GE History of Org Structure
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Transcript of GE History of Org Structure
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Strategic Management JournalStrat. Mgmt. J., 33: 633660 (2012)
Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.1971Received 15 January 2010; Final revision received 21 October 2011
ARCHITECTURE, ATTENTION, AND ADAPTATIONIN THE MULTIBUSINESS FIRM: GENERAL ELECTRICFROM 1951 TO 2001JOHN JOSEPH1* and WILLIAM OCASIO21 Duke University, Durham, North Carolina, U.S.A.2 Northwestern University, Evanston, Illinois, U.S.A.
In this study, we analyze how the organizational architecture of a multibusiness firm affects theadaptation of its constituent business units. Using an inductive analysis of GEs governancesystem from 1951 to 2001, we examine how the integration of corporate and business unitattention occurs within and across the firms governance channels. Our theory identifies anunexplored aspect of the M-forms architecture: collective vertical interactions between thecorporate office and business units through cross-level channels. Overall, we articulate threetypes of channel integrationcross-level, cross-functional, and channel couplingand examinetheir effects on responsiveness to threats and opportunities. We find that despite an elaborateorganizational architecture, there were periods when GEs governance system did not allow forcoordination of corporate and business unit agendas. Our theory proposes that the temporalcoupling of specialized, cross-level channels creates an organizational architecture that is bothdifferentiated and integrated. This architecture integrates levels and issues simultaneously,yet focuses attention sequentially, providing more effective conditions for joint attention andcoordination between the corporation office and the business unit and adaptive change at thebusiness unit level. Copyright 2012 John Wiley & Sons, Ltd.
INTRODUCTION
This article examines a critical issue in strategicmanagement: how the organizational architectureof a diversified multibusiness firm facilitates thestrategic adaptation of its business units (Rumelt,Schendel, and Teece, 1994). In particular, ouranalysis focuses on the adaptive implications ofcorporate-business unit interactions. Beginningwith Chandler (1962), the literature on diversi-fied firms focused on the superior information-processing and decision-making capacity of themultidivisional structure, with corporate office
Keywords: attention; strategic adaptation; governancechannels; cross-level; interactions Correspondence to: John Joseph, Duke University 100 FuquaDr., Durham, NC 27708, U.S.A.E-mail: [email protected]
control of strategy formulation and business unitfocus on implementation and operations (Chandler,1962; Stinchcombe, 1990). Williamson (1975,1983) expanded upon Chandler to develop the M-form hypotheses, where the corporate-level focuson strategy is accompanied by a financial con-trol system. The Chandler-Williamson perspectiveassumed a clear differentiation between businessunit operations and corporate strategy, with lim-ited attention to integration beyond authority rela-tionships (cf. Lawrence and Lorsch, 1967; Gulati,Lawrence, and Puranam, 2005) and financial con-trol (Williamson, 1975).
A large body of research has recognized thatbusiness unit adaptation is not merely a functionof corporate fiat, but the consequence of a moreelaborate relationship between corporate headquar-ters and business units (Gupta, 1987; Ghoshal
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634 J. Joseph and W. Ocasio
and Nohria, 1989; Bartlett and Ghoshal, 1993;Volberda, Baden-Fuller, and van den Bosch, 2001).For example, horizontal linkages, such as cross-functional or cross-business unit teams (Galbraith,1974; Martin and Eisenhardt, 2010; Martin, 2011),provide business unit managers with opportuni-ties for adaptation through collaboration, as wellas economies of scope through greater knowledgeexchange and resource sharing. The corporate roleis one of providing the underlying support, such astotal quality management or new product develop-ment processes, for horizontal exchanges to takeplace and interdependencies to add value (Prahaladand Doz, 1987; Bartlett and Ghoshal, 1993).
Another stream of research has examined therole of corporate executives in shaping the prod-uct markets in which business units compete. Inparticular, the literature on patching and recom-bination (Galunic and Eisenhardt, 1996, 2001;Rindova and Kotha, 2001; Birkinshaw and Ling-blad, 2005) finds distinct advantages of modularcorporate forms, with their capacity to add, divestand recombine businesses through charter changesin the firms business units. One particular insightof these studies is that while the corporate officemay influence charter decisions, much of the activ-ity concerning charter assignments reflects decen-tralized behavior. This challenges the idea thatstrategic adaptation is the province of the CEOand the corporate office. It is also consistent withFreeland (1996) who finds, in a direct examina-tion of Chandler and Williamson, that contrary tothe M-form hypotheses, business unit participa-tion in strategic formulation was not only prevalentat General Motors, but also yielded better perfor-mance than when it was solely under the purviewof the corporate office.
A third stream of research emphasizes the cor-porate offices provision of decision premises formanagers at lower levels of the firm. These stud-ies focus on the cognitive control of the organi-zation through corporate goals, plans, frames, orrules that guide exploratory behavior (Burgelman,1983, Gilbert, 2006) and business unit initiatives,which often depart from the mainstream business(Birkinshaw, 1997; Birkinshaw, Hood, and John-son, 1998). Research in this category often focuseson the performance implications of top manage-ment attention. The idea of this research is that inorder for firms to commit to new activities, suffi-cient top management attention must be directedto them to gain the necessary political support,
visibility, and resources to survive. For example,research has shown that the attention focus of topmanagement can increase firm receptivity to newtechnologies (Kaplan, 2008), shape the timing ofmarket entry (Burgelman, 1991), and amplify firmcapabilities (Eggers and Kaplan, 2009).
In all, these studies have made great strides inupdating the Chandler-Williamson view of corpo-rate control over strategic adaptation. In the pro-cess, however, the literature has moved away fromthe foundational focus concerning the structuralrelationship between the corporate office and thebusiness units. Studies that have explicitly dealtwith the role of the corporate office (e.g., Goold,Alexander, and Campbell, 1994; Freeland, 1996)do not focus on issues of structure or considerthe role of organizational architecture. Similarly,research that highlights cognitive drivers of adap-tive behavior typically does so at the expense ofstructural mechanisms. For example, the idea thatattention mediates the relationship between topmanagement mental models and strategic actionhas been well established (Barr, Stimpert, andHuff, 1992; Cho and Hambrick, 2006), but its rolein the relationship between organizational architec-ture and adaptation remains an open question.
With renewed interest in corporate-level effectson performance (Bowman and Helfat, 2001; Adnerand Helfat, 2003; Martin and Eisenhardt, 2010)and greater focus on organizational architecture(Gulati, Puranam, and Tushman, 2012, this issue)and corporate attention (Cho and Hambrick, 2006;Ambos and Birkinshaw, 2010), a closer reexami-nation of the corporate-business unit relationshipin diversified firms is needed. The current articlereturns to the structural foundations established inthe early literature and explores, with an attentionallens, how structural relations between corporateoffices and business units shape strategic businessunit adaptation. We complement prior focus onvertical authority relationships (Galbraith, 1973)and horizontal linkages (Gupta and Govindara-jan, 1991; Martin and Eisenhardt, 2010) and focuson exploring the effects of alternative cross-levelstructures, the attentional focus created, and theirrole in adaptation. Specifically, our study seeks toanswer two questions. First, given the importanceof both the corporate office and business units forstrategic adaptation, how does the organizationalarchitecture, defined as the structure of commu-nications, interactions, and authority relationshipsacross the organizational structure (c.f., Simon,
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
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Architecture, Attention and Adaptation 635
1962), achieve successful alignment of the corpo-rate office and business unit for identifying com-petitive opportunities and threats? Second, howdoes the differentiation and integration of corpo-rate and business units through the organizationalarchitecture affect the coordination of responses tothreats and opportunities?
Theoretically, we adopt an attentional perspec-tive on organizational architecture (March andSimon, 1958; March and Olsen, 1976; Ocasio andJoseph, 2005; Bouquet and Birkinshaw, 2008).This perspective suggests that the organizationalarchitecture structurally distributes managerialattention throughout the firm, with managers withinvarious subunits and organizational levels focusingattention on different aspects of the firms agenda.This distribution occurs because managerial atten-tion is situated within the firms governance chan-nels. We define governance channels as formalcollective interactions set up by the firm to con-trol, allocate and monitor organizational attentionand resources. The fact that attention is situated ingovernance channels implies that managers atten-tion is conditioned on the interactions betweenthem, both within channels and across the systemof channels. Since the interactions will vary fromchannel to channel, depending on factors such aswho is in attendance, their timing, frequency, andthe agenda, so too will the way in which attentionis engaged and whether or not joint attention isestablished.
Because of the emphasis on situated attention,our approach to corporate-business unit interac-tions differs from information processing per-spectives (Galbraith, 1974; Tushman and Nadler,1978). From an attention-based view, the focusis not on information processing capacity, butwhether and how available information is attendedto in a particular time and place. Correspondingly,we do not presume the presence of ubiquitousdecision rules, goals, or culture (c.f. Burgelman,1991; Bourgeois and Brodwin, 1984), but that theparameters for directing attention and decisions arenot widely shared and are contingent on particularconfigurations of channels. Also, while much ofthe foundational work implicitly equates the merepresence of communication channels with integra-tion, we do not assume that channels necessarilyintegrate attention. Channels may also differentiateor focus attention.
Our research approach is based on analyticalinduction (Hicks, 1994). We begin with a general
theoretical frameworkthat organizational archi-tecture shapes adaptation through its effects onattentionand seek to develop specific theorybased on this general framework. Our longitudinalanalysis allows us to examine how organizationalarchitecture, which is relatively static, affects anumber of specific instances of business unit adap-tation (or lack thereof). For our inductive method,we selected a historical case analysis of GeneralElectrics (GEs) changing organizational archi-tecture from 1951 to 2001 and its impact on thestrategic adaptation of two business units: Comput-ers and Medical Systems. GE is an extreme caseof a highly diversified corporation with significantvariation in both organizational architecture andsuccessful business unit adaptation: the Computersunit was considered a failure and was ultimatelydivested; Medical Systems emerged from a smallpart of GEs portfolio to become a major sourceof revenue and profitability. In the 1951 to 2001period, GE experienced four significant shifts inits organizational architecture and multiple eventsthat reflect successful and unsuccessful attempts atstrategic adaptation in the two businesses studied.By utilizing an embedded design of key events,within a single, critical firm, we seek to rely onwithin-case analysis of GE and between-case anal-ysis of events (Eisenhardt, 1989; Yin, 2009) to helpdevelop new theory on the architecture, attention,and adaptation of diversified corporations.
Our focus on corporate-business unit interac-tions parallels, yet is distinct from, state-of-the-artwork on collaboration and coordination in multi-business firms (e.g., Smith and Tushman, 2005;Martin and Eisnhardt, 2010; Martin, 2011). Mostprior studies have examined firms with a domi-nant business or related diversifiers (c.f. Burgel-man, 1983). However, we focus our analysis ona highly diversified conglomerate where the focusof attention is highly distributed and coordinationacross functions, levels and units may be especiallychallenging. And whereas these papers have pri-marily elaborated on the nature of horizontal inter-actions within the executive office and betweenbusiness units, we seek to highlight the relativelyless understood effects of collective vertical inter-actions across corporate headquarters and businessunits on attention within particular governancechannels. We consider not only the attention inte-gration and differentiation that results from interac-tions within specific governance channels, but alsothe linkages across governance channels and the
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636 J. Joseph and W. Ocasio
transmission of issues and initiatives from one toanother. Specifically, we identify and analyze threetypes of channel integration: cross-level (withinchannel integration of corporate and business unitagendas), cross-functional (within channel integra-tion of various functional areas), and channel cou-pling (integration across the system of channels).
Our study complements research on headquar-ters role in the reconfiguration of resources byhighlighting the structural direction of manage-rial attention. While recent research has examineddifferentiation and integration in vertical supplier-buyer relationships (Gulati et al., 2005), theunderlying architectural (i.e., structural) integra-tion between the corporate office and its divisionsin multibusiness firms remain relatively unexam-ined. Miller (1986) is a partial exception, notingthe importance of formal committees via plans andbudgets as an integrating mechanism. The struc-ture and content of the integrating committees andtheir relationship to organizational adaptation isnot, however, examined.
Accordingly, we also contribute to the liter-ature on organizational attention. Recent empiricalwork has shown the importance of top man-agement attention on strategic adaptation (Choand Hambrick, 2006; Kaplan, 2008; Nadkarni andBarr, 2008; Eggers and Kaplan, 2009; Ambos andBirkinshaw, 2010). This literature has not consid-ered, however, whether and how top managementattention is integrated with business unit attentionor how organizational architecture facilitates busi-ness unit adaptation. Through our study at GE,we demonstrate that the integration of managerialattention affects the firms ability to respond tothreats and opportunities and that lack of integra-tion within and across channels may have negativeconsequences for strategic adaptation.
DIFFERENTIATION ANDINTEGRATION IN THEMULTIBUSINESS FIRM
The organizational architecture is a critical deter-minant of managerial information processingcapacity and strategic adaptation (Lawrence andLorsch, 1967; Tushman and Nadler, 1978; Miller,1986; Siggelkow and Levinthal, 2003). FollowingChakravarthy (1982), we define strategic adapta-tion as the coordinated responses to competitivethreats as well as the proactive pursuit of new
opportunities. Strategic adaptation may be con-strained by a number of factors such as the rigidityassociated with established routines and patterns ofresource allocation (Leonard-Barton, 1992; Nelsonand Winter, 1982; Gilbert, 2005) or the cognitiveimpediments that arise from divergent perceptionsof external shocks (Meyer, 1982), technologicalchange (Tripsas and Gavetti, 2000), or competitiveactivity (Reger and Palmer, 1996). Our focus is athird category, the information processing limits ofdecision makers as shaped by the organizationalarchitecture (March and Simon, 1958; Galbraith,1974; Nadler and Tushman, 1997).
The original literature on M-form firms high-lighted how the segmentation of decisionresponsibility between strategy and implemen-tation deepens the information processing anddecision-making capacity of corporate executives(Chandler, 1962) and focuses line managers atten-tion on unique markets and facilitates the develop-ment of products that are tailored to meet marketneeds. However, given the limits of structural dif-ferentiation between strategy and operations forstrategic adaptation, multibusiness firms requirespecialized structures for integration across lev-els and functions. Lawrence and Lorsch (1967)established both differentiation and integration offirms information processing capacity as criti-cal determinants of performance. Differentiationwas defined as the state of segmentation of theorganizational system into subsystems, each ofwhich tends to develop particular attributes inrelation to the requirements posed by its rele-vant external environment (Lawrence and Lorsch,1967: 4). Integration was the quality of the stateof collaboration that exists among departmentsthat are required to achieve unity of effort bythe demands of the environment (Lawrence andLorsch, 1967: 11). Departmental (and divisional)specialization was identified as a key to differ-entiation. Integration may be achieved throughvarious mechanisms, such as dedicated roles,organizational goals, and interactions within cross-functional or cross-business unit teams. Cross-business unit teams, for example, may integratemultiple perspectives by fostering trust, improvinginformation sharing, and providing members withopportunities to navigate their differences (Martin,2011). Interactions within top management helpresolve conflicting agendas (Cho and Hambrick,2006) and balance exploration and exploitation(Smith and Tushman, 2005).
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
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Architecture, Attention and Adaptation 637
Governance channels, collective verticalinteractions, and situated attention
Our conception of integration in this article issimilar to, but distinct from, previous definitionsin several respects. In this study, integration refersto the alignment of managerial attention to com-mon issues, initiatives, and decisions (i.e.,agendas). The attention-based view of the firm(Ocasio, 1997; Ocasio and Joseph, 2005; Barnett,2008; Bouquet and Birkinshaw, 2008) provides thetheoretical framework for our approach and theunderlying mechanism of how organizationalarchitecture shapes the differentiation and integra-tion of managerial attention required for strate-gic adaptation. Attention is defined as the notic-ing, encoding, interpreting, and focusing of timeand effort by organizational decision makers onboth (1) issues: the available repertoire of cat-egories for making sense of the environment;and (2) answers: the available repertoire of actionalternatives (Ocasio, 1997: 189). The issues andanswers together constitute the corporationsagenda and are central to adaptation and change(Dutton, 1997).
Within the context of distributed attention thatis characteristic of the multibusiness firm, organi-zational architecture becomes a particularly impor-tant mechanism to integrate the focus ofattention on the corporations strategic agenda.Integration, in this context, reflects the collectivevertical interactions between corporate and busi-ness unit managers that occur within governancechannels and the issues and initiatives that areaccordingly attended to as managers communicateand make discrete decisions that involve organi-zational resources (Dutton and Ashford, 1993).The concept of channels played an important rolein early administrative theory (March and Simon,1958; Simon, 1957; Thompson, 1967; Allison,1969) and is considered a key mechanism forprocessing information (Galbraith, 1973; Marchand Simon, 1958; Henderson and Clark, 1990;Gulati et al., 2005) and transferring and integratingknowledge (Miller, 1986; Henderson and Clark,1990; Puranam and Srikanth, 2007). They are alsocentral in focusing the attention of organizationaldecision makers (Ocasio, 1997). Governance chan-nels include strategic reviews, audits, personnelreviews, ad hoc committee meetings, and budgetforecasts as well as the Chief Executive Office.Governance channels reflect collective vertical
interactions beyond vertical reporting relation-ships highlighted in transaction cost theory(Williamson, 1975) or dyadic exchange commonto social network perspectives (Hansen andHaas, 2001).
An interaction lens recognizes that the atten-tion focus of decision makers is situated(Ocasio, 1997) and occurs at the level of the chan-nel, guided by the particular procedural, temporal,and spatial characteristics of the channel (Stinch-combe, 1968). Accordingly, the interactions thatoccur through attention-directing channels reflecta host of contextual factors such as the issueson the agenda (Dutton, 1997), standard operat-ing procedures and routines (Nelson and Win-ter, 1982), group norms, and the participation ofkey organizational actors (e.g., CEOs and CFOs),as well as their frequency (annually, monthly),sequence (early or late in the year), and location(at headquarters, in the field). In the multibusi-ness firm, interactions within governance channelsallows corporate managers to prioritize strategicissues and initiatives for the explicit purpose ofallocating resources and governing the corporation(Ocasio and Joseph, 2005), but also accommo-dates emergent issues and initiatives within thebusiness unit. It is the situated joint attention cre-ated within governance channels that generatesthe decision-making patterns necessary to identifyopportunities and respond to competitive threatsin a coordinated mannerand, therefore, servesas the basis for adaptive moves of the M-formfirm. Our research explores how the structure ofgovernance channels, a key characteristic of orga-nizational architecture, shapes the adaptation ofbusiness units, with particular focus on how chan-nels integrate and focus business unit and corporateagendas.
METHODS AND DATA
To examine the effects of the corporate architec-ture on attention and adaptation, we conducted anin-depth case study of GEs governance systemfrom 1951 to 2001. Case studies allow researchersto get close to the theoretical constructs and causalforces of interest (Siggelkow, 2007) and are effec-tive when the focus of the study is to understandor answer how questions (Eisenhardt and Graeb-ner, 2007), which are the focus of the presentstudy. As a setting for our research, GE offered
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638 J. Joseph and W. Ocasio
several advantages. First, GE is an important yetanomalous case for strategic management research.As a highly diversified conglomerate with highlevels of sustained profitability, it defies conven-tional wisdom on the limits of unrelated diversifi-cation (Rumelt, 1982). Second, GE is an extremecase, where the theoretical mechanisms that arethe focus of this investigation are especially trans-parent and well documented (Eisenhardt, 1989). Inaddition, GE offers significant longitudinal varia-tion in the organizational architecture and channelstructureincluding what GE has referred to atvarious times as its strategic planning system orits operating system (Ocasio and Joseph, 2008).Third, public information on the firm is avail-able over a long period to allow the study of keychannels in detail without having to assume theircontext or characteristics.
To reconstruct GEs system of governance chan-nels and their effects on the firms adaptive behav-ior, we utilized a longitudinal embedded casedesign that allows for multiple levels of analy-sis (Eisenhardt, 1989; Yin, 2009). In our study,we identified four distinct organizational architec-tures at GE195163, 196371, 197186, and19862001allowing for longitudinal variationin our analysis. We selected two business unitsthat could be examined across periods, and weanalyzed attention focus at the channel level, ourprimary level of analysis. This allowed us to utilizea replication logic, whereby each subunit was usedto test emergent theoretical insights (Yin, 2009).Our basic unit of analysis is event based, consis-tent with other empirical studies of attention (e.g.,Hoffman and Ocasio, 2001). Events are embeddedin business units, which are themselves embeddedin one of four corporate architectures, all part ofa single firm. In our embedded design, the single-firm setting allowed for variation of the conditionsof interest, while controlling for firm factors suchas history, incentives, and top management. Weexamine, for each key event, the central channelfor strategy formulation as well as changes to thechannel configurations, and we observe variationsin attention and adaptation.
Data for the study is drawn from several sources:public documents, including annual reports, proxystatements, and speeches; historical documentsfrom the GE corporate archives in Schenectady,New York, including board of directors minutes,executive correspondence, corporate newsletters,and organizational charts and directories; historical
documents from archives on GEs computer busi-ness at the University of Minnesota; newspapers,magazines, and books published from 1951 to2001 that concern GE or one of its CEOs, sub-sidiaries, or operational units; and 16 interviewswith past and present GE employees.
Data analysis
First, we reviewed each period in detail andhighlighted key channels, the corporate agendasattended to within each channel, and primary link-ages to other channels. Utilizing Chandler (1977,1991) as a guide, we initially categorized the chan-nels as headquarters, line, or staff channels basedon the executives who participated in the chan-nel and the types of decisions made within thechannel. Headquarters channels are interactionswithin the top management team, for formulat-ing strategy, allocating resources, and governingthe corporation. Line channels are vertical interac-tions between managers with a formal authority orreporting relationship (c.f. Williamson, 1975). Staffchannels are those where corporate staff interactto address the functional aspects of the business.In addition, our analysis identified a fourth cat-egory: cross-level channels. Cross-level channelsinvolved interactions among corporate executive,business unit managers, and corporate staff. Bothline channels and cross-level channels are verticalgovernance channels. Cross-level channels differfrom line channels or vertical reporting relation-ships in that the latter involves dyadic interactionsbetween managers and subordinates where atten-tion is directed from the top down. Moreover,interactions within cross-level channels are col-lective, not dyadic, and involve both bottom-upand top-down influence on attention and decisions.Table 1 lists the channel types for each period.
We also categorized the corporate agendas at-tended to within channels into the following fourfunctions: planning, finance, operations, andhuman resources. Channels that are specializedhave a focused agenda. Within these channels,managers attend primarily to the set of issuesof a particular function. Integrated channels havebroader agendas covering multiple functions, withmore than one foci of attention. Figures 14 con-tain the organizational architecture for each of theperiods. The transmission of issues and initiativesbetween channels determines whether the channels
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
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Architecture, Attention and Adaptation 639
Table 1. Channel types
Decentralization(195163)
Corporate planning(196371)
Strategic planning(197185)
Operating system(19862001)
HQ Office of the President Chief Exec. Office Chief Exec. Office Chief Exec. OfficeAdvisory Council Corp. Policy Board Corp. Policy Board
Sector PlanningStaff Auditing Auditing Auditing Auditing
Service Departments Corporate Exec. Staff Corporate Exec. StaffCorporate Adm. Staff Corporate Adm. StaffManpower ReviewGrowth Council SBU Planning
Crotonville Crotonville Crotonville CrotonvilleShangri-La
Corp. Operations. BoardCorp. Exec. Comm. Corp. Exec. Comm.
Cross-level Financial reporting Financial reporting Financial reporting Financial reportingBellair BocaSession I Session I
Annual Bus. Review Session II Session IISession C Session C
PresidentGroup CEOGroup CEOSector CEOBusiness UnitLine GroupDivision GroupDivision SectorGroup
DivisionDept DivisionDept GroupDivisionDivisionDept
indicates cross-functional channels; indicates specialized channels.
President
Advisory Council*PLAN
CRO
SS-L
EVEL
HQ
Department*PLAN, FIN, HR, OPS
CROSS -LEVEL LINE STAFF
Auditing*FIN
Division*PLAN, FIN, HR, OPS
Office of President*PLAN, FIN
Annual Bus. Review*PLAN, FIN, HR, OPS
Services*PLAN
Crotonville*HR
Group*PLAN, FIN
Financial reporting*FIN
Figure 1. Organizational architecture (19511952)Decentralization
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640 J. Joseph and W. Ocasio
President
CRO
SS-L
EVEL
HQ
Department*PLAN, FIN, HR, OPS
CROSS -LEVEL LINE STAFF
Crotonville*HR
Auditing*FIN
Division*PLAN, FIN, HR, OPS
Chief Exec. Office*PLAN, FIN
Manpower Review*HR
Growth Council*PLANGroup
*PLAN, FIN, HR, OPS
Corp. Exec. Staff *PLAN
Corp. Adm. Staff*OPS
Financial reporting*FIN
Annual Bus. Review*PLAN, FIN, HR, OPS
Corp. Policy Board *PLAN
Shangri-La*PLAN
Figure 2. Organizational architecture (19671968)Corporate planning
CEO
CRO
SS-L
EVEL
HQ
Department*PLAN, FIN, HR, OPS
CROSS -LEVEL LINE STAFF
Crotonville*HR
Financial reporting*FIN
Auditing*FIN
Division*PLAN, FIN, HR, OPS
Chief Exec. Office*PLAN, FIN
Session II*PLAN, FIN, OPS
Group*PLAN, FIN, HR, OPS
Corp. Exec. Staff*PLAN
Corp. Adm. Staff*OPS
Belleaire*PLAN SBU Planning
*PLAN
Sector*PLAN, FIN, HR, OPS
Session I*PLAN, FIN
Session C*HR
Corp. Policy Board*PLAN
Figure 3. Organizational architecture (19771978)Strategic planningCopyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)
DOI: 10.1002/smj
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Architecture, Attention and Adaptation 641
CEO
CRO
SS-L
EVEL
HQ
Department*OPS
CROSS -LEVEL LINE STAFF
Crotonville*HR
Financial reporting*FIN
Auditing*FIN
Division*OPS
Session II*PLAN, FIN, OPS
Business Unit*PLAN, FIN, HR, OPS
Session I*PLAN, FIN, OPS
Session C*PLAN, FIN, OPS, HR
Boca*PLAN
Chief Exec. Office*PLAN, FIN
Corp. Exec. Council*PLAN
Figure 4. Organizational architecture (19951996)Operating system
are linked in the corporate architecture. For exam-ple, in the first period, the Services channel wasfocused on planning, and the issues attended toin that channel served as an input to the AdvisoryCouncil and the Annual Business Review, creatinga link between Services and the Advisory Council,and Services and the Annual Business Review.
In the next stage of research, we returned tothe data and identified two business units thatcould provide deeper insights into the integra-tion of channels. The businessesComputers andMedical Systemswere selected based on the fol-lowing criteria: (1) the business was widely rec-ognized through secondary sources as a majorone during GEs history; (2) the business spannedat least two distinct channel configurations; and(3) sufficient data on the business was availablefor analysis. The business units were within indus-tries at different stages of their life cycles, withan established incumbent in computers (IBM), butrelatively little competition in medical imaging(where GE was the dominant player in the U.S.).For each of the business units, we identified keyevents, our unit of analysis. Key events generatedopportunities or threats to the business unit and
received significant attention by decision makers.We used a theoretical sampling approach (Eisen-hardt, 1989), which requires selecting events thatare theoretically useful and reflect relevant cate-gories. In this case, the categories were strategicopportunities and threats and the type of chan-nels involved in decision making (allowing forvariation across events in the success of strategicadaptation). A total of 10 events were identified:five for the Computer business and five for Med-ical Systems. In the third stage of our research,we conducted interviews with 16 current and for-mer GE employees. Twelve of the interviews wereconducted with different members of the GE Com-puter Department Alumni Association, and threeof the interviews were conducted with current andformer senior Medical Systems managers (nowGE Healthcare), including Walter Robb, the for-mer chief who oversaw the entry into CT scan-ners and MRI. We also conducted interviews withthe GE archivist in Schenectady, New York. Thesemistructured interviews lasted 60 to 120 min-utes and followed an interview guide directing thesubject to focus on the facts of each event. Thepurpose of these interviews was to review and
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642 J. Joseph and W. Ocasio
deepen our data analysis concerning the events andthe channels in which they were made, the contentof the interactions more generally, and the flow ofissues across channels.
In what follows, we analyze the governancechannels prevalent during each of the key peri-ods and their impact on business unit adaptivemoves. We track key changes to the organiza-tional architecture and the channels, paying closeattention to the type of channels used for strat-egy formulation. We highlight the key events foreach period to illustrate how (and whether) thechannels integrated corporate and business unitattention focus. Finally, we examine how adaptivemoves were affected. Identification of successfulstrategic adaptation frequently depends on the timeframe considered (for example, the Computer ven-ture was initially successful, but unsuccessful inthe long term). Therefore, we focus our analysis onwhether adaptive moves were taken or not takenin response to attention patterns, rather than theiroverall impact on financial performance, thoughwe address the performance issue in the discussionsection. We use the historical analysis to gener-ate theoretical propositions on how organizationalarchitecture shapes business unit adaptation.
ORGANIZATIONAL ARCHITECTURESAT GENERAL ELECTRIC
The General Electric Company, incorporated in1892, was from its early days a diversified firmwith lines of business in lighting, power trans-formers, and a wide variety of electrical compo-nents for industrial, commercial, and residentialuse. From the period studied, GEs governancesystem was characterized by four distinct organi-zational architectures, each with its own structureof channels. We characterize the four architecturesas: (1) decentralization (195163), (2) corporateplanning (196371), (3) strategic planning (197186), and (4) operating system (19862001).
DecentralizationIn 1951, Ralph J. Cordiner, president of GE, im-plemented a radical decentralization of thecorporation. Motivated by the need for greatercontrol of the sprawling organization, departmentsbecame the basic operating unit of the organiza-tionwith a full staff, a clear charter of business
(and profit) responsibility, and limited horizontalcoordination. Departments reported to divisions,divisions reported to groups, and groups reportedto Cordiner.
To govern the decentralized organizationalarchitecture, Cordiner established a series of gov-ernance channels to link operating units decisionsdirectly with headquarters. To introduce GEsmiddle manager ranks to GEs management phi-losophy and techniques, Cordiner created the GEManagement Development Institute, a staff chan-nel in Crotonville, New York. To closely monitoroperating performance, Cordiner utilized monthlyfinancial reports, prepared by department financemanagers, reviewed and approved by the depart-mental GM, and distributed to the division GM,group executive, comptroller, and president, mak-ing it a cross-level channel. Planning was carriedout, in part, by the Office of the President, aheadquarters channel that included Cordiner, groupVPs, and service (i.e., corporate staff) VPs. Sofar, the decentralized organizational architecturecorresponds to differentiation of strategy and oper-ations in the M-form, as originally described byChandler (1962, 1991) and Williamson (1971).But another critical channel, which facilitated inte-gration across corporate and business levelstheAnnual Business Reviewdiverged from thismodel. This cross-level channel brought the depart-ment staff, president, group executives, and serviceVPs together for one- or two-day meetingseitherat corporate headquarters at 570 Lexington Avenuein New Yorkor at the department headquarters,to review all functions of the business unit.
Corporate planning
Fred Borch, who succeeded Cordiner in 1963, car-ried out a major reorganization that more thandoubled the number of groups, divisions, anddepartments. He also altered the system of gov-ernance channels to accommodate a greater focuson corporate planning, with a greater separationof strategy at the corporate level from operationsat the business unit level. When Borch took overas CEO, GEs sales and profits had been rel-atively stagnant for five years. Senior manage-ment believed that future growth would requirespecialized and sustained corporate-level atten-tion to planning and diversifying new ventures.Correspondingly, there was a belief that venture
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
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Architecture, Attention and Adaptation 643
planning should be separate from the regular oper-ations of the business.
To separate planning from day-to-day opera-tions, Borch established numerous headquarterschannels, each designed to deal with specificstrategic issuesnone of which included opera-tional responsibility. He created the Chief Exec-utive Office (CXO), which focused attention onthe development and implementation of corporatepolicies. Cordiners Advisory Council evolved intothe Corporate Policy Board (CPB), which includedthe CXO and corporate staff VPs, but not thegroup VPs. The CPB was a headquarters chan-nel for reviewing and communicating staff mattersof broad corporate interest. Borch established twoadditional staff channels: the Corporate Adminis-trative Staff, charged with handling the day-to-daycorporate staff work (such as accounting), and theCorporate Executive Staff (CES) to focus on thelong-run strategic direction and new ventures ofthe company. The CES most notably included thehead of planning and R&D, but, like other head-quarters channels, had no direct participation fromgroup or division managers. His most significantaddition to the staff channels was the GrowthCouncil, chartered with directing the Companysgrowth and led by a newly created Manager ofCorporate Planning. Borchs channel structure dur-ing this period most clearly followed Williamsons(1975) model of vertical separation of strategyfrom operations.
Strategic planningIn the late-1960s, to establish a more strategicfocus for planning, Borch engaged both the BostonConsulting Group and McKinsey in developingnew organizational architecture for what becameknown as a strategic planning system, includingthe strategic business units (SBUs). The SBU wasa parallel organizational structure superimposed onthe existing group-division-department organiza-tional reporting structure that focused attention onstrategic planning. SBUs were designations by theCXO regarding whether the specific department,division, or group was the correct business unitlevel at which competition took place. Diversifica-tion options were evaluated in terms of relationshipto the SBU core business and attractiveness of theindustry, rather than through problem solving atthe department level or separate growth planningat the corporate level.
Reginald H. Jones, who followed Borch as CEOin 1971, refined the SBU planning organizationalarchitecture. To gain better control over the actionsof the divisions and business units, Jones moretightly coupled strategic planning to budgetingand operations. He made his three vice chairmenresponsible for the plans and financial results ofall units reporting to them (Vaghefi and Huellman-tel, 1998). Later, he would use the sector levelto fulfill the same function. A key developmenthere was the emphasis on the portfolio planningmodel, which included pruning as well as growingbusiness unit components. Sector and group headswere ultimately responsible for both plans and per-formance and exerted more weight in divisionaldecisions.
Jones increased both staff and cross-level chan-nels in the organizational architecture. At head-quarters, decision making was coordinated throughthe CES, the Sector line of management, andthe CPB, a critical linkage between staff andline (as between sector heads themselves). Facedwith the segmentation of strategic planning, finan-cial reviews, and operational decision making,Jones created a new set of corporate-business unitcross-level channels, augmenting SBU planning.The Annual Business Review was reconstitutedas Executive Briefing Session I and II, yet stillserved as key cross-level channels. Session I inte-grated planning and budgeting, while Session IIwas primarily focused on financial objectives forthe upcoming year. Manpower reviews were con-stituted as Session C, a cross-level channel forplanning and evaluating managerial leaders. Thenew strategic reviews were distributed through-out the year and served to temporally link strate-gic planning with operational and human resourceplanning.
Operating system
In 1981, John F. Welch, Jr., became CEO andChairman of GE. In 1985, Welch centralizedthe corporate reporting structure, eliminating thesectors, groups, and SBUs, and he established15 businesses as the basic operating units reportingdirectly to him. Complex planning documents wereno longer required. Rather than bottom-up strategicplanning through the SBUs, planning was guidedby a corporate agenda comprised of key initiatives.Welch built on the prior system of cross-levelchannels to create what GE called its Operating
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
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644 J. Joseph and W. Ocasio
System (General Electric Annual Report, 1999)or social architecture (Welch, 2001). The Operat-ing System began with an annual retreat at BocaRaton, Florida, and was followed by a year-roundsystem of reviews. Welch noted that we poundedall our initiatives in January at Boca, at every quar-terly CEC meeting, at the human resources reviewin April (Session C), the planning sessions in July(Session I), the officers meeting in October, and theoperating plan meeting in November (Session II)(Welch, 2001: 299). Training to support initiativeswas done at Crotonville.
ORGANIZATIONAL ARCHITECTUREAND STRATEGIC ADAPTATION
We present our comparative analysis of 10 keyevents in Tables 25. Each of the tables reflectsdistinct features of the organizational architectureand their relationship to the process of strategicadaptation. The five events in the Computer busi-ness studied are: (C1) the financial and technicalsuccess of the Bank of America (BoA) computersystem and demands from banks and other poten-tial customers for similar products (1959); (C2)significant financial losses and delays in prod-uct development (1962); (C3) stagnant corporategrowth and profitability, which received renewedattention as Borch took over as CEO in 1963;(C4) strong growth and, for the first time, posi-tive net income in the business unit (1969); and(C5) the submission of the Advanced ProductLine (APL) to corporate headquarters and theU.S. governments restriction of GEs purchase ofanother computer manufacturer due to anti-trustconcerns (1969). In the Medical Systems business,the events studied are: (MS1) stagnant corporategrowth and profitability mentioned earlier (1963);(MS2) development of computerized tomography(CT) technology and entry of new competitors(1974); (MS3) increasing foreign competitiveness(197374); (MS4) development of magnetic res-onance imaging (MRI) technology (1980); and(MS5) quality problems and peer firm adoption ofSix Sigma (1995). Note that these events includeboth opportunities and threats to the Computerand Medical System businesses, but were oftenperceived somewhat differently by corporate head-quarters, as will be discussed.
Cross-level channels
Table 2 compares the primary channel throughwhich strategy formulation occurred and withinwhich perspectives on potential threats and oppor-tunities were debated. The Table includes the typeof channel, the attention to threats and opportu-nities within the channel, and how the interac-tions within the channel affected the alignment ofcorporate and business unit perspectives on mar-ket and technological opportunities. As Table 2indicates, strategy formulation was carried out incross-level channels in six of the 10 events stud-ied. In three events, staff channels were used, andone utilized a headquarters channel. Our induc-tive analysis found that within these cross-levelchannels, corporate and business unit managers,through open and frank dialogue, would establisha common focus of attention on particular threatsand opportunities and appropriate courses of actionto deal with them. The conversations at the AnnualBusiness Reviews were highly interactive in atalk out loud manner (Greenwood, 1982). Like-wise, Welch (2001: 193) described Session C asfun brawls: aggressive, gossipy, brutally honestmeetings that brought the CXO together with thebusiness unit heads. These meeting were effectivein aligning perspectives because the interactionsencouraged debate, negotiation (Martin, 2011) andefforts to create a collective perspective (Kaplan,2008) in order to come to a decision on next steps.The performance benefits of constant group com-munication are well documented (e.g., Brown andEisenhardt, 1997; Martin and Eisenhardt, 2010),and the interactions between decision makers hasbeen shown to shape cognition (Gilbert, 2006). Inour analysis, we find that senior managementsperspectives did not always dominate, leaving agreat deal of discretion to business units in shapingthe collective perspective and mobilizing action infavor of their desired outcome.
At the 1960 Annual Business Review, for exam-ple, conflicting perspectives on the next stepsfor the Computer business came together (C1)headquarters strategy to stay away from compet-ing with IBM in the mainstream computer busi-ness, and due to the financial and technical suc-cess of the BoA computer system, the ComputerDepartments plan to enter the broader businesscomputing market. Interactions during the AnnualBusiness Review, a cross-level channel, helpedalign these divergent perspectives on the market
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
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Architecture, Attention and Adaptation 645
Tabl
e2.
Cros
s-le
velc
hann
els
and
alig
nmen
tofc
orp
orat
e-bu
sines
su
nit
pers
pect
ives
oft
hrea
tsan
do
ppor
tuni
ties
Even
tN
o.Ev
ents
Key
chan
nel
Chan
nel
type
Atte
ntio
nto
thre
ats/o
ppor
tuni
ties
with
inch
anne
lR
esul
ting
alig
nmen
tacr
oss
level
sA
lignm
ent
achi
eved
C1Fi
nanc
iala
nd
tech
nica
lsucc
ess
of
BoA
syste
man
dde
man
dfo
rsim
ilarp
rodu
cts
(1959
)
Ann
ualB
usin
ess
Rev
iew
Cros
s-le
vel
Corp
orat
eH
Qfo
cus
on
thre
atofI
BM
asa
com
petit
or,l
oss
ofI
BM
ascu
stom
eran
dvie
wth
atG
Eoffe
red
no
tech
nica
lcontr
ibut
ion;
busin
ess
unit
focu
son
RCA
asco
mpe
titor
,abi
lity
ofG
Eto
finan
ceven
ture
and
opp
ortu
nity
todi
rect
lyen
ter
busin
ess
mac
hine
s.
Corp
orat
eH
Qsh
fits
focu
sfro
mIB
Mto
RCA
as
prim
ary
com
petit
oran
dfro
mte
chni
cal
contr
ibut
ion
tofin
anci
ngas
key
adva
ntag
e.Co
rpor
ate
HQ
and
BU
focu
sal
igne
don
busin
ess
mac
hine
sopp
ortu
nity
.
Yes
C2Si
gnifi
cant
finan
cial
loss
esan
dde
lays
inpr
oduc
tdev
elop
men
t(19
62)
Ann
ualB
usin
ess
Rev
iew
Cros
s-le
vel
Corp
orat
eH
Qfo
cus
on
failu
reofb
usin
ess
unit
tom
eet
finan
cial
goal
s;bu
sines
sunit
focu
son
IBM
thre
atan
dte
chno
logy
prob
lem
s(pe
riphe
ralsa
nd
softw
are).
Corp
orat
eH
Qan
dB
Ufo
cus
alig
ned
on
impr
ovin
gfin
anci
alpe
rform
ance
.Ye
s
C3St
agna
ntco
rpor
ate
grow
than
dpr
ofita
bilit
y(19
63
1964
)G
row
thCo
unci
lSt
aff
Corp
orat
eH
Qfo
cus
on
grow
thth
roug
hnew
ven
ture
s.Co
rpor
ate
HQ
focu
ses
on
com
pute
rsas
one
key
grow
thar
eaan
din
tern
atio
nala
cqui
stion
asm
eans
toin
crea
sepr
esen
ce;p
ays
little
atte
ntio
nto
grow
ing
tech
nica
l(pe
riphe
ral,s
oftw
are)
or
finan
cial
(leasi
ng)i
ssue
sin
BU
.
No
C4R
enew
alofv
olu
me
ship
men
tsof
600
serie
san
dpo
sitiv
enet
inco
me
(1969
)
Shan
gri-L
aSt
aff
Corp
orat
ean
dB
Upl
anni
ngst
afff
ocus
on
tech
nolo
gica
lopp
ortu
nity
with
new
prod
ucts
tole
apfro
ngIB
Ms
pric
e-pe
rform
ance
adva
ntag
e.
Plan
ners
atco
rpor
ate
and
BU
level
sfo
cus
on
plan
forA
dvan
ced
Prod
uctL
ine
(APL
)at
aco
stof
$500
mill
ion.
Yes
C5A
PLpl
ansu
bmitt
ed;g
ovt
anit-
trust
const
rain
ts(19
69)
Ventu
res
Task
Forc
eH
QCo
rpor
ate
HQ
focu
son
thre
atto
shor
t-ter
mea
rnin
gsan
dopp
ortu
nity
tore
duce
pres
sure
on
cash
flow
and
opp
ortu
nity
sell
the
busin
ess.
Corp
orat
eH
Qvie
ws
step
snec
essa
ryto
atta
inN
o.2
posit
ion
too
cost
lyan
din
ves
tigat
essa
le;p
ays
little
atte
ntio
nto
BU
plan
toen
hanc
e60
0se
ries.
No
MS1
Stag
nant
corp
orat
egr
owth
and
profi
tabi
lity
(1963
19
64)
Gro
wth
Coun
cil
Staf
fCo
rpor
ate
HQ
focu
son
grow
thth
roug
hnew
ven
ture
s.Co
rpor
ate
staf
ffoc
uses
on
opp
ortu
nitie
sw
ithin
med
ical
serv
ices
;pay
slit
tleat
tent
ion
toB
Ude
velo
pmen
tofa
rtifi
cial
org
ans,
nucl
ear
med
icin
e,or
prol
ifera
tion
ofX
-ra
yeq
uipm
ent.
No
MS2
Tech
nolo
gica
ldisc
ontin
uity
from
CT(19
74)
Sess
ions
I&
IICr
oss-
leve
lCo
rpor
ate
HQ
focu
son
opp
ortu
nity
togr
owth
roug
hCT
tech
nolo
gy;B
Ufo
cus
on
thre
atfro
mnew
entr
ants
.
Corp
orat
eH
Qan
dB
Ufo
cus
alig
ned
on
cras
hde
velo
pmen
tpro
gram
ofC
Tte
chno
logy
inCR
D.
Yes
MS3
Incr
easin
gag
gres
siven
ess
and
succ
ess
off
orei
gnco
mpe
titor
s(19
74
1975
)
Sess
ion
ICr
oss-
leve
lCo
rpor
ate
HQ
focu
son
thre
atofi
nter
natio
nal
com
petit
ion;
BU
focu
son
dom
estic
mar
ket.
Corp
orat
eH
Qfo
cuse
sB
Uon
iden
fiyin
gpa
rtne
rin
Japa
n.Co
rpor
ate
HQ
and
BU
focu
sal
igne
don
glob
alpe
rform
ance
and
stra
tegy
tode
alw
ithfo
reig
nco
mpe
titor
s.
Yes
MS4
Tech
nolo
gica
ldisc
ontin
uity
from
MR
I(19
80)
Sess
ions
I&
IICr
oss-
leve
lCo
rpor
ate
HQ
focu
son
opp
ortu
nity
togr
owth
roug
hM
RI
tech
nolo
gy;B
Ufo
cus
on
thre
atfro
mm
ulti
ple
com
petit
ors
incl
udin
gPi
cker
,Sie
men
s,J&
J,an
dPh
ilips
.
Corp
orat
eH
Qan
dB
Ufo
cus
alig
ned
on
cras
hde
velo
pmen
tpro
gram
ofM
RI
tech
nolo
gyin
CRD
.
Yes
MS5
Gro
win
giss
ues
ofq
ualit
yan
dad
optio
nofS
ixSi
gma
bype
er
firm
s(19
95)
Boc
a,Se
ssio
nsI,
IIan
dC
Cros
s-le
vel
Corp
orat
eH
Qfo
cus
on
opp
ortu
nity
toin
crea
sequ
ality
thro
ugh
Six
Sigm
a;B
Ufo
cus
on
thre
atfro
mEl
scin
tin
CTs
and
prob
lem
sw
ithX
-ray
tube
man
ufa
ctur
ing.
Corp
orat
eH
Qan
dB
Ufo
cus
alig
ned
on
Six
Sigm
ain
itiat
ive
and
sele
ctio
noft
rialp
rojec
tsin
Med
ical
Syste
ms
on
whi
chto
roll
out.
Yes
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
-
646 J. Joseph and W. Ocasio
Tabl
e3.
Spec
ializ
edch
anne
lsan
dad
aptiv
em
ov
es
Even
tN
o.K
eych
anne
l/typ
eSp
ecia
lizat
ion
Chan
nela
gend
aCo
rpor
ate
and
BU
stra
tegi
cfo
cus
Res
ultin
gad
aptiv
em
ov
es
C1A
nnua
lBusin
ess
Rev
iew
(cros
s-lev
el)N
oFi
nanc
ialp
erfo
rman
ce,k
eypr
obl
ems,
mar
kets,
prod
uctl
ines
,app
licat
ions
,new
prod
ucts,
long
-rang
efin
anci
alfo
reca
st
No
Ada
ptat
ion
thro
ugh
entr
yin
toco
mm
erci
alan
dbu
sines
sm
achi
nes
mar
ket(
1960
)
C2A
nnua
lBusin
ess
Rev
iew
(cros
s-lev
el)N
oFi
nanc
ialp
erfo
rman
ce,k
eypr
obl
ems,
mar
kets,
prod
uctl
ines
,app
licat
ions
,new
prod
ucts,
long
-rang
efin
anci
alfo
reca
st
No
No
adap
tatio
n;no
chan
gein
finan
cial
repo
rting
toal
low
for
IBM
leas
ing
mode
l;de
partm
entG
Mre
plac
edan
dgi
ven
man
date
totu
rnar
ound
perfo
rman
ce;i
ncre
men
talp
rodu
ctch
ange
(1963
)C3
Gro
wth
Coun
cil(
staff)
Yes
(plan
ning)
Gro
wth
opp
ortu
nitie
sfo
rG
Eth
atar
egr
ow
ing
faste
rth
anG
NP
and
inw
hich
GE
has
unqu
eca
pabi
litie
san
dm
aybe
able
toga
inco
mpe
titiv
ead
vant
age
No
Ada
ptat
ion
thro
ugh
acqu
isitio
no
fOliv
etti
(Italy
)an
dB
ull
Mac
hine
s(F
rance
)(19
64)
C4Sh
angr
i-La
(staff
)Ye
s(pl
annin
g)Sp
ecifi
catio
nsfo
ran
eww
orld
wid
epr
oduc
tlin
eto
mak
eG
Ea
clea
rNo.
2be
hind
IBM
No
No
adap
tatio
n;A
PLpl
anre
jected
(1969
)
C5Ve
ntu
res
Task
Forc
e(H
Q)Ye
s(pl
anni
ng)
Stra
tegi
can
dfin
anci
alev
alua
tion
ofn
ucl
eare
ner
gy,
com
mer
cial
jeten
gine
s,an
dco
mpu
ters
Yes
Ada
ptat
ion
thro
ugh
dive
stitu
reo
fco
mpu
teru
nit
(1970
)M
S1G
row
thCo
unci
l(sta
ff)Ye
s(pl
annin
g)G
row
thopp
ortu
nitie
sfo
rG
Eth
atar
egr
ow
ing
faste
rth
anG
NP
and
inw
hich
GE
has
unqu
eca
pabi
litie
san
dm
aybe
able
toga
inco
mpe
titiv
ead
vant
age
No
No
adap
tatio
n;pl
anfo
rmed
ical
info
rmat
ion
syste
ms
and
serv
ices
no
tad
opte
d(19
67)
MS2
Sess
ion
I(cr
oss
-leve
l)Ye
s(pl
anni
ng)
Com
petit
ors,
mar
keto
ppor
tuni
ties,
new
pro
duct
deve
lopm
ent,
acqu
isitio
nta
rget
s,fin
anci
alpe
rform
ance
and
projec
tions,
alte
rnat
ive
stra
tegi
es
Yes
Ada
ptat
ion
thro
ugh
com
mer
cial
izat
ion
ofC
Tsc
ann
er(19
76)
Sess
ion
II(cr
oss-l
evel)
Yes
(budg
etin
g)O
pera
ting
plan
san
dbu
dget
sN
oM
S3Se
ssio
nI
(cro
ss-le
vel)
Yes
(plan
ning
)Co
mpe
titor
s,m
arke
topp
ortu
nitie
s,n
ewpr
odu
ctde
velo
pmen
t,ac
quisi
tion
targ
ets,
finan
cial
perfo
rman
cean
dpr
ojec
tions
Yes
Ada
ptat
ion
thro
ugh
esta
blish
men
tofi
nte
rnat
iona
ldi
strib
utio
npa
rtne
rshi
p(19
77)
MS4
Sess
ion
I(cr
oss
-leve
l)Ye
s(pl
anni
ng)
Com
petit
ors,
mar
keto
ppor
tuni
ties,
new
pro
duct
deve
lopm
ent,
acqu
isitio
nta
rget
s,fin
anci
alpe
rform
ance
and
projec
tions
Yes
Ada
ptat
ion
thro
ugh
com
mer
cial
izat
ion
ofM
RI
(1984
)
Sess
ion
II(cr
oss-l
evel)
Yes
(budg
etin
g)O
pera
ting
plan
san
dbu
dget
sN
oM
S5B
oca
(cross
-leve
l)Ye
s(pl
anni
ng)
Intro
duct
ion
ofn
ewin
itiat
ives
;rev
iew
ofp
revio
usin
itiat
ives
succ
esse
sYe
sA
dapt
atio
nth
roug
hin
corp
orat
ion
ofS
ixSi
gma
into
X-r
aytu
bem
anu
fact
urin
gan
dCT
prod
uct
line
(1996
)Se
ssio
nC
(cross
-leve
l)Ye
s(H
R)
Eval
uatio
no
fman
ager
sin
supp
orto
finiti
ativ
es;
gene
rale
val
uatio
no
fman
ager
sN
o
Sess
ion
I(cr
oss
-leve
l)Ye
s(pl
anni
ng)
Prog
ress
on
initi
ativ
es,c
om
petit
ors,
mar
ket
opp
ortu
nitie
s,n
ewpr
odu
ctde
vel
opm
ent,
acqu
isitio
nta
rget
s,fin
anci
alpe
rform
ance
and
proje
ction
s
Yes
Sess
ion
II(cr
oss-l
evel)
Yes
(budg
etin
g)O
pera
ting
plan
san
dbu
dget
s,pl
ans
fors
peci
ficin
itiat
ives
No
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
-
Architecture, Attention and Adaptation 647
Tabl
e4.
Spec
ializ
edch
anne
ls,cr
oss
-func
tiona
lpar
ticip
atio
n,an
dfu
nctio
nalc
oo
rdin
atio
n
Even
tN
o.K
eych
anne
l/typ
eSp
ecia
lizat
ion
Cros
s-fu
nctio
nal
parti
cipa
tion
Atte
ntio
nall
inka
ges
ofi
ssu
esan
din
itiat
ives
with
inch
anne
lR
esul
ting
func
tiona
lco
ord
inat
ion
with
inch
anne
l
C1A
nnua
lBus
ines
sR
evie
w(cr
oss-l
evel)
No
Yes
Link
sfin
anci
alre
sou
rces
fors
upp
ortin
gin
itiat
ive;
limite
dfo
cus
on
oth
erfu
nctio
nsCo
ordi
natio
npr
imar
ilyin
supp
orto
fsh
ort-t
erm
finan
cial
perfo
rman
ceC2
Ann
ualB
usin
ess
Rev
iew
(cros
s-lev
el)N
oYe
sLi
nks
plan
ning
with
BU
ope
ratio
nalc
hang
esnee
ded
(i.e.,
new
line
man
agem
ent)
Coor
dina
tion
prim
arily
insu
ppor
tof
shor
t-ter
mfin
anci
alpe
rform
ance
C3G
row
thCo
unci
l(sta
ff)Ye
s(pl
annin
g)N
oA
cqui
sitio
nta
rget
sse
lect
edby
HQ
with
no
invo
lvem
ento
fBU
ope
ratio
nsan
dfin
ance
pers
onne
l
Lim
ited
cro
ss-fu
nctio
nalc
oo
rdin
atio
n
C4Sh
angr
i-La
(staf
f)Ye
s(pl
annin
g)N
oPr
imar
ilyco
mpr
ised
ofp
lann
ing
staf
f,w
ithlit
tlein
volv
emen
tofB
Uo
pera
tions
Lim
ited
cro
ss-fu
nctio
nalc
oo
rdin
atio
n
C5Ve
ntu
res
Task
Forc
e(H
Q)Ye
s(pl
annin
g)Ye
sLi
nks
betw
een
plan
ning
,fina
nce,
and
lega
lat
HQ
leve
lwith
no
invo
lvem
entf
rom
BU
ope
ratio
nsLi
mite
dcr
oss
-func
tiona
lco
ord
inat
ion
MS1
Gro
wth
Coun
cil(
staff)
Yes
(plan
ning)
Yes
Prim
arily
com
prise
dofp
lann
ing
staf
f,w
ithn
olin
kto
BU
ope
ratio
nsLi
mite
dcr
oss
-func
tiona
lco
ord
inat
ion
MS2
Sess
ion
I(cr
oss
-leve
l)Ye
s(pl
annin
g)Ye
sLi
nks
plan
ning
tode
velo
pmen
teffo
rtsin
CRD
and
BU
Stro
ngcr
oss
-func
tiona
lco
ord
inat
ion
Sess
ion
II(cr
oss-l
evel)
Yes
(budg
eting
)Ye
sLi
nks
plan
ning
tofin
anci
alre
sou
rces
tofu
ndCT
deve
lopm
ent
MS3
Sess
ion
I(cr
oss
-leve
l)Ye
s(pl
annin
g)Ye
sLi
nks
plan
ning
toin
tern
atio
nalb
usin
ess
dev
elop
men
tan
do
pera
tions
Stro
ngcr
oss
-func
tiona
lco
ord
inat
ion
MS4
Sess
ion
I(cr
oss
-leve
l)Ye
s(pl
annin
g)Ye
sLi
nks
tode
velo
pmen
teffo
rtsin
CRD
and
BU
Stro
ngcr
oss
-func
tiona
lco
ord
inat
ion
Sess
ion
II(cr
oss-l
evel)
Yes
(budg
eting
)Ye
sPr
ov
ision
ofn
eces
sary
finan
cial
flexi
bilit
yto
fund
MR
Ide
vel
opm
ent
MS5
Boc
a(cr
oss
-leve
l)Ye
s(pl
annin
g)Ye
sLi
nks
stra
tegi
cin
itiat
ives
with
allf
unct
ions
;ou
tline
sro
lefo
reac
hfu
nctio
nan
ddi
visio
nVe
ryst
rong
cro
ss-fu
nctio
nal
coo
rdin
atio
nSe
ssio
nC
(cro
ss-le
vel)
Yes
(HR
)Ye
sLi
nks
Six
Sigm
ato
lead
ersh
ipde
velo
pmen
t,tr
aini
ngo
fSix
Sigm
aB
lack
Bel
ts,an
dco
mpe
nsat
ion
for
top
perfo
rmer
sSe
ssio
nI
(cro
ss-le
vel)
Yes
(plan
ning)
Yes
Link
sSi
xSi
gma
tom
arke
topp
ortu
nitie
s,n
ewpr
oduc
tdev
elop
men
t,an
dfin
anci
alpe
rform
ance
and
proje
ction
sSe
ssio
nII
(cros
s-lev
el)Ye
s(bu
dgeti
ng)
Yes
Link
sSi
xSi
gma
too
pera
tiona
lpla
nsan
dbu
dget
s
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
-
648 J. Joseph and W. Ocasio
Tabl
e5.
Chan
nelc
ou
plin
gan
dv
ertic
alan
dho
rizon
talc
oo
rdin
atio
nac
ross
chan
nels
Even
tN
o.O
rgan
izat
iona
lar
chite
ctur
eCo
uplin
go
fgo
vern
ance
syste
mFo
cus
ofo
rgan
izat
iona
lar
chite
ctur
eR
esul
ting
horiz
onta
land/
orver
tical
coord
inat
ion
acro
ssch
anne
ls
C1D
ecen
traliz
atio
nLo
ose
coupl
ing
Ove
rall
arch
itect
ure
loos
ely
coupl
edth
roug
hfin
anci
aliss
ues.
Bot
tom
-up
plan
ning
,em
phas
ison
finan
cial
perfo
rman
cew
ithin
ABR
and
perio
dic
finan
cial
repo
rtsga
veth
eover
alls
yste
ma
finan
cial
focu
s.
Vert
ical
coord
inat
ion
with
Trea
sure
rs
offi
ceto
ensu
refu
ndin
gfo
rini
tiativ
e,an
dH
Rto
deve
lop
trai
ning
prog
ram
fors
ales
.
C2O
vera
llar
chite
ctur
ede
coup
led.
Top
dow
nco
rpor
ate
plan
ning
(e.g.,
Gro
wth
Coun
cil)
deco
uple
dfro
mbo
ttom
up
busin
ess
unit
plan
ning
and
finan
cial
issue
s.CX
Ode
coup
led
from
Gro
wth
Coun
cila
nd
busin
ess
unit
plan
ning
and
ope
ratio
ns.
Lim
ited
ver
tical
coord
inat
ion
oth
erth
anto
rein
forc
efin
anci
alta
rget
s.H
oriz
onta
lcoord
inat
ion
toad
opt
Hea
vyM
ilita
rys
M23
60co
mpu
terr
athe
rtha
nde
velo
pin
tegr
ated
prod
uctl
ine.
C3La
ckofv
ertic
alco
ord
inat
ion
with
busin
ess
unit
prod
uctd
evel
opm
enta
ctiv
ities
.Lac
kofh
oriz
onta
lin
tegr
atio
nbe
twee
nG
row
thCo
unci
lpla
nnin
gan
dB
Upr
oduc
tdev
elop
men
t.La
ckofh
oriz
onta
lco
ord
inat
ion
and
invo
lvem
ento
fany
oth
erdi
visio
nsin
Oliv
etti
or
Bul
lacq
uisit
ions
.C4
Corp
orat
epl
anni
ngD
ecou
plin
g
Lack
ofv
ertic
alco
ord
inat
ion
with
busin
ess
unit
prod
uctd
evel
opm
enta
ctiv
ities
.Lac
kofh
oriz
onta
lco
ord
inat
ion
with
oth
erke
ybu
sines
sunits
:In
dustr
ialG
roup
or
Aer
ospa
ceG
roup
.C5
Lack
ofv
ertic
alco
ord
inat
ion
with
busin
ess
unit
prod
uctd
evel
opm
enta
ctiv
ities
.Hor
izon
tal
coord
inat
ion
betw
een
plan
ning
,fin
ance
and
lega
lin
test
ofp
ortfo
liom
anag
emen
tpro
cess
.M
S1La
ckofv
ertic
alco
ord
inat
ion
betw
een
HQ
eval
uatio
noft
rans
actio
nan
dB
Uin
vestm
ents
inar
tici
alhe
arts.
Lack
ofv
ertic
alco
ord
inat
ion
betw
een
Gro
wth
Coun
cilp
lann
ing
and
busin
ess
unit
prod
uctp
lann
ing.
Lack
ofh
oriz
onta
lcoord
inat
ion
betw
een
plan
ning
and
ope
ratio
ns.
MS2
Ove
rall
arch
itect
ure
tight
lyco
upl
edth
roug
hbo
ttom
up
SBU
plan
ning
syste
m;c
hann
els
shar
ediss
ues
yeth
adsp
ecia
lized
focu
sofa
ttent
ion:
Sess
ion
C(H
R),S
-I(pl
annin
g),S-
II(op
eratio
ns).
Vert
ical
coord
inat
ion
betw
een
HQ
and
BU
prod
uct
deve
lopm
enta
ctiv
ities
.Hor
izon
talc
oord
inat
ion
betw
een
tech
nolo
gyde
velo
pmen
tand
com
mer
cial
izat
ion.
MS3
Stra
tegi
cpl
anni
ngVe
rtic
alco
ord
inat
ion
betw
een
HQ
and
BU
inte
rnat
iona
lbus
ines
sde
velo
pmen
tact
iviti
es.
MS4
Tigh
tcoupl
ing
Vert
ical
coord
inat
ion
betw
een
HQ
and
BU
prod
uct
deve
lopm
enta
ctiv
ities
.Hor
izon
talc
oord
inat
ion
betw
een
tech
nolo
gyde
velo
pmen
tand
com
mer
cial
izat
ion.
MS5
Ope
ratin
gsy
stem
Ove
rall
arch
itect
ure
tight
lyco
upl
edth
roug
hto
pdo
wn
stra
tegi
cin
itiat
ives
and
perio
dic
revie
ws
for
botto
mup
issue
s.Ch
anne
lssh
ared
issue
sye
thad
spec
ializ
edfo
cus
ofa
ttent
ion:
Boc
a(pl
annin
g),Se
ssio
nC
(HR
),S-
I(pla
nning
),S-
II (op
eratio
ns).
Vert
ical
coord
inat
ion
betw
een
HQ
and
BU
prod
uct
deve
lopm
enta
ctiv
ities
,and
horiz
onta
lco
ord
inat
ion
acro
ssal
lBU
san
dH
R(al
lin
supp
ort
ofi
nitia
tive).
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
-
Architecture, Attention and Adaptation 649
and technological opportunities in a number ofways. First, it linked the Computer initiative tothe issue of cash flow, rather than to GEs abil-ity to provide a technical contribution or capitalizeon its engineering skills. GE was the only com-pany other than IBM with the cash flow necessaryto compete in the leasing business. Second, forCordiner, the interaction framed RCA (the No.2 player)not IBMas the primary competitor,but also aligned with Cordiners interest in beingan industry leader. The returns from the initial BoAcontract were substantial and the promise of a lineof compatible computers seemed like a way toachieve leadership in niche markets (such as pro-cess control) and launch into the general purposecomputer market. Finally, projected payback andprofitability for the new product family was highlyfavorable. Despite Cordiners earlier reservations,he approved the plan and budget with favorablesupport from GEs chairman and treasurer, whowere both present (Oldfield, 1996).
A similar alignment of perspectives was madepossible though Sessions I and II, both cross-levelchannels. For example, Medical Systems decidednot to pursue the emerging CT imaging technol-ogy in 1971 because they viewed it as a nicheproduct for a small market. However, the corpo-rate planning staff (CES) was well aware of thetechnology and viewed it as a technological rev-olution (Session I, 1974). At 1973s Session II,corporate managers expressed concern over thebusiness units failure to move on CT technologyand drew attention to the need for more CorporateResearch and Development (CRD) research in thisarea. As the head of corporate planning recalls, wewere fiddling while Rome burned (Marone, 1993:30); he pushed the group executive (Jack Welch)and CRD to allocate resources for CT research.In early 1974, orders for new X-ray equipmentbegan to fall as hospitals diverted funds to buy thenew technology. At 1974s Session I, the negativeimpact of CT scanners on X-ray market share wasbrought to the attention of corporate headquarters,which imparted a sense of urgency at the corporatelevel and, at the same time, led Medical Systemsto conclude we have got to get into this busi-ness (Marone, 1993: 30). Consequently, duringthe Session II budgeting and operational reviewof the same year, CT technology was identified asa priority. Accordingly, funds were officially allo-cated to a crash development program starting inJanuary, 1995 (MS2).
HQ and staff channelsIn contrast, interactions within headquarters orstaff channels failed to fully align corporate andbusiness unit perspectives on threats and opportu-nities. For example, in response to stagnant growthand profitability (C3 and MS1), the Growth Coun-cil was developed and charged with identifyinghigh-growth markets that GE had the capabil-ity to develop and support (Rothschild, 2007).The Growth Council targeted nine growth areasincluding Computers and Medical Services. Yetthe Growth Council was limited by the fact thatit was a staff channel. With little operational inputand no participation from senior management, itsplan failed to account for IBMs entrenchment ininformation systems departments (including thoseat GE), the high switching costs of computers,and corporate managements diminishing tolerancefor financing the venture (C5). A similar problemarose with the Growth Councils planning effortfor the Medical Systems business. Although bothcorporate and business unit executives shared acommon belief that growth would be achieved inthe X-ray department through investment in newventures, each focused on different opportunities.The Growth Council focused on medical infor-mation services, which were more profitable, lesscyclical, and less vulnerable to foreign competition(Rothschild, 2007). Medical Systems conducted itsown planning effort focused on opportunities suchas product line extensions and new technology inartificial organs and nuclear medicine (Janssen andMedford, 2009). The CXO had a different view ofthe business entirely and was considering divestingthe unit altogether because of GEs product safetyliability as a result of deaths from the use of GEpacemakers.
Thus, the Growth Council, a staff channel,stands in contrast to the Annual Business Review(under Cordiner) and Sessions I and II, whichare cross-level channels. Annual Business Reviewsprovided a mechanism for business unit man-agers to directly influence attention at corporateheadquarters and a channel for implementing thecorporate agenda at the level of operating units.Session I reflected a similar pattern. Accordingly,in the cross-level channels, corporate and busi-ness unit managers could collectively reach somelevel of alignment on the opportunities to pur-sue. The staff and headquarters channels, absentcorporate and business unit interactions, allowed
Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj
-
650 J. Joseph and W. Ocasio
divergent perceptions and plans to persist. Underthese conditions, business unit managers remainedin their own worlds and conceived of opportu-nities more in line with existing product markets.Consequently, we suggest:
Proposition 1: By creating interactions betweencorporate and business unit managers, cross-level channels align corporate and divisionalattention to threats and opportunities.
SPECIALIZATION, INTEGRATION,AND CHANNEL COUPLING
As Tables 3, 4, and 5 indicate, certain structuralcontingencies of cross-level channels shape issueidentification and responsiveness. Corporate andbusiness unit decision-maker interactions are notsufficient condition for channels to ensure greaterattention to strategy formulation and coordinatedresponses to opportunities and threats. Our analy-sis showed that adaptation requires channels thatare: (1) specialized to allow for focused attentionto strategic (competitive and long term) rather thanjust financial or operational issues and initiatives(Table 3); (2) cross-functional to ensure linkagesbetween planning and other functional activitiesin response to opportunities and threats (Table 4);and (3) tightly coupled in a coherent organizationalarchitecture to ensure vertical and horizontal coor-dination of initiatives (Table 5).
Specialized channels and adaptive movesTable 3 provides a comparison of channel types,the degree to which they were specialized (i.e., hada focused agenda), and the effects on the types ofadaptive moves made. Of the 10 events studied,two resulted in no corporate-driven change (C4and MS1), one resulted in management changeswithout significant strategic adaptation (C2), andseven resulted in strategic adaptation (C1, C3, C5,MS2, MS3, MS4, and MS5). Five of the adap-tive moves involved cross-level and specializedchannels. For two of the seven adaptive moves,staff (C3) or headquarters (C5) channelsratherthan cross-level channelswere involved. Thesetwo involved major acquisitions or business unitdivestitures, respectively, suggesting that busi-ness unit adaptation through mergers, acquisi-tions, and divestitures may occur independently of
cross-level channels. The acquisition of the Euro-pean Computer businesses (C3) was not success-ful, nor, in the long term, was the expansion ofthe Computer business (C1). The divestiture ofthe Computer business (C5) was a financial suc-cess, but corporate-business unit coordination wasnot consequential for the sale of the Computerbusiness.
Our analysis suggests that while cross-levelchannels are critical to successfully aligning some-times divergent corporate and business unit percep-tions of the environment, they are not sufficient toensure that attention to long-range issues will notgive way to more immediate concerns. In com-plex organizations, routinized attention to internalfinancial and operational issues often drives outlong-term strategic planning (March and Simon,1958). The broader the agenda in the channel, thesmaller the likelihood that any single issue willreceive sustained attention (often, there is simplynot enough time to cover everything). This maybe particularly true if the strategic issues are notconsidered central to the agenda or share attentionequally with other issues. However, we find thatcross-level channels that primarily focus attentionon planning more readily foster adaptive activi-ties that reflect strategic issues. Focused cross-levelchannels ensure the engagement of decision mak-ers attention (Ocasio, 2011) and the intentionaland sustained allocation of cognitive resources, inthe case of GE, on early identification of newtechnologies and changes in the competitive envi-ronment (e.g., MS2-MS5). Such attentional engage-ment focuses time, energy, and effort on a selectedset of environmental stimuli (e.g., competitiveactivity), corresponding response initiatives, andthe relationships between them (Ocasio, 1997).
For example, in 1962, the broad Annual Busi-ness Review agenda included financial perfor-mance, problem areas, key markets