Lectures The Adaptive Organization
Lecture 1: The necessity of adaptation
Part 1: Evolutionary theory of organization (Morgan, 2006)
Organizations change – adapt – to meet the requirements of their environment.
Example:
- In 1997, Netflix distributed DVDs
- In 2007, Netflix introduced streaming
- Today, Netflix is a production studio (and streaming service)
Adaptation = a successful adaptation is one that makes an organization more suitable in/with the environment.
- Anything we do in response to the environment is an adaptation.
- E.g., a fire in the room → everybody wants to be as close as possible to the door.
Why evolutionary theory?
What (value) does an evolutionary theory add?
Old perspective: mechanistic/closed system
- Organizations decide when they change → changes from internal processes.
- Manager gets credit for the firm’s performance.
- Environment is not taken into account.
- Resources are determinative for performance.
- Chance/luck does not play a role in performance.
→ data does not support this perspective (product life cycle). No organization voluntarily chooses to decline...or
organizations that make it to maturity do not voluntarily decide to decline. There is usually an environmental effect.
Organizations decided when they would change – that’s what a closed system means. That means that changes at
Netflix occurred because Netflix decided that they would occur. What does this mean for firm performance?
1. First, it places a lot of emphasis on resources especially human capital.
2. Second, chance – or luck – plays a relatively minor role in determining performance.
New perspective: organic/open system
- Organizations are sensitive to pressure for change that comes from outside of the organization.
- Illustration of Morgan, 2006:
- Open: permeable (doortlaatbare) boundaries → organization coordinates the inputs → what goes in influences
what comes out.
1
, - Something happens inside the organization, the mechanistic is not wrong, it is incomplete → if something
comes from your environment, something happens inside and that determines your output.
The more turbulent the environment, the more ‘adhocratic’ or ‘organic’ the organization should be (Burns and Stalker,
1961; Morgan, 2006).
→ So: when the environment changes, the organization changes… it adapts.
An evolutionary theory of the organization identifies where the pressure for change comes from, and it explains why
some organizations get it right (they were able to correctly understand the environment) and some get it wrong.
The trend
Increasing competitive pressure in nearly all
industries.
Increasing competitive pressure means market
leadership is more volatile*
→ Companies do not stay at the top of their industries for a long time.
→ Result: increasing dynamism in nearly all industries.
Why is this happening? The product life cycle is getting shorter (products enter the decline phase faster), the
environment is more complicated, and technological change is forcing a lot of adaptations.
→ Also creates opportunities.
Adapt and succeed?
- Not very organization can adapt.
o E.g., riding a mechanical bull, you have to adapt to their motion. Then you fail, because you do not
adapt.
o Why do organizations fail to adapt? Inertia, path dependence, unwillingness and unable to adapt are
among the reasons.
- Not every adaptation is successful.
o Why do adaptations fail? Change, in and of itself, is not enough.
Contingency theory: the match between the adaptation and the situation influences performance (Morgan, 2006).
- Just adopting is not enough, you must match the situation.
Failed adaptation (Polaroid):
- Heavily invested in digital imaging in the 80s.
- Polaroid lacked the ability to refine their conceptions of how to market their products.
- They held on to a razor/blade business model: cheap hardware/expensive extra’s (e.g., camera/film; field
printing)
- As a result, they ‘missed the boat’ in the digital imaging market which fostered expensive hardware, and one-off
purchases (Tripsas and Gavetti, 2000)
2
,The overall model for this course
*it = external environment
Competencies and capabilities determine the quality or the level of the functioning of your internal selection
environment → not completely correct → overlap in two ways:
1. The firm is unable to observe environmental trends.
2. Things can be changing internally because your routines are changing without you consciously pushing this as a
firm.
Part 2: Organizations and their environment (Abatecola, 2014)
- From evolution to co-evolution.
- Environmental fitness → to make room for strategy.
Organizational adaptation = response to environmental demands
- Environment might refer to competitors, customers etc.
Two perspectives on change (Abatecola, 2014)
1. Determinism: inactive/reactive organizational adaptation to environmental forces or demands.
a. The environment determines the adaptation, so no room for organizational agency.
2. Voluntarism (strategic choice): proactive/strategic organizational response to environmental forces or demands.
E.g., innovation (can also come before adapting): environment changes, so you do something differently to adapt to it.
The evolutionary process
Variation: the idea that there are many different ideas or adaptations that can be used.
- Organizations adapt in different ways to their environment.
Selection: which adaptations are selected, which adaptations meet the criteria of the environment.
Retention: what works is selected and stays (retains), while wat does not work is dropped.
- These organizations survive and new entrants copy older organizations.
Two perspectives on change (Abatecola, 2014)
1. Determinism: inactive/reactive organizational adaptation
a. Your environment changes, so you change.
3
, b. Zoom had luck with COVID (completely different from a mechanistic view).
c. Not every shift in environment can be predicted.
d. E.g., gazelle runs into a tree because a lion is coming, lion will still be able to catch it.
2. Voluntarism (strategic choice): proactive/strategic organizational response
a. You as a firm come up with a variation.
b. E.g., instead of running, a gazelle attacks a lion to scare it.
Determinism: external selection → what is required to achieve CA?
- Variation: what is required?
- Selection: based upon the requirements some of the adaptations are going to work and some are not.
- Retention: what works will be retained.
Voluntarism: internal selection → how do we make sense of the external environment?
Companies can try to read their environment (foresights) → come up with products/services/technologies that meet
environmental requirements (variation) → decide what they want to select → out of this selection they can decide what
they retain and push this out in the adaptation section.
Feltman & Pentland + Burgelman papers help to determine the operation of your internal selection environment.
Variation: organizations adapt in different ways.
Selection: some of these adaptations meet the requirements of their environment.
Retention: these organizations survive.
Limit to the VSR metaphor: variation
- Variation in business requires a ‘creative spark’.
- Innovation drives variation.
4
Lecture 1: The necessity of adaptation
Part 1: Evolutionary theory of organization (Morgan, 2006)
Organizations change – adapt – to meet the requirements of their environment.
Example:
- In 1997, Netflix distributed DVDs
- In 2007, Netflix introduced streaming
- Today, Netflix is a production studio (and streaming service)
Adaptation = a successful adaptation is one that makes an organization more suitable in/with the environment.
- Anything we do in response to the environment is an adaptation.
- E.g., a fire in the room → everybody wants to be as close as possible to the door.
Why evolutionary theory?
What (value) does an evolutionary theory add?
Old perspective: mechanistic/closed system
- Organizations decide when they change → changes from internal processes.
- Manager gets credit for the firm’s performance.
- Environment is not taken into account.
- Resources are determinative for performance.
- Chance/luck does not play a role in performance.
→ data does not support this perspective (product life cycle). No organization voluntarily chooses to decline...or
organizations that make it to maturity do not voluntarily decide to decline. There is usually an environmental effect.
Organizations decided when they would change – that’s what a closed system means. That means that changes at
Netflix occurred because Netflix decided that they would occur. What does this mean for firm performance?
1. First, it places a lot of emphasis on resources especially human capital.
2. Second, chance – or luck – plays a relatively minor role in determining performance.
New perspective: organic/open system
- Organizations are sensitive to pressure for change that comes from outside of the organization.
- Illustration of Morgan, 2006:
- Open: permeable (doortlaatbare) boundaries → organization coordinates the inputs → what goes in influences
what comes out.
1
, - Something happens inside the organization, the mechanistic is not wrong, it is incomplete → if something
comes from your environment, something happens inside and that determines your output.
The more turbulent the environment, the more ‘adhocratic’ or ‘organic’ the organization should be (Burns and Stalker,
1961; Morgan, 2006).
→ So: when the environment changes, the organization changes… it adapts.
An evolutionary theory of the organization identifies where the pressure for change comes from, and it explains why
some organizations get it right (they were able to correctly understand the environment) and some get it wrong.
The trend
Increasing competitive pressure in nearly all
industries.
Increasing competitive pressure means market
leadership is more volatile*
→ Companies do not stay at the top of their industries for a long time.
→ Result: increasing dynamism in nearly all industries.
Why is this happening? The product life cycle is getting shorter (products enter the decline phase faster), the
environment is more complicated, and technological change is forcing a lot of adaptations.
→ Also creates opportunities.
Adapt and succeed?
- Not very organization can adapt.
o E.g., riding a mechanical bull, you have to adapt to their motion. Then you fail, because you do not
adapt.
o Why do organizations fail to adapt? Inertia, path dependence, unwillingness and unable to adapt are
among the reasons.
- Not every adaptation is successful.
o Why do adaptations fail? Change, in and of itself, is not enough.
Contingency theory: the match between the adaptation and the situation influences performance (Morgan, 2006).
- Just adopting is not enough, you must match the situation.
Failed adaptation (Polaroid):
- Heavily invested in digital imaging in the 80s.
- Polaroid lacked the ability to refine their conceptions of how to market their products.
- They held on to a razor/blade business model: cheap hardware/expensive extra’s (e.g., camera/film; field
printing)
- As a result, they ‘missed the boat’ in the digital imaging market which fostered expensive hardware, and one-off
purchases (Tripsas and Gavetti, 2000)
2
,The overall model for this course
*it = external environment
Competencies and capabilities determine the quality or the level of the functioning of your internal selection
environment → not completely correct → overlap in two ways:
1. The firm is unable to observe environmental trends.
2. Things can be changing internally because your routines are changing without you consciously pushing this as a
firm.
Part 2: Organizations and their environment (Abatecola, 2014)
- From evolution to co-evolution.
- Environmental fitness → to make room for strategy.
Organizational adaptation = response to environmental demands
- Environment might refer to competitors, customers etc.
Two perspectives on change (Abatecola, 2014)
1. Determinism: inactive/reactive organizational adaptation to environmental forces or demands.
a. The environment determines the adaptation, so no room for organizational agency.
2. Voluntarism (strategic choice): proactive/strategic organizational response to environmental forces or demands.
E.g., innovation (can also come before adapting): environment changes, so you do something differently to adapt to it.
The evolutionary process
Variation: the idea that there are many different ideas or adaptations that can be used.
- Organizations adapt in different ways to their environment.
Selection: which adaptations are selected, which adaptations meet the criteria of the environment.
Retention: what works is selected and stays (retains), while wat does not work is dropped.
- These organizations survive and new entrants copy older organizations.
Two perspectives on change (Abatecola, 2014)
1. Determinism: inactive/reactive organizational adaptation
a. Your environment changes, so you change.
3
, b. Zoom had luck with COVID (completely different from a mechanistic view).
c. Not every shift in environment can be predicted.
d. E.g., gazelle runs into a tree because a lion is coming, lion will still be able to catch it.
2. Voluntarism (strategic choice): proactive/strategic organizational response
a. You as a firm come up with a variation.
b. E.g., instead of running, a gazelle attacks a lion to scare it.
Determinism: external selection → what is required to achieve CA?
- Variation: what is required?
- Selection: based upon the requirements some of the adaptations are going to work and some are not.
- Retention: what works will be retained.
Voluntarism: internal selection → how do we make sense of the external environment?
Companies can try to read their environment (foresights) → come up with products/services/technologies that meet
environmental requirements (variation) → decide what they want to select → out of this selection they can decide what
they retain and push this out in the adaptation section.
Feltman & Pentland + Burgelman papers help to determine the operation of your internal selection environment.
Variation: organizations adapt in different ways.
Selection: some of these adaptations meet the requirements of their environment.
Retention: these organizations survive.
Limit to the VSR metaphor: variation
- Variation in business requires a ‘creative spark’.
- Innovation drives variation.
4
