanent structures that may bring welfare effects. In contrast,
PBFs can be successfully organized around principles of project impermanency even in
situations where they tend to carry out repetitive projects.
COLLABORATING AS A FORM OF ORGANIZING: NETWORKS
As the transformation of the M-form continued, research platforms emerged to explain a
different phenomenon – the formation of network forms of organization (NFO). In sociology, the
argument originated in Powell (1990), who “imaginatively explored” (Perrow, 2001: 465) that in
situations where exchange looks “more like a marriage than a one-night stand, but there is no
marriage license” (1990: 301), a more socialized exchange emerges. Powell’s (1990) argument
suggests that a defining feature of network forms is their saturation with organic solidarity of the
Ouchian Z-type. Networks of individuals engage in “reciprocal, preferential and mutually
supportive actions” (ibid: 301). Individual units exist only in relation to other units; and a “go-italong” approach is preferred.
The Japanese connection is not coincidental; sociological interest in the network form was
spurred initially by scholars interested in the prevalence of NFOs in Japanese firms (see, Dyer
and Nobeoka, 2000). Lieberman and Asaba (1997) found how the diffusion of lean production
techniques in Japan was associated with greater labor productivity for both automakers and their
suppliers, while in the US the corresponding processes were stagnant, until Japanese automakers
established facilities there in the 1980 and began transplanting processes and techniques. Using
Silicon Valley as an example, Bahrami (1992: 44) has suggested that this success is achieved
when firms realize that the links between organizations are important in transferring novelty and
19
this requires breaking down “the solid walls which have historically separated the firm from its
external stakeholders”.
Network forms of organization (NFOs) are formally defined by Podolny and Page (1998: 59) as
governance mechanisms (equity and non-equity) in which “any collection of actors (N > 2)
pursue repeated, enduring exchange relations with one another and, at the same time, lack a
legitimate organizational authority to arbitrate and resolve disputes that may arise during the
exchange”. The organizations associated with this definition are “joint ventures, strategic
alliances, business groups, franchises, research consortia, relational contracts, and outsourcing
agreements” (ibid: 59). Sociological scholarship usually places network forms of organization
outside a Williamsonian continuum (Powell et. al., 1996), while strategic management studies
tend to look at NFOs as strategically driven “intermediate organizational forms between markets
and hierarchies” (Anand and Khanna, 2000: 295).
Powell (1990) tangentially relates the emergence of network forms to the transformation of the
M-form. He notes that international joint ventures, large firm-small firm linkages, and
subcontracting arrangements are used by large firms after these become vertically disaggregated.
Writing in 2001 for DiMaggio’s The 21st Century Firm, Powell cautions that a comprehensive
restructuring for large firms is costly and therefore a reformed model based on “remnants of
existing practices and partial set of new arrangements” (2001: 39) may be the result when
searching for new organizations.
Research on network forms of organization has grown exponentially since the 1990s, although
Fligstein’s caution still holds that we know little of how “prevalent and paradigm-breaking
network forms of organization really are” (2000: 663). At the same time, organizational
sociology accounts link NFOs with superior advantages for the embedded firms. Factors, such as
“spirit of goodwill” (Dore, 1983); “norm of reciprocity” (Powell, 1990); and “embedded ties”
(Uzzi, 1997) are thought to flow via the network and empower the actors to perform. These
welfare effects for the participants are explicitly conceptualized in the network perspective and
these exist before or contemporaneously as inter-organizational networks are formed.
20
The factors that help connected firms perform successfully are concepts such as weak and strong
ties, multiple pathways, few structural holes, high centrality, wide geographical scope, and
experience in managing alliances (Westney, 1993; Dyer and Nobeoka, 2000; Powell et. al., 1996;
Anand and Khanna, 2000). These positive effects also produce ‘inimitable value-generating
resources’ for participating firms (Gulati, Nohria and Zaheer, 2000). The resources are
frequently gauged by the higher profitability of firms that are internal to the network and the
lower profitability for firms that are external. Podolny and Page (1998) dubbed the phenomenon
‘liability of unconnectedness’.
Since the mid-1990s, some authors have argued that networks “have risen to prominence due to
industrial restructuring” (Achrol, 1997: 57) of the M-form. This submission echoes
Heydebrand’s (1989) own hypothesis that novelty flows from the stage of economic
development. Scholarly submissions have noted that increasingly, “what goes on between firms
shapes what goes on within them” (Carruthers and Uzzi, 2000: 486, own emphasis). Carruthers
and Uzzi (2000) indicate that the emergence of inter-organizational networks produces changes
in the cultural identities of conventional actors associated with production, distribution and
consumption. This is another example where collaborative activity facilitates the emergence of
welfare outcomes.
Some submissions also argue that the result from breaking the multinational enterprise is leaner,
flexible firms that lace into a network of strategic alliances and partnerships with suppliers,
distributors, and competitors to sustain competitive edge. Cravens et. al. say that this is a
‘network formation process’ with three stages: “vertical disaggregation (Miles and Snow, 1986),
internal redesign (Quinn, 1992), and the formation of alliances (Achrol, 1991)” (1996: 207).
Another rendition of the argument is by Hirschorn and Gilmore who say that inter-organizational
networks are replacing “vertical hierarchies with horizontal networks; linking together traditional
functions through interfunctional teams; and forming strategic alliances with suppliers,
customers, and even competitors” (1992: 157).
Similarly to the contentions of the literature on project forms, network proponents assert that the
multidivisional firm “is likely to be the dinosaur of the 21st century. Replacing it, are smaller,
more focused, vertically disaggregated firms (Achrol, 1997), which are ‘networked’. One form
21
that is hypothesized to grow out from fragmentations is the small-firm network. The small firm
itself is not a new arrangement, but the literature on the phenomenon suggests that small firms
organize around new cultural logic.
Perrow has noted in 2001 that the small-firm network (SFN) phenomenon exists in “clothing,
food, light machinery, metal working, electronics and small- to medium-sized electronic goods
[…] But it is not clear from the literature that in all cases networks of small firms are involved,
though networks exist in most” (2001: 456). Walsh et. al. corroborate to the argument in 2006 by
noting that the modal firm in the US is a small business with fewer than 5 people and that this
situation has not changed in the past 50 or 100 years.
Ninety-nine percent of the nearly 25 million small firms that operated in the US in 2004
exhibited tendency grow fast in terms of knowledge generation. Small firms created around 70%
of new jobs annually and produced 13 to 14 times as many patents and tended to go global
before growing up (US Small Business Administration, 2006). There is, however, no systematic
data suggesting that small five person firms themselves are networked.
The challenge to study small firm networks is also a methodological one. Traditionally, small
firms are comparable to large by looking at their supply chains and their relations with
contractors by outsourcing, in the sense traditional large firms do. This is problematic, as small
forms do not have supply chains and they do not outsource at least in the conventional sense[4].
Perhaps due to these methodological issues, there is not much evidence corroborating that there
is an increasing rate of adoption of NFOs by small firms across diverse populations and
increased downsizing at the MNC level (Perrow, 2001; cf. Saxenian, 1991; Uzzi, 1997).
Organizational sociology, researchers, however, predict that with the breakage of the M-form
“the future belongs to quick, constantly learning small firms” (Fligstein, 2000: 224) who must
enable a set of alliances and networks with large counterparts to maintain fitness (Powell, 2001;
Stuart, 1998; Stuart, Hoang, and Hybels, 1999). The argument for linking learning and welfare
value of collaborative inter-organizational relationships persists here as well. The term 'welfare
effects' is coined by Anand and Khanna who have asserted that “learning to manage is
important” (2000: 298). Network sages, as Podolny and Page (1998) have corroborated to this
22
assumption. They argue that NFOs create value in two ways: either by promoting the rapid
transfer of knowledge between firms or by encouraging novel syntheses of information produced
by two nodes that share a long-term exchange relation (Powell, Koput and Smith-Doerr, 1996).
This way of looking at the success of inter-organizational relations indicates that the expected
results from collaborative actions are learning and knowledge.
Exploring Welfare Effects in Collaborative Organizations
Other variants of the interorganizational network are joint ventures and strategic alliances. Joint
ventures are a well-known equity mode which “most closely replicates the hierarchical control
features of organizations” (Gulati, 1998: 300; cf. Andrews, 1971; Pfeffer and Nowak, 1976).
Strategic alliances are loosely coupled governance modes; they do not share equity and have few
hierarchical controls (Hagedoorn, 1995). The need to learn in rapidly changing consumer
markets is, once again, the main factor bringing firms together in loosely coupled network
variants. Research here shows that it is more productive to study how the goals of collaboration
here differ from those traditionally associated with bureaucratic collaboration. This obviates the
need to study forms and brings forth the dormant discussion on relating new organizations to
new outcomes, such as learning.
The variants here are made up by either large firms that perforate emerging horizontal networks
of smaller supplier firms (e.g., franchising models, such as Benetton’s, or subcontracting models,
such as Toyota’s); or linkages between mid-size and/or large partners that come together for a
particular purpose, such as “reducing the gap between conception and execution” (Perrow, 2001:
459, own emphasis). Castells (1996) has argued that franchising or subcontracting modes
are hybrid-like in form and bureaucratic in purpose. However, some new practices of longer
contracts and mutual problem-solving, especially in the auto-industry, have made the large firmsmall subcontractor model attractive in terms of welfare effects to firms (Helper, 1993; Dyer,
1996). Gulati (1998) has argued that regardless of the equity involved initially in setting up a
network form of governance, firms will develop trust through prior ventures and “progressively
use less hierarchical structures in organizing new alliances” (ibid: 303). Thus, there will be a
progression from more hierarchical (joint ventures) to less hierarchical (alliances) variants in
firm cooperation.
23
In the majority of cases, alliances are established for tangible reasons and, similarly to project
forms, are of a particular temporal span[5]. The MIPS group is one example. It was established
to promote the RISC technology (Reduced Transaction Set Computing Technology) between a
number of large firms nd for a particular span of time. Gomes-Casseres (1994) argues that the
alliance failed due to problems with conceptualization of technology. Indeed, the firms that
sponsored the emergence of the aliance were prominent high-technology organizations (NEC,
Sony, DEC, Daewoo, AT&T, and Silicon Graphics) and issues with the translation of technology
among them may have contributed to the dissolution of the alliance mode. The network was
organized via a strategic collaborative agreement, to which all network members were party, but
had no joint organization that oversaw the alliance management. Problems arising from precisely
the lateral configuration of the alliance mode may have had to do with the buyout of the firm in
1992 by Silicon Graphics. Despite issues with alliance modality, dissolution of the alliance did
not mean death of the new organization (i.e., RISC). The buy-out was very similar to the way
Ericsson absorbed its project and suggests that both NFOs and PFOs can produce learning effects
because a new organizational culture of experimentation appears to permeate these
arrangements.
It has been challenging to pin down how knowledge and learning transpire in alliances because,
as suggested by Gulati, Nohria and Zaheer, what flows through inter-firm ties is “private and
invisible” (2000: 12). Attempts to reveal what is going on inside ties tend to obscure
these elusive processes sometimes, by developing quantitative measures that may be tangential
to the actual mechanisms via which knowledge flows. Anand and Khanna (2000), for example,
have argued that value creation in alliances is gauged by the dollar performance of unanticipated
excess returns by the parties in the period following alliance formation. ‘Value creation’ is the
firm’s 'experience' in managing alliances and the unobserved heterogeneity between firms on this
proxy. However, alliance experience is operationalized not as a process of continual knowledge
sharing but as 'number of alliances'.
Anand and Khanna find correlation between number of alliances and excess returns, as it
is logical to expect that in some transactional arrangements involving equity, additional returns
are reaped at the time of the alliance formation. The authors conclude that theirs “is one of the
first studies to establish systematic evidence for the existence of learning effects in the
24
management of alliances” (ibid: 313). Their conclusions are laudable but the authors do not
discuss explicitly the processes by which learning occurs.
Powell et. al. have looked at other proxies in 1996. They argue that in biotechnology even
simple licensing governance modes, used to transfer existing technologies and considered to be
‘weakly strategic’ (Nohria and Garcia-Pont, 1991), can produce profit because of “prior contact
between the two parties to explore the viability of the project” (Powell et. al., 1996: 124). These
prior social ties are an important predictor of future alliance ties, and, in themselves represent
instances of learning. Uzzi (1997) has similarly argued that a degree of embeddedness of
network actors in ongoing social arrangements is required for small firms to learn.
Learning is therefore a key issue of interest in network studies. If licensing can be associated
with learning, then the nature of collaboration in networks should differ substantially from the
bureaucratic logic of enterprise. Powell et. al. (1996) explain that by controlling for prior levels
of connectedness, learning happens when the measure of centrality increases for an actor and as
the future portfolio of ties of focal firms becomes more diverse. This is another methodological
point of advance in the literature on networks, but it can be weakened by an argument made by
Podolny and Page in 1998. They argue that network methodology should clarify how firms learn
by collaboration. Otherwise, transaction costs enthusiasts can explain the positive effects of
networks by good management of resource dependencies that enhances the legitimacy of firms.
One of the process-oriented qualitative studies that traced the knowledge processes by explaining
the necessity for the emergence of welfare effects is Dyer and Nobeoka's well-known study of
Toyota (2000). Their analysis indicates that because Toyota’s suppliers “do learn more quickly
after participating in Toyota’s knowledge-sharing network” (2000: 345), the firm has created an
organizational identity of the organic type. This is possible because the firm has maintained a set
of coordinating rules that foster collective routines by which tacit knowledge is shared. Toyota
uses three organizational vehicles that facilitate knowledge transfer. The supplier association is a
network-level forum that functions through topic committees that facilitate knowledge sharing on
topics that are highly consequential to commercial and non-commercial aspects of performance.
The topics (e.g., ‘eliminating supplier design defects’) cultivate the building of a common
identity among members. Problem solving teams are the second vehicle. They solve emergent
25
problems in supplier organizations that are also tacit (e.g., problems that have to do with the
know-how of the organization). Finally, voluntary learning teams are put together in flexible 3year arrangements. These organizational arrangements imply The existence of some form of
collective solidarity between the participants who “‘identify’ with a larger collective” (ibid:
503). This final exmaple shows the rich conceptual implications from following a
microsociologcal perspective on the process of learning and knowedge sharing as prerequisites
for gaining welfare effects.
CAN EXISTING THEORIES OF ORGANIZATION EXPLAIN (OR
PREDICT) NEW FORMS, AND SHOULD THEY?
Heydebrand (1989: 323) has said that organization theory focuses on “how capitalism
administers existing structures, whereas the relevant problem is how it creates and destroys
them”. The interpretation of some authors is that this focus on the administration of advantages
leaves theory unaccustomed to discovering historical alternatives to Weberian bureaucracy
(Ilinitch et. al., 1998). We can see from the inductive agendas reviewed here that intentionality is
important in the design of lateral organizations and that the goal of intentionality is to seek out
and achieve new types of welfare effects.
The level of analysis is an important issue to be addressed in new organizational frameworks. In
most of received theory the “new form of interest” (Lewin and Volberda, 1999: 519), is the firm,
population, industry, or audience level of analysis. Examples in this debate are population
ecology, transaction costs theory (Williamson, 1975, 1991), behavioral theory (Cyert and March,
1963), contingency theory (Burns and Stalker, 1961), evolutionary theory of the firm (Nelson
and Winter, 1982), resource perspective and the dynamic capabilities perspective (Kogut and
Zander, 1992; Teece et. al., 1997). The dynamic capabilities perspective is one of few theories
that under the “simplifying assumption that resources and capabilities can be modeled at the firm
level”
(Birkinshaw,
2000:
10). The
organizational
transformations discussed
in
this
paper support a level of analysis that is both supra-firm and at the level of teams, or sub-firm.
This analytical framework merges the macro analysis of organizations with meso approach to the
process by which welfare effects, such as learning, facilitate commercial and non-commercial
growth.
26
An example from one received theory to use this approach can be exemplified by the conceptual
evolution in population ecology. In 1986, Hannan and Freeman proposed that focusing on two
types of processes between populations of firms (blending and segregating) may be the key to
distinguish forms within populations. In this framework, two processes warrant analytic acclaim.
Segregating processes are activities related to institutionalization or codification of forms, in
which an actor becomes institutionalized in order to have special standing in making
claims. Blending processes reflect the struggle to make sense of the contextual upheavals of the
1980s Blending processes occur during times of “deinstitutionalization, perestroika, or
reorganization” (Heydebrand, 1989: 332). They are connected to “conscious revision of forms
and routines” (Hannan and Freeman, 1986: 63, own emphasis). They are unintended change
processes carried out by management in order to take advantage of contextual opportunities, or
to avoid deficiencies in past organizational designs. With this particular hypothesis, the founders
of population ecology have indicated that organizations can emerge by trial-and-error along with
developments in the institutional fields in which they are embedded. This submission has the
potential to greatly affect the design of a supra theory on new forms.
After 2000, form is defined as the meaning imparted for actors in a domain and distinction
among forms is dependent on the degree of their institutionalization (Hannan, Polos and Carrol,
2002; Hannan, 2005; Hsu and Hannan, 2005). Forms “do not exist independent of external
agents” (McKendrik et. al., 2003: 6). These assumptions leave out particularly emerging new
organizations that may not have a contemporary audience to grant them identity.
McKendrik et. al. (2003) is a case in point. The authors argue that disk-array producers in Silicon
Valley were a new organizational form in an established industry. According to the authors’
definition of this industry, however, disk-array firms were themselves in the business of blurring
perceptions of outsiders by integrating identities from other activities, making it difficult for
audiences or researchers to “grant” them a rule-like standing. In this example, the meaning of
form to various stakeholders could be investigated by a qualitative microsociological approach
that emerges from the conscious efforts of disk producers’ managing teams to establish a
community of like-minded peers. We do know that typical organizations in the Valley are tightly
knit into inter-organizational networks and introducing themselves as a new form may have been
27
achieved by intentionality and push of those business practices that the community of peers
considers successful to the narrative of “growth” pursued by the disk producers.
Toward a Collection of Practice?
Population ecology proponents have argued importantly that “firms routinely change their
architectures without changing their identities” (Carroll and Hannan, 2001: 64). Papers here
suggest elements of a contrasting narrative. Some new approaches have been developed in the
direction of building theory from rigorous investigation of organizational practice. Hinings and
Greenwood argued (1996) that organizations shape and respond to their socio-cultural contexts.
Child and McGrath (2001) and Davis and Marquis (2005) have imputed that the relationship
between new organizational forms and their contexts can facilitate the emergence of newness in
organizations. Lewin and Volberda (1999) have noted that this relationship is based on the
assumption that both Weber’s (1968) bureaucratic form and Chandler’s (1962) M-form
coevolved with contextual upheavals of the industrial age and their contemporaries Nonet and
Selznik (1978: 21) noted that forms arise “out of the character of the social system under
construction”.
Lewin and Volberda (1999) have suggested that change in organizational forms occurs at the gap
between managerial intent and context and this “need not be an outcome of either managerial
adaptation or environmental selection” (ibid: 526). As shown, strategic alliances and PFOs are
new collaborative forms. These organizational arrangements evolve as C-level executives shape
new practices and firm culture on-the-go by looking at the institutional environments in which
their organizations are embedded (see, Koza and Lewin, 1998). Another proposal comes from
Dijksterhuis et. al. (1999) who suggest that management logics (sets of context-specific
macrolevel beliefs that strongly influence what managers do) should be an independent
intervening variable in the co-evolution process between form and context. Dijksterhuis et. al.
(1999) consider even downsizing initiatives to be a new organizational form, if these policies are
communicated to staff by new narratives.
The studies that use the “co-evolutionary” approach reinstate Weick’s (1977) submission that
organizational members socially enact their environment. They facilitate the adoption of a
microsociological approach to study the mechanism of knowledge creation and the content of
28
novelty. The co-evolutionary studies however tend to focus on the procedural aspects of coevolution between populations and their environments (cf. Koza and Lewin, 1998; Galunic and
Eisenhardt, 1996). Few studies adopt a microsociological approach to look at the mechanism of
evolution of content and strategy.
DISCUSSION AND FUTURE RESEARCH
To study the content of post-bureaucratic novelty in organizations is a crucial component that
fills the gap between managerial creation of practice and academic design of theory. As with any
research that wishes to extend existing paradigms of organizational knowledge to components of
novelty in organizations, research on new forms has attempted to conceive of an ideal-typical
conglomerate of features. Careful observation of emerging structural features is necessary. As
cautioned in the beginning, however, research should be cautious of recording extreme diversity.
As noted by Hecksher in 1994, an ideal-typical post-bureaucratic organization as of yet, “doesn't
exist” (Hecksher, 1994: 17). It is useful to rephrase a word of caution from population ecology
that too many forms can be precarious to any one’s propensity to survive and that the continual
introduction of new organizational forms in a domain can produce feeble offspring (Romanelli,
1991).
Numerous processes have been observed by research that suggests studying the goals of new
types of organizing as an important component in theorizing about non-commercial aspects of
innovation and growth in organizations. The obvious first requirement for novelty is that new
organizational forms should be positioned outside the Weberian and Williamsonian continuum.
New innovative organizations should be associated with organizational culture, or ways of doing
things, that are different from those observed in bureaucratic organization. The new culture
should impart a collaborative logic in the pursuit of welfare effects with peers.
At the same time, future research need not exclusively rely on typical Weberian assumptions
regarding how high or low the degree of “formalization” or “centralization” is in order to
observe novelty in an organizational culture. Pure-type PFOs are sometimes associated with
relatively high degrees of formalization. Pure PBFs tend to formalize knowledge acquired during
the execution of their various projects in order to build an enduring set of competencies.
29
Although PBFs maintain basic project structure, the fact that they codify knowledge into routines
involving high degree of formalization of procedures shows that the project form may be
ostensibly related to a bureaucracy. However, we should not hypothesize that power should not
be used at all in new organizations, just because “the shift away from bureaucracy involves a
transformation in the use of power” (Hecksher, 1994: 53).
Second, as they transform, existing (and predominantly large) organizations should show growth
in their cultural competence. Nonet and Selznik have noted that rather than growth in size, new
type of organizational growth should consist of and reveal “new unities with larger
competencies” (1978: 23). As Dijksterhuis et. al. predict in 1999, lateral disintegration can be
related to organizational novelty, if the addition of a lateral unit or the superimposition of an
interdivisional unit produces novel organizational linkages between peers and solves existing
problems, such as the double agency problem. When lateral restructuring is coupled with the
reconfiguration of internal management process toward achieving new cultural goals (e.g.,
welfare effects in learning), the result is an organizational meso unity that enhances the existing
competences on a macro, or community level.
Third, when conceptualizing novel sources of organizational growth, it is necessary to do away
with the assumption that commercial performance results in the most “adaptive” form. The goal
of growing may be precarious, if we take Volberda’s (1996) and Toffler’s (1990) assumptions of
instability that suggest the possibility of vitality in the adhocracy and the chaotic form. In
dynamic organizational environments and with the advent of the Internet, organizations would be
less likely to fail due to inherently faulty design. Their form, however, may be impermanent
because of their heavy investment in experimentation with achieving welfare effects that lead to
growth.
Fourth, novelty in organizations should be associated with practices that can be empirically
attested and meaningfully identified by members of a community of similar organizations. The
organizations that carry these practices may share resource space, but the space that interests us
when we study teams or community of peers is the ability of peer organizations to co-construct
new space by learning and sharing knowledge acquired by testing new technologies or business
30
practice. An example of this interorganizational arrangement has surfaced in Internet
communities of practice (Tripsas, 2009).
Lastly, a related set of concerns for future research is to identify the exact processes by which the
multidivisional firm is mutating. While large firms experiment with lateral practice, they are
likely to co-find new projects along old organizational routines and structures (see, Stark, 1989).
This is well observed in the cases where project forms are used by large firms to gain knowledge
about complex and potentially repetitive transactions and are absorbed back into the formal
structure. As long as the internalization of project competencies does not result in large-scale
architectural transformations, such as in Ericsson’s case, we should assume to be dealing with a
structural, but not goal-oriented transformation. When project forms are hosted by an MNC, a
conservative guideline is to assume novelty only during phase 1 of project implementation (e.g.,
when PFOs are located outside of the formal organization or have a relatively high degree of
autonomy from functional units).
31
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ii
For example, Dess et. al. (1995) argue that Apple is simultaneously modular, virtual, and
boundaryless, because the firm pursues strategic alliances with rivals such as Motorola and IBM;
outsourced its Newton platform from Sharp; and provides access for partners an suppliers to its
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40
iii
These results are obtained when performance is measured as technical performance
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iv
It is of note that due to the high risks associated with this business, large pharmaceutical firms
may be impervious to opening their processes and structures in particular ways to the
environment, and it is unclear what management logics are employed internally. The linkages
that these firms utilize with small biotech companies, however, are arguably novel.
41