Hannan and Freeman 1984

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Structural Inertia and Organizational Change

Michael T. Hannan; John Freeman

American Sociological Review, Vol. 49, No. 2. (Apr., 1984), pp. 149-164.

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STRUCTURAL INERTIA AND ORGANIZATIONAL CHANGE*

MICHAELT . HAN NAN JOHN FREEMA N

Stanford University Unive rsity of Califo rnia, Berkeley

Theory and research on organization-environment relations from a populationecology perspective have been based on the assumption that inertial pressures onstructure are stron g. This paper attemp ts to c lar~ fyhe m eaning of structura l inertiaand to derive propositions abo ut structural inertia from an explicit evolutionarym od el. The proposed theory tre ats high levels of structural inertia as a consequenceof a selection process rather than as a precondition for selection. It also considershow the strength of inertial forces varies with ag e, siz e, and com plexity.

Most prominent organization theories ex-plain variabili ty in organizational charac-

teristics, that is, diversity, through reference tothe history of adaptations by individual organi-zations, Earlier (Hanna n and Freeman, 1977),we challenged this view and argued tha t adap-tation of organizational structures to envi-ronm ents oc cur s principally at the populationlevel, with forms of organization replacingeach other as conditions change. This initialstatement of population ecology theory restedon a number of simplifying assumptions. Amajor one was the premise that individual or-ganizations a re subject to strong inertial forc es,

that is, that they seldom succee ded in makingradical chang es in strategy and structure in theface of environmental threats.

How strong are inertial forces on organi-zational structure? This question is substan-tively interesting in its own right. It is alsostrate~ica l lv m ~o rta nt . ecause the claim that.adaptation theories of organizational changeshould be supplemented by population ecologytheories d epends partly o n these inertial forcesbeing strong.

Many popularized discussions of evolutionsuggest that selection processes invariablyfavor ada ptable forms of life. In fact the theoryof evolution makes no su ch claim, as we m adeclear earlier (Hannan and Freeman, 1977;Freeman and Hannan, 1983). This paper goesbeyond our earlier theory in acknowledgingthat organizational changes of some kindsoccur frequently and that organizations some-times even manage to mak e radical change s instrategies and structures. Nevertheless, we

*Direct all correspondence to: Michael T. Han-nan, Department of Sociology, Stanford University,

Stanford, CA 94305.The work reported here was supported by Na-

tional Science Foundation grants SES-8109382 and

argue that selection processes tend to favororganizations w hose structures are difficult to

change. That is, we claim that high levels ofstructural inertia in organizational populationsc a n b e e x p l a i n e d a s a n o u t c o m e o f a necological-evolutionary process.

In addition to deriving structural inertia as aconseq uence of a selection process, this paperexplores some of the details of inertial forceson organizational structure. It considers howinertial forces vary over the life cycle, withorganizational size, and with complexity, andsuggests some specific models for these de-pendencies.

BACKGROUND

Our earlier formulation of an ecological theoryof organizational cha nge pointed t o a variety ofconstraints on structural change in organi-zations:. . . for wide classes of organizations there

a r e v e r y s t r o n g i n e r t i a l p r e s s u r e s o nstructure aris ing from both internal ar-rangements (for example, internal politics)

and from the environment (for example,public legitimation of organizational ac-tivity). To claim otherwise is to ignore themost obvious feature of organizational life.(Ha nna n and Freem an, 1977:957)

Some of the factors that generate structuralinertia are internal to organizations: these in-clude sunk co sts in plant, equipm ent, and per-sonnel, the dynamics of political coalitions,and the tendency for precedents to becomenormative s tandards. Others are external .

There are legal and o ther barriers to entry andexit from realms of activity. Exchange rela-tions with othe r organizations con stitute an in-ves tme nt that is not written off lightly. Finally,attempting radical structural change often



structure ar e quite strong-much stronger thanmost theorists acknowledge. Moreover, theassumption that organizations rarely makefundamental changes successfully has provento be a useful strategic simplification. It hasallowed a rich and evoca tive se t of ecologicaltheories and m odels to be applied to the prob-lem of changes in organizational form over time(see , e.g., Brittain and F ree ma n, 1980; Carroll,1983; Carroll and Delacroix, 1982; Fre em an,1982; Freeman and Han nan, 1983; Freeman etal., 1983).

However, the claim that organizat ionalstructures rarely change is the subject of dis-pute. Ma rch (198 15 63 ) summarizes his reviewof research on organizational change by as-serting:

Organizat ions are cont inual ly changing,rout inely, easi ly, and responsively, butchange within organizations canno t be arbit-rarily controlled . . . What most reports onimplementation indicate . . . is not that or-ganizations are rigid and inflexible, but thatthey are impressively imaginative.

The contemporary li terature contains a t leastthree broad points of view on organizationalchange. Population ecology theory holds thatmost of the variabi l i ty in organizat ional

structures co me s about through the creation ofnew organizations and organizational formsand the replacement of old ones (Han nan andFreeman, 1977; Freeman and Hannan, 1983;Mc Kelvey , 1982). A se cond view, which mightbe called rational adaptation theory, proposesthat orga nizational variability reflects designedchanges in strategy and structure of individualorganizations in response to environmentalchanges, threats, and opportunities. The re arenumerous variants of this perspective whichdiffer widely on other dimensions. Contin-

gency theories emphasize structural changest h a t m a t c h o r g a n i z a t i o n a l s t r u c t u r e s t otechnology-environment pairs (Thompson,1967; Law rence and Lo rsch , 1967). Resource-dependence theor ies emphas ize s t ructura lchanges that neut ra l ize sources of envi -ronmental uncertainty (Pfeffer and Salancik,1978). An institutionally oriented version ofthis perspect ive holds that organizat ionalstructures are rationally ad apted t o prevailing,normatively endorsed modes of organizing

(Me yer and R owa n, 1977; DiMaggio and Pow-ell, 1983). Marxist theories of organizationtypically assert that organizational structuresare rational solutions for capitalist owners tothe problem of maintaining control ov er labor

AMERICAN SOCIOLOGICAL REVIEW

sponse to endogenous processes, but that suchchanges are only loosely coupled with the de-sires of organizational leaders and with thedemands and threats of environments (Marchand O lsen, 1976; M arch , 1982; We ick, 1976).

Progress in explaining organizational diver-sity and change requires understanding boththe nature of organizational change and thedegree to which it can be planned and con-trolled. Here we concentrate mainly on thefirst issue: doe s most of the o bserved variabil-ity in organizational featur es reflect cha nge s inexisting organizations, whe ther planned o r not,or does it reflect changes in populations withrelatively inert organizations replacing eachother? In other words, does change in majorfeatures of organizations over time reflect

mainly adaptation or selection and replace-ment?The selection and adaptation perspectives

are so different that it is hard to believe thatthey are talking about the same things. Scott(1981:204) claims that they are not:. . . the natural selection perspective seems

to us to be particularly useful in focusingattention on the core features of organi-zat ions, explaining the l i fe chances ofsmaller and more numerous organizations,and accounting for change s in organizationalforms over the long run. By contrast therational selection or resource devendencvapproach emphasizes the more peripheralfeatures of organizations, is better applied tolarger and mo re powerful organizations, andstresses changes occurring over shorter pe-riods of time.

This contrast provides a useful point of de-parture for an a ttempt to clarify the conditionsunder which the tw o perspectives apply.

TRANSFORMATION ANDR EP LAC EMENT

All accepted the ories of biotic evolution sharethe assum ption that innovation, the creation ofnew strategies and structures, is random withrespect to adaptive value. Innovations are notproduced because they ar e useful; they are justproduced. If an innovation turns out to en-hance life chances, it will be retained andspread through t he population with high prob-ability. In this sense, evolution is blind. Howcan this view be reconciled with the fact thathuman ac tors devote s o much attention to pre-dicting the future and to developing strategiesfor coping with expected events? Can social



151TRUCTURA L INERTIA AND ORGANIZATIONAL CHANGE

Darwinian in the sen se that human actor s learnby experience and incorporate learning intotheir behavioral repertoires (se e, e.g., N elsonand Winter, 1982). To the extent that learningabout the past helps future adaptation, socialchan ge is indee d Lamarckian-it transfo rmsrather than selects. In other words, majorchange processes occur within behavioralunits.

Even when actors strive to cope with theirenvironments, action may be random with re-spect to adaptation as long as the environm entsare highly uncertain or the connections be-tween mean s and end s are not well understood .It is the match between action and envi-ronmental outcomes that must be random onthe average for selection m odels to app ly. In a

world of high uncertainty, adaptive efforts byindividuals may turn out to be essentially ran-dom with respect to future value.

Th e realism of D arwinian mechanisms in or-ganizational populations also tur ns on the de-g re e t o w h ic h c ha nge in o rga n iz a t i ona lstructures can be controlled by those ostensi-bly in comm and. Suppose that individuals learnto anticipate the future and adapt strategiesaccordingly and tha t organizations simply mir-ror the intentions of rational leaders. Then or-ganizational adaptations would be largely non-

random with respect to future states of theenvironm ent. On the other hand, if March andothers are right, organizational change isla rge ly uncont ro l led . Then organiza t ionsstaffed by highly rational pla nner s may behaveessentially randomly with respect to adapta-tion. In othe r words, organizational outcomesmay be decoupled from individual intentions;organizations may have lives of their own. Inthis case it is not enough to ask whether indi-vidual humans learn and plan rationally for anuncertain future. One must ask whether orga-nizations a s collective actors display the sam ecapacities.

Th e applicability of Darwinian arguments t ochanges in organizational populations thus de-pends partly on the tightness of coupling be-tween individual intentions and organizationaloutcomes. At least two well-known situationsgenerate loose coupling: diversity of interesta m o n g m e m b e r s a n d u n c e r t a i n t y a b o u tmeans-en ds connections. When members of anorganization have diverse interests, organi-

zational ou tcomes d epend heavily on internalpolitics, on the balance of power among theconstituencies. In such situations outcomescannot easily be matched rationally to chang-ing environments.

consequences may often differ greatly fromlong-run consequences. In such cases, it doesnot seem realistic to assume a high degree ofcongruence between designs and outcomes.

STRUCTURAL INERTIATo this point we have adopted the frame ofreference of the existing literature, which askswhether organizations learn and adapt to un-certain, changing environments; but we thinkthis emphasis is misplaced. The most impor-t a n t i s s u e s a b o u t t h e a p p l i c a b i l i t y o fevolutionary-ecological theories to organi-zations concern the timing of changes.

Learning and adjusting structure enhancesthe chance of survival only if the speed of

response is commensurate with the temporalpatterns of relevant environm ents. Indeed, theworst of all possible worlds is to changestructure continually only to find each timeupon reorganization that the environment hasalready shifted to some new configuration thatdemands yet a different structure. Learningand structural inertia must be considered in adynamic context . Can organizat ions learna b o u t t h e i r e n v i r o n m e n t s a n d c h a n g estrategies and structures as quickly as theirenvironments change? If the answer is nega-

tive, replacement or selection arguments arepotential1y applicable.

Three things must be known in order to an-swer qu estions abo ut the applicability of selec-tion theories to populations of organizations.The first issue is the temporal pa ttern of

changes in key environments. Are typicalchanges small or large, regular or irregular,rapid or slow? The second issue is the spe ed of

learning mechanisms. How long does it take toobtain, process, and evaluate information onkey environments? The third issue is the re-

sponsiveness of the structure to designed

changes. Ho w quickly can an organization bereorganized?

To claim that organizational structures aresubject to strong inertial forces is not the sameas claiming that organizations never change.Rather, it means that organizations respondrelatively slowly to the occurrence of threatsand oppor tuni t ies in the i r envi ronments .Therefore, structural inertia must be defined inrelative and dynamic terms. It refers to com-

parisons of the typical rates of change of theprocesses ident if ied above. In part icular,structures of organizations have high inertiawhen the speed of reorganization is muchlower than the rate at which environmental




Our definition of structural inertia impliesthat a particular class of organizations mighthave high inertia in the context of one envi-ronment but not in another. For example, thespeed of technical change in the sem iconduc torindustry has been very high over the pasttwenty years. Firms that would be consideredremarka bly flexible in oth er industries have notbeen ab le to reorganize quickly enough to keepup with changing technologies.

One of the m ost importan t kinds of threats tothe success of extant organizations is the cre-ation of new organizations designed specifi-cally to take advantage of some new set ofopportunities. When the costs of building anew organization are low and the expectedtime from initiation to full production is shor t,

this kind of threat is intense (unless there arelegal baniers to the entry of new organi-zations). If the existing organizations cannotchange their strategies and structures morequickly than entrepreneurs can begin new or-ganizations, new competitors will have achance to establish footholds. Other thingsbeing equal, the faster the speed with whichnew organizations can be built, the greater isthe (relative) inertia of a set of existingstructures.

Even such a successful and well-managed

firm as IBM moves ponderously to take ad-vantage of new opportunities. Granted, IBMe v e n t u a l l y m o v e d i n t o t h e m a r k e t f o rminicomputers and microcomputers and ap-pears poised t o dominate them. Still, the pro-tracted period of assessing these markets,waiting for technologies to stabilize, and reor-ganizing production and m arketing opera tionscreated the opportunity for new firms to be-come establ ished. As a consequence, thestructure of the computer industry is almostcertainly different than it would have been had

IBM been willing and able to move quickly.The point is that IBM did change its strategysomewhat, but this change took long enoughthat new firms using different strategies andstructures were able to flourish.

REPRODUCIBILITY, INERTIA,AND S ELEC TION

As we have emphasized elsewhere, organi-zations are special corpora te acto rs. Like other

corporate actors, they are structures for ac-complishing collective action as well as repos-itories of corporate resources. Unlike othercollective actors, organizations receive publiclegitimation and social support as agents for

public goals, the basis on which organizationsmobilize resources initially and gain supportfrom society is their claim to accomplish somespecific set of ends (e.g., making a profit,treating the sick, producing basic scientific re-search).

Creating an organization means mobilizingseveral kinds of scarce re sources. Organizationbuilders m ust accum ulate capital, commitmentof potential members, entrepreneurial skills,and legitimacy (see Stinchc omb e, 1965). Oncesuch resources have been invested in buildingan organizational stru cture , they a re difficult torecover. Although one can sell the physicalassets of a disbanded organization and some-times its name, m ost resourc es used to build itare lost when it is dissolved. N ot only are the

costs of starting an organization nontrivial, butorganizations continually use substantial por-tions of their resources in maintaining and re-producing their structures rather than in per-forming collective action. Just as in the caseof biotic creatures, there is a substantialmetabolic overhead relative to the amount ofwork performed. T hus the creation of a perma-nent organization a s a solution to a problem ofcollective action is costly compared to otheralternatives.

Why do individuals and other social actors

agree to commit scarce resources to such ex-pensive solutions to problems of collective ac-tion? A number of answers to this questionhave been put forth (see Scott, 1981:135-63,for an insightful review). T he new institutionaleconomics argues that organizations arise tofill the gaps created by market failure (Arrow,1974). Williamson's ( 1975) influential analysisproposes that organizations are more efficientthan markets in situations in which economictransactions must be completed in the face ofopportunism, uncertainty, and small-numbers

bargaining. Although sociologists tend to denythat organizations arise mainly in response tomark et failures, they tend to a gree that organi-zations have special efficiency properties, butemphasize their efficiency and effectivenessfor coordinating complex tasks (Blau andSco tt, 1962; Thom pson, 1967).

Although these efficiency arguments areplausible, it is not obvious that they are cor-rect. Many detailed accounts of organizationalprocesses raise serious doubts that organi-

zations minimize the c osts of completing manykinds of transactions. Indeed , there appears tobe a strong tendency for organizations to be-come ends in themselves and to accumulatepersonnel and an elaborate structure far be-



153T RUCT URA L INE RT IA AND ORGANIZAT IONAL CHAN GE

ers collaborating in ad hoc groups can oftencomplete quite complex tasks. From the per-spective of the performance of a single, com-plex collective action, it is not obvious that apermanent organization has any technical ad-vantage.

We emphasize different kinds of competen-cies. The first of these is rel iabil i ty . Organi-zations have unusual capacities to producecollective products of a given quality re-peatedly. In a world of uncertainty, potentialmembers, investors, and clients may value re-liability of performance more than efficiency.Th at is, rational a ctor s may be w illing to pay ahigh price for the certain ty that a given produ cto r service of a certain minimum quality will beavailable when it is nee ded . Reliability depe nds

on the var iance of performance (including itstimeliness) rather than its average level.Organizations have higher levels of reliabil-

ity than ad hoc collectives in two senses: onecross-sectional and the other temporal. Cross-sectional reliability means that an outcomechosen at random from a population of organi-zations will have a lower variance than onechosen at random from a population of otherkinds of producers. Temporal reliability meansthe variability over time in the quality (includ-ing timing of delivery) of an outcome is lower

for those produced by organizations than forthose produced by ad hoc groups. Overall, weargue that the distinctive competence of orga-nizations is the capacity to generate collectiveactions with relatively small variance in qual-ity.

Organizations have a second property thatgives them an advantage in the modem world:accountab i l i ty . The spread of general norms ofrationality in the modem world (Weber, 1968)and a variety of internal and external con-tingencies demand that organizations be able toaccou nt rationally for their actions. This mean sboth that they must be able to document howresources have been used and to reconstructthe sequences of organizational decisions,rules, and actions that produced particular out-com es. It does not necessarily mean that orga-nizations must tell the truth to their membersand to the public about how resources wereused or how some debacle came about. Whatmatters is that organizations can make inter-nally consistent arguments that appropriate

rules and procedures existed to reproduce ra-tional allocations of resources and approp riateorganizational ac tions.

Norms of procedural rationality are perva-sive in the modem world. Organizational

Coleman (1974) has argued that corp orate a c-tors favor o ther corporate actors o ver individ-uals. We add that corporate actors especiallyfavor oth er corp orate acto rs that give signals ofprocedural rationality and accountability.

Testing for accountability is especially in-tense during organization building, the processof init ial resource mobilization. Potentialmembers want assurance that their invest-ments of time and commitment will not bewasted. When membership involves an em-ployment relation, potential members oftenwant gua rantees that ca reer s within the organi-zation are managed in some rational way.Potential investors ( or supporters) also ass essaccou ntability. In f act, the profession of publicaccountancy arose in the United States in re-

sponse to the desires of British investors inAmerican railroads for assurances that theirinvestments were being managed in appropri-ate ways (Chandler, 1977). Demands for ac-counting rationality in this narrow sense arebo th widespread and in tense in modernsocieties. For exam ple, the federal governmentwill not allocate research grants and contractsto organizations that have not passed a federalaudit, meaning that they have given evidenceof possessing the ap propriate rules and proce-dures for accounting for the use of federal

funds.Accountability testing is also severe when

resources contract . Members and clients whowould otherwise be willing to overlook wastetypically chang e their views when budgets andservices are being cut.

In our judgment, pressures fo r accou nt-ability are especially intense when ( 1 ) organi-zat ions produce symbol ic or informat ion-loaded products (e .g . , educat ion, brandedproducts versus bu lk g o o d s t s e e DiMaggioand Powell (1983); (2) when subs tanti al r i s ~

exists ( e.g ., medical care ); (3) when long-termrelations betw een the organization and its em-ployees o r clients are typical; and (4) when theorganization's purposes are highly political(W eber, 1968). Ou r argum ents presumablyapply with special force to organizations inthese categ ories. Still, we think that pressurestowards accountability are generally strongand getting stronger. The trend toward litigat-ing disputes and pressures for formal equalityin modem polities intensifies demands for ac-countability. All organizations seem to besubject to at least moderate levels of account-ability testing.

We argue that the modern world favors col-lective actors that can demonstrate or at least



tain kinds of organizations over others, sincenot all organizations have these properties inequal measure. Selection within organizationalpopulations tends to eliminate organizationswith low reliability and accountability. Theselection processes work in several ways.Partly they reflect testing by key actors andenvironments in the organization-buildingstage. Potential members, investors, and oth erinterested parties apply tests of reliability andaccountability to proposed new ventures. Suchtesting continues after founding. Unreliabilityand failures of accountability at any stage in asubsequent l i fe t ime threa tens an organi -zation's ability to maintain commitment ofmembers and clients and its ability to acquireadditional resources.

Assumption 1 . Selection in populations of or-ganizations in modern societies favors formswith hig h reliability of performance and h ighlevels o f accountability.

When does an organization have the ca-pacity to produce collective outcomes of acertain minimum quality repeatedly? Th e mostimportant prerequisite is so commonplace thatwe take it for granted. Reliable performancerequires that an organization continually re-pro duce its structure-it must have very nearly

the sam e structure today that it had yesterday .Among oth er things, this mean s that structuresof roles, authority and comm unication must bereproducible from day to day.

Assumption 2. Reliability and accountabilityrequire that organizational structures b e highlyreproducible.

A structure can conceivably be reproducedrepeatedly by negotiation and conscious deci-sion making. The m embers of an organizationwith such practices might happen to decide

each day to re-create the structure that existedthe previous day. But this seems unlikely. Re-producibility is far more likely under differentconditions. In general, organizations attain re-producibility of structure through processes ofinstitutionalization and by creating highlystandardized routines.

The first solution, institutionalization, is atwo-edged sw ord. It greatly lowers the cos t ofcollective action by giving an organization ataken-for-granted character su ch that memb ers

d o not continually question organizational pur-poses, authority relations, etc. Reproductionof structure occurs without apparent effort inhighly institutionalized structures. The otheredge of the sword is inertia. The very factors


come moral and political rather than technicalissues. Attempts at redesigning structures inorganizations built on moral commitment arelikely to spark bursts of collective oppositionpremised on m oral claims in favor of the sta tusquo. Even if such opposition d oes not prevail,it delays change considerably.

As a b ra ke on s t ruc tu ra l c ha nge , i n -stitutionalization applies both to the organiza-tion as a whole and to its subunits. But whatabo ut the diversity amon g sets of differentiatedactivities within the organization? Some kindsof organizations perform diverse sets of activi-ties, sometimes in parallel and sometimes se-quentially. Military organizations provide astriking example; they maintain "peacetime"and "wartime" stru ctu res . Similarly, labor

unions gear up for organizing drives or forwaves of strikes and then return t o more placidbread-and-butter collective bargaining. Man-ufacturing firms som etimes concentrate o n re-designing produ cts and a t other times concen-trate on marketing an extant set of products.Each phase of organizational activity involvesmobilizing different kinds of structures ofcommunication and coordination. In a realsense these kinds of organizations can be saidto use different structures in different phases.

Does this mean that these organizations hav e

somehow escaped inertial tendencies? Wethink not, at least from the perspective of at-tempts at building theories of organizationalchange. These organizations have multipleroutines; they shift from one routine (o r set ofroutines) to another in a fairly mechanicalfashion. We think that organizations have highinertia both in the sets of routines employedand in the s et of rules used to switch betw eenroutines.

According to Nelson and Winter (1982:96)routines are the "source of continuity in the

behavioral patterns of organizations." Theyare patterns of activity that can be invokedrepeatedly by m embers and sub units. One wayof conceiving of routines is as organizationalmemory-an organ iza t ion ' s reper to i re ofroutines is the set of collective actions that itcan do from mem ory. Nelson and Winter em-phasize that organizations remember by doing.Like knowledge of elemen tary algebra o r highschool L atin, collective know ledge is the basisof organizational routines and decays rapidly

with disuse. Even occasional use reveals somedecay in recall and demonstrates the need toreinvest in learning to keep skills at their



155T RUCT URA L INE RT IA AND ORGANIZ AT IONAL CH ANGE

f o r m e r le v e l s . O r g a n i z a t i o n s t h a t h a v ethe capacity to use a broad repertoire ofroutines d o so by virtue of large investments inkeeping their routines sharp. For example,peacetime armies devote a great deal of theirresource s to simulating wartime situations andtraining. Armies that fail to make such an in-vestment experience great difficulty in makingthe transition to battle readiness.

The fact that organizational routines decaywith disuse implies that organizations face theclassic specialism-generalism dilemm a in de -ciding how many routines to maintain at anyfixed level of resources. Generalists (thosewith many routines) are no less inert than spe-cialists in the manner in which they adapt toenvironmental change in the sense that they

still use a limited number of routines. As Nel-son an d W inter (1982: 134) pu t it:

. . . it is quite inappropriate to conceive offirm behavior in terms of deliberate choicefrom a broad m enu of alternatives that someoutside o bs ew or conside rs to be "available"to the organization. Th e menu is not broad, itis narrow and idiosyncratic . . . Efforts tounderstand the functioning of industries andlarger systems should com e to grips with thefact tha t highly flexible adaptation to chang e

is not likely to characterize the behavior ofindividual firms.

We think that it is a reasonable first approxi-mation to think of organizations as possessingrelatively fixed repertoires of highly repro-ducible routines. Then the present argumentcan be applied either to the organization as awhole, where the issue is the diversity of therepertoire, or to the individual routine.

Thus we argue that the properties that givesome organizations reproducibility also makethem highly resistant to structural change,whether designed or not. As we noted above,this means that some aspects of structure canbe changed only slowly and at considerablecost (many resources must be applied to pro-duce structural change). Such structures havea dead-weight quality; there are large lags inresponse to environmental changes and to at-tempts by decis ion makers to implementchange. Since lags in response can be longerthan typical environmental fluctuations andlonger than the attention spans of decision

makers and outside authorities, inertia oftenblocks structural change completely.The inertia of reproducible organizations is

usually viewed as a pathology. A classic state-ment of this position is Merton's (1957) essay

tions in changing environments. But, as weargued earl ier (Freeman and Hannan, 1983),organizations that frequently try to reorganizemay prod uce very little an d have slight chancesof survival. Here the issue is the cause ofstructural inertia rather than its consequen ces.Our argument is that resistance to structuralchange is a likely by-product of the ability toreproduce a structure with high fidelity:

Assumption 3. High levels of reproducibil ity ofstructure generate strong inertial pressures.

The three assumptions form the core of ourfirst argument. Taken together they imply:

Theorem 1. Selection within populations of or-ganizations in moder n societies favors organi-zations whose structures have high inertia.

This theorem states that structural inertia canbe a consequence of selection rather than aprecondition. All that is required is that someorganizations in an initial population have highlevels of reproducibility (hence high levels ofinertia) and that selection pressures be rea-sonably strong. Under such conditions, selec-tion pressures in modem societies favor orga-nizations whose structures are resistant tochange, which makes selection arguments allthe more applicable.

A HIE RARCHY O F INE RT IAL FORCE S

So far we have considered organizations asunitary actors, either adapting to their envi-ronments or remaining inert. This is simplisticin that it ignores the obvious fact that someparts of organizations change more quicklythan others and that adaptive changes aresometimes not difficult to discern or imple-ment. Unive rsities, for exam ple, are constantlychanging the textbooks used for instruction.

They d o so in an ada ptive way , keeping up withthe constantly evolving knowledge bases oftheir various fields. Persuading a universityfaculty to abandon liberal arts for the sake ofvocational training is something else again.

Why would the university's curriculum be sodifficult to change ? A number of answe rs comequickly to mind. The curriculum em bodies theuniversity's identity with reference both to thebroader society and to its participants (i.e.,f a cu l t y , s t u d en t s , s t a f f , ad mi n i s t r a t i o n ,

alumni). The kinds of courses offered and thefrequenc y with which they a re offered serv e asa statement of purpose which is articulatedwith society's value system. The curriculumalso represents one of the bases on which re-



would have a lesser role in such an institutioncan be expected to resist such a change. Thecurriculum is difficult to change, then, becauseit represents the core of the university's orga-nizational identity and underlies the distribu-tion of resources across the organization. Inthese ways, it can be said to lie at the univer-sity's "core."

This view of organizations as having a corewhich is more difficult to modify than moreperipheral parts of its structure is not new. AsParsons (1960:59-69) pointed o ut , organi-zational authority hierarchies are not continu-ous; quali tat ive breaks occur between thetechnical, managerial, and institutional levels.Th e technical sy stem is that part of the organi-zation that directly processes the "materials"

used by the organization. The resources usedby the technical system to do the organi-zation's basic work are allocated by a broaderorganizational apparatus, the managerial oradministrative system , which also relates thosetechnical activities to the public served. Whileeach depends on the other, the manageriallevel stand s in a super ord inate position. It bothcontrols and services the technical level's op-erations, while the reverse is less often thecase.

The third part, the institutional system, ar-

t iculates the whole organization with thebroader society. Parso ns emphasized its role inlegitimating the organization. Boards of trus-tees and direc tors a re responsible for long-runpolicy and for the conduct of the organizationwith regard to its reputed goals. Because theinstitutional and managerial leve ls of the orga-nization stand prior to the technical level incontrolling the flow of resources, any impor-tant change in their operations leads to changesin the details of the operations of the technicalsystem, while the reverse is less often true.

Thompson (1%7) adopted these distinctionsin arguing tha t organizations ar e built in su ch away as to protect structural units carrying outthe primary technology from uncertaintiesemanating from the environment. Thompson,however, drew core-periphery dist inctionswith reference to the organization's operatingtechnology. Since we think that the importanceof technology in determining structure variesgreatly across kinds of organizations, we em-phasize institutional characteristics more than

technical ones. In this way our approach iscloser to Parsons than to Thompson.An argument similar to ours has been ad-

vanced by Downs (1967:167-68) in his use ofthe metaphor of organizational depth:


of the specific actions taken by the bureau,the second of the decision-making rules ituses, the third of the institutional structure ituses to make those rules, and the deepest ofits general purposes.

The layers supposedly differ in characteristicspeeds of response.

We conceptualize organizational structure a scomposed of hierarchical layers of structuraland strategic features that vary systematicallyin flexibility and responsiveness. Our theoryemphasizes the claims used to mobilize re-sources for beginning an organization and thestrategies and structures used to maintainflows of scarce resources. Thus we classifyitems of structure ac cording to their bearing o n

resource m obilization. From the perspective ofresource mobilization, the core aspects of or-ganization are (1) its stated goals-the bases onwhich legit imacy and other resources aremobilized; (2) forms of authoriry within theorganization and the basis of exchange be-tween members and the organization; (3) coretechnology, especially as enc oded in capitalinvestment, infrastructure, and the skills ofmem bers; and (4 ) marketing strate gy in a broadsense-the kinds of clients (or custo m ers) towhich the organization orients its production

and the ways in which it attracts resourcesfrom the environment. Th e four characterist icsstand in a rough hie rarc hy, with publicly state dgoals subject to the strongest constraints andmarketing strategy the weakest. Thus we ex-pect the likelihood of cha nge by transformationto decline as one proceeds up the hierarchy.

These four properties provide a possiblebasis on which to classify organizations intoforms for ecological analysis . An organi-zation's initial configuration on these four di-mensions commits it to a certain form of envi-

ronmental dependence and to a long-termstrategy. Once an organization has made apublic claim to mobilize resources, has in-duced individuals to cede some control in re-turn for specific inducements, has invested inphysical and human capital of specific types,and has designed a product o r service to appealto a certain audience, it has greatly limited itsrange of feasible transformations.

Although organizations sometimes manageto chang e positions on these d imen sions, such

changes are both rare and costly and seem tosubject an organization to greatly increasedrisks of death. Thu s these c haracteristics serveas a possible basis for selection and replace-ment within populations of organizations.



157T RUCT URAL INE RT IA AND ORGANIZ AT IONAL CHANGE

interest social scientists. In particular, the listdoes not include structure in the narrow senseof numbers and sizes of subunits, number oflevels in authority structures, span of control,patterns of comm unication, and so forth. Nordoes it contain what Scott (1981) calls periph-eral structures, the detailed arrangements bywhich an organization makes links with its en-vironment and tries to buffer its technical core(for example, interlocking directorates andjoint ventures).

We think that properties of organizationcha rts and patterns of specific exchanges withacto rs in the en vironm ent are more plastic thanthe core set. They tend to change as organi-z a t i o n s g r o w a n d d e c l i n e in s i z e , a stechnologies change, and as competitive and

institutional environments change. They canbe transformed because attempts at changingthem involve relatively little moral and politicalopposition within the organization and in theenvironment and do not raise fundamentalquestions abo ut the nature of the organization.In short, inertial forces on these aspects ofstructure and on peripheral or buffering activi-ties tend to be weaker than those on core fea-tures.

Most organization theories assume that pe-r iphera l s t ruc tu res a re p remised on and

adapted tg a core structure. Changes in corestructures usually require adjustm ent in the pe-ripheral structures. However, the reverse isnot If a core struc ture is subject to stron gselection pressure, peripheral structures willalso be subject to at least weak (indirect)selection. In such cases, ecological theoryapplies at least indirectly to changes in periph-eral structures. The tighter the coupling be-tween the core and peripheral structures, themore direct is the applicability of our theory.

Overall we are inclined to agree with Scottthat evolutionary-ecological theories applymore appropriately to core properties than toothers. But we think that is because thestrength of inertial pressures differ rather thanbecause selection pressures on core and pe-ripheral structures differ.

I n ad d i t i o n t o v a ry i n g b y a s p ec t s o fstructure, the strength of inertial forces mayalso vary with life-cycle phase, size, andcomplexity. The remainder of the discussionconsiders these issues.

LIFE-CYCLE VARIATIONS IN INERTIA

Newly created organizations apparently havelower levels of reproducibility than o lder one s.

As Stinchco mb e (1965) pointed out, new orga-nizations typically have to rely on the cooper-ation of strangers. Development of trust andsmoothly working relationships take time. Italso takes time to work out routines. Initiallythere is much learning by doing and comparingalternatives. Existing organizations have anadvan tage over new ones in that it is easier tocontinue existing routines than to create newone s or borrow old ones (se e the discussion inNe lson and W inte r , 1982:99-107). Su charguments underlie the commonly observedmonotonically declining cost curve at the firmlevel-the so-called learning cu rve .

In additio n, the reliability and accoun tabilityof organizational action depend on membershaving acquired a range of organization-

specific skills (such as knowledge of spe-cialized rules and tacit understandings). Be-cause such skills have no value outside theorganization , mem bers may be reluctant to in-vest heavily in acquiring them until an organi-zation has proven itself (see Becker, 1975).O nce an orga nization su rvive s the initial periodof testing by the environ me nt, it becom es lesscostly for members to make investments inorganization-specific learning-early successbreeds the conditions for later success. Thuscollective action may become more reliable

and accountable with age simply because of atemporal pattern of investments by members.Moreover, the collective returns to invest-ments in organization-specific learning maytake time to be realized, just like the case forother forms of human capital. Fo r both of thesereasons, the levels of reliability and account-ability of organizational action should increasewith age, at least initially.

Once m embers have made extensive invest-ments in acquiring organization-specific skills,the costs of switching to other organizations

rise. Consequently the stake of members inkeeping the organization going tends t o rise asit ages.

Finally, processes of institutionalization alsotake time. In particular, it takes time for anorganization to acquire institutional reality toits members and to become valued in its ownright.

Assumption 4. Reproducibility of structure in-creases monotonically with age.

T h e o r e m 2 . S t r u c tu r a l i n er t i a i n cr ea s esmonotonically with age. (From Assumptions 2and 4)

Theorem 3. Organizational death rates de-



crease with age. (From Assumption 4 and


b e e n w e l l d o c u m e n t e d e m p i r i c a l l y ( s e eFreeman et al . , 1983). Death rates appear todecline approximately exponentially as organi-zations age. On e explan ation for this finding isthat reproducibility rises roughly exponentiallywith age over the early years in an organi-zation's life.

Processes of external legitimation also taketime. Although an organization must havesome minimal level of public legitimacy inord er to mobilize sufficient resou rces to beginoperations, new organizations (and especiallynew organizational forms) have rather weakclaims on public and official support. Nothinglegitimates both individual organizations andforms more than longevity. Old organizationstend to develop dense webs of exchange, to

affiliate with centers of power, and to acquirean aura of inevitability. External actors mayalso wait for an initial period of testing to bepassed before m aking investmen ts in excha ngerelations with new - Thusreanizations. vro-cesses of institutionalization in the environ-ment an d exch ange relationships with relevantsectors of the environment may account for therelationships stated in Theorems 2 and 3. Theargument to this point cannot distinguish be-tween the internal and external sources of therelationships.

S IZ E AN D INERT IA

We argued above that dampened response toenvironm ental threats and opportunities is theprice paid fo r reliable a nd ac countab le collec-tive action. If this argument is correct, organi-zations respond more slowly than individualson average to environmental changes. How-ever, some organizations are little more thanextensions of the wills of dominant coalitionso r individuals; they ha ve no lives of their own.Such organizations may change strategy andstructure in response to environmental changesalmost as quickly as the individuals who con-trol them . Change in populations of su ch orga-nizations may operate as much by transforma-tion as selection.

Except in exceptional cases, only relativelysmall organizations fit this description. An or-ganization can be a simple tool of a dominantleader only when the leader does not delegateauthority and power down long chains of

command. Failure to delegate usually causesproblems in large organizations. Indeed, thefailure of m oderate-sized organizations is oftenexplained as resulting from the unwillingnessof a fou nder-leade r to delegate responsibility a s

also, perhaps, by age), at w hich failure to dele-gate power sharply limits viability. In such athreshold model, organizations may be quiteresponsive below the threshold level of size.Above the threshold, organizations tend tohave higher inertia. Or the relationship be-tween size and inertia may be roughly continu-ous . Downs (1967:60) argues that f or th e cas eof public bureaus: ". . . the increasing size ofthe bureau leads to a gradual ossification of itsaction . . . the spread and flexibility of its op-eration steadily diminish." Whether there is athreshold as we ha ve suggested or a continuousrelationship as Downs suggested, it seemsclear to us that size does affect inertia.

Assumption 5. The level of structural inertiaincreases with size for eac h class of organi-

z a t i o n .

Assumption 5 seem s to suggest that selectionarguments a re more ap propriate for large orga-nizations than for small ones, con trary to wide-spread opinion (Aldrich, 1979; Perrow, 1979;Sco tt, 1981; Astley and Van d e Ven, 1983).However, the situation is more complex thanthis. The likelihood that an organization ad-justs structure to changing environmental cir-cumstances depends o n two factors: the rate ofundertaking structural change and the proba-

bility of succeeding in implementing change,given an attempt. Assumption 5 suggests thatthe f i rs t quant i ty , the rate of a t tempt ingchange, is higher for small organizations. Butwhat about the second quanti ty?

It is helpful in answering this question tocomplicate the model slightly. Fundamentalchange--change in co re aspe cts of structure-rarely occurs over night. More commonly, anorganization spe nds some period of time reor-ganizing, either by design or happenstance.Usually there is a period of time during which

existing rules an d structu res a re being disman-tled (or successfully challenged) and new onesare being created to replace them. Similarly,existing links with the environm ent are cu t andnew links forged. During such periods, organi-zations have elements of both old and newstructures. The presence of multiple rules andstructures greatly complicates organizationalaction; so too does a shifting set of envi-ronmental relations. Such changes increase thelikelihood of conflict within an orga nization as

contending parties seek to sh ape rules to bene-fit their self-interests.Fundamental reorganization may sometimes

occur gradually and imperceptibly, but some-times sharp breaks with the past can be dis-



159T RUCT URA L INE RT IA AND ORGANIZ ATIONAL CHA NGE

of attempted reorganization. In many otherci rcumstances , organizat ional leaders an-nounce planned shifts in strategy and structuresuch as entries into new markets and internalrestructuring. In su ch case s it may be helpful tointroduce a new state into the model: the stateof attempting fundamental reorganization. Fig-ure 1 dep icts the possible transitions in thisexpanded state space. The param eters associ-ated with each transition, the r's, are instan-taneous transition rates. In term s of this repre-sentation, Assumption 5 states that the rate ofmoving to the state of reorganization decreaseswith size. But it says nothing about the otherrates.

The processes of dismantling one structureand building another make organizational ac-

tion unstable. Consequently, the variance ofquality and timeliness of collective action de-cline during reorganization.

Assumption 6. The process of a t tempt ing reor-ganization lowers reliabili ty of performa nce.

Assumptions 1 and 6 together imply:

Theorem 4 . Attempts at reorganization in-crease death rates.

O r g a n i z a t i o n s u n d e r g o i n g s t r u c t u r a ltransformation are highly vulnerable to envi-

ronmental shocks. Large size presumably en-hances the capacity to withstand such shocks.Small organizations have small margins forerror because they cannot easily reduce thescope of their operations much in response totemporary setbacks. Indeed, the claim thatdeath rates decrease with size is nothing morethan a restatem ent of the idea advanced earlier(Han nan and Freem an, 1977) that longer timespans must be used to study replacement inpopulations of large organizations.

Assumption 7. Organizational death ra tes de-crease with size.

We assume that size has qualitatively similareffects on all three death rates in Figure 1: r d ,re , and rl. Thus small organizations are as-sumed to be more likely than large ones to

I DEATH I

enter the state of reorganization, but are alsomore likely to exit this state by death.

Finally, there is the issue of success at im-plementing change (the rate of moving from"reorganization" to "new structure"). An or-ganization undertaking reorganization can suc-cessfully make the transition to the new stateor it can drift back to its original structure,assuming that it does not die. The model inFigure 1 contains two rates that pertain tothese processes: r,, the rate of moving to thenew structure, and r b , the rate of returning tothe old one. The effect of size on these rates isunclear. On the one hand, the gre ater inertia oflarge organizations might lower the ra te of suc-cesses at reorganization, On the other hand,successes at reorganization might depend on

the m agnitude of resources applied to the tas k.Since large organizations typically have moreresources than small one s, this line of reason-ing sugges t s tha t the ra te o f ach iev ingstructural change increases with size.

Th e relationship between size and the rate ofstructural change is indeterminate in ourtheory for two reasons. The first is ignoranceabout the effects of size on rates of completingstructural reorganization, conditional on hav-ing attempted it. The second source of inde-terminacy is the implication that small organi-

zations are more likely to attempt structuralchange but are also more likely to die in theattempt. Although our analysis does not offeran answer to the main question about size andinertia, it does not support the widespreadview that ecological arguments ar e particularlyappropriate for the study of change in popula-tions of smal l organizations.

The model in Figure 1 may be substantivelyinteresting in its own right, assuming that ap-proximate information on dates of leavingstates of reorganization can be obtained. It

provides a fram ework for addressing a varietyof questions about inertia and change. It hasthe advan tage of transforming wh at have beenmainly rhetorical questions about the applica-bility of the ecological persp ectiv e into specificresearch questions.

Consider again the question of life-cyclevariations discussed in the previous section.Recall that we assume that reproducibility in-creases wi th age (Assumption 4) becauseroutines become worked out, role relations

stabilize, and so forth. Wh at effect,if

any, doesstructural reorganization have on these pro-cesses? We think that reorganization is some-times tantamount to creating a new organiza-tion (with a given level of resources). When



reorganization ro bs an organization's history ofsurvival value. T hat is, reorganization red ucesthe reliability of performance to that of a neworganization. The stability of the previousstructure doe s not contribute to reducing vari-ability with new sets of procedures, role re-lations, etc.

If internal processes are solely responsiblefor the tendency of organizational death ratesto decline with age (The orem 3), the dea th ratefor an organization that has just entered thestate "new structure" should be no lower thanthe dea th rate of a completely new organizationwith that struc ture (and levels of resource s). Inthis sense, reorganization sets the "liability ofnewness" clock back towards zero.

Assumption 8. Structural reorganization pro-

du ces a liability of new ness .

In order to make this argument concrete, weconsider i ts implications for one kind ofparametric model for liability of newness. Avariation of the Makeham model fits data onage-variations in organizational death rateswell (Freema n e t al., 1983; Carroll and Dela-croix, 1982). This model has the form

where to s the time of founding and y is posi-

tive. The liability of newness in this model isexpressed by p, because the initial de ath rate isa + p and the asymptotic death rate is a.

Imagine an organization created at time to hatsuccessfully changes its structure at t,, that is,it enters the state "new organization" at thatt ime. The argument that the l iabi l i ty-of-new ness clock is set back tow ards zero impliesthat its death rate a t time t a pproxim ates that ofa new organization w ith the sam e structure. Inparticular, suppo se that the death rate of a neworganization with struc ture like this one h as the

following age-dependence in death rates

where y' 3 0. Then for the ca se of an organiza-tion born a t to hat switches to this structure att, > to, the d eath rate is given by

That is, developme nt over the period (to, ,) hasno impact o n its death rate , oth er things beingequal.

The argument in the preceding paragraphscan be viewed as one way to formalize somelong-standing notions about organizationalcrise s. Child and Kie ser (1981:48) put the issueas follows: "To some extent, a crisis suc-


terms of shifts in age-dependencies in organi-zational death rates.

External proce sses may also account for thetendency of death rates to decline with age.For example, we mentioned the tendency fororganizations to acquire legitimacy simply byvirtue of longevity as well as the fact that ittakes time for organizations to develop endur-ing exchange relations with key actors in theenvironment. Some sorts of changes in strat-egy and structure strain external relations, es-pecially when the changes imply a shift in os-tensible goals. B ut, simple structural reorgani-zation, without any apparent change of goals,does not rob an organization's history of itsvalue for public legitimacy and do es not ne ces-sarily upset exchange relations with the envi-

ronment. Old organizations can presumablycount on their existing exchange partners forsupport during and following such structuralchange.

If the liability of newness reflects internalproce sses , the death rate will jum p withstructural change s. In con trast, if the decline inthe de ath rate w ith age reflects mainly the o p-eration of extern al proce sses of legitimacy andexchange, the death rate will not jump whenstructural changes do not imply a change inbasic goals. That is, arguments about internal

and external processes lead to different pre-dictions about the effect of structural reorgani-zation o n the death rate. Th erefore the study ofsuch effects may shed light on the relative im-portance of internal and external processes inaccounting for age variation in the death ra te inselected organizational populations.

Finally, there is no reason to suspect that thedeath rate declines with duration in the state"reorganization." Q uite the contrary-as thelength of time over which reorganization is at-tempted increases, the costs (especially theopportunity costs) of reorganization increase.As the fraction of organizational resou rces de-voted to reorganization increases, the capacityof the organization to produc e collective prod-ucts declines along with its capacity t o defenditself from internal and external challenges.Hence protracted periods of reorganizationdisrupt organizational continuity and increasethe risk of death.

Assum ption 9. The de ath ra te of orga niza tionsattemp ting stru ctur al cha nge rises with the du-

ration of the reorg aniz ation .

A m odel consistent with this assumption is theclassic Gompertz model:



S TR UC TUR AL INER TIA AND OR GANIZATIONAL C HANGE

ganizations literature. March (1981:567), re-ferring to the. work of Hermann (1963) andMayhew (1979), states that. . . organizations facing bad times will fol-

low riskier and riskier strategies, thus simul-

taneously increasing their chances of sur-vival and reducing their life expectancy.Choices that seek to reverse a decline, forexam ple, may not maximize expected value.As a consequence, for those that do not sur-vive, efforts to survive will have speede d upthe process of failure.

It is hard to imagine how an action can bothincrease a su rvival probability and increase thedeath rate in conventional models for the deathrate (since life expectancy is a monotonically

decreasing function of the death rate). How-ever, the framework introduced above is con-sistent with this sort of pattern.

Consider the cas e in which the death rate oforganizations in some environment rises pre-cipitously at a ce rtain moment t , (due perhapsto some discontinuous change in the environ-ment). The d eath rate of organizations that re-tain their structures, r d , will gradually declineto an asymptote that is considerably higherthan the asymptotic rate in the old environ-ment.

Suppose that some organizations in thepopulation attempt structural change at t , .

Consider two kinds of trajectories of deathrates by age. Th e dashed trajectory in Figure 2depicts the death rate of an organization thatsuccessfully implements the new structure att , . . The dotted trajectory pertains to an organi-

Figure 2. Hypothetical death-rate functions for apopulation of organizations exposed to ashift in se lection p ressure s at t,. Th e soliddecreasing curves represent the death

rates of organizations that retain theirstrategies and structures. The rising solidcurve represents the death-rate functionof organizations that undergo attempts atreorganization at t,. The dashed curve

zation that reverts to the old structure a t t , . In acollection of histories like those in Figure 2,one would see that strategic action to promotesurvival exp ose s an organization to great risks(thereby "reducing its life expectancy"). But,because the death rate declines rapidly withduration in the new structure, a successfultransformation eventually leads to a lowerdeath rate (seeming to "increase chances ofs u r v i v a l " ~ v e nower than the death rates oforganizations that retain the original structu re.How ever, it is not clear that structural changenecessarily increases unconditional life ex-pectancy. This depends on the various rates.Still, introducing the competing risks of deathand reorganization allows one to deal sys-tematically with this complicated problem.

ENVIR ONMENTAL C HANGE,SIZE, AND INERTIA

Assumption 5 states that large organizationsare less likely than small on es to initiate radicalstructural change. Does this mean that largerorganizations have greater inertia, as Downs(1967) and othe rs have claimed? If inertia isequated with low absolute rates of initiatingstructural change, it does. When inertia isviewed in comparative terms, as we argue it

should be, the relationship of size to inertia ismore complicated than the literature has indi-cated.

According to Assumption 7, the death ratedeclines with size. This statement is equivalentto the proposition that time-scales of selectionprocesses stretch with size, as we noted ear-lier. One way to visualize su ch a relationship isto consider environmental variations as com-posed of a spec trum of frequenc ies of varyinglengths-hourly, daily, week ly, annually, et c.Small organizations are more sensitive to

high-frequency variations than large organi-zations. For example, short-term variations inthe availability of credit may be cata strop hic tosmall businesses but only a minor nuisance togiant firms. To the extent that large organi-zations can buffer themselves against the ef-fects of high-frequency variations, their viabil-ity depends mainly on lower-frequency varia-tions. The latter become the crucial adaptiveproblem for large organizations. In otherwords, the temporal dimensions of selection

environments vary by size.We proposed abo ve that inertia be defined interms of speed of adjustment relative to thet e m p o r a l p a t t e r n o f k e y e n v i r o n m e n t a lchanges. Although small organizations are less



quency. Therefore, whether the adjustmentspeeds of small organizations exceed those oflarge ones compared to the volatility of rele-vant environments is an open question. Onecan easily imagine cas es in which the reverse istrue, in which elephantine organizations faceenvironments that change so slowly that theyhave relatively less inertia than the smallestorganizations.

COMPLEXITY AND INERTIA

The complexity of organizational arrange-ments may also affect the strength of in-ertial forces. Although the term complexity isused frequently in the literature t o refer to the

num bers of subunits or to the relative sizes ofsubunits, we use the term to refer to patterns oflinks among subunits. Following Simon (1962),we identify a simple structure with a hierarchi-cal set of links, which mea ns that subu nits canbe clustered within units in the fashion ofChinese boxes (wha t mathematicians call a lat-tice).

Hierarchical systems have the property thatflows (of information, commands, resources)are localized: an adjustment within one unitaffects only units w ithin the sam e branch of the

hierarchy. Simon (1962) argued that hierarchi-cal patterns appear frequently in nature ("na-ture loves hierarchy") because the probabilitythat a complex assembly is completed in anenv i ronment sub jec t to per iod ic randomshocks is higher when stable subassembliesex i s t , as in a h ie ra rchy . More complexstructures do not have many stable subas-semblies and thus are vulnerable to shocksduring the whole developmental sequence.

Rece nt work on population ecology supportsSimon's argument. For example, May (1974),

Siljak (1975), and La dd e and Siljak (1976) showanalytically and with simulation experimentsthat ecological netwo rks are destabilized whenlinks (of predation, com petition, or symbiosis)are introduced. Both the number of links andthe complexity of the pattern affect stability.

We think that similar arguments apply tostructural change within organizations. Whenlinks among subunits of an organization arehierarchical, one unit can change its structurewithout requiring any adjustment by other

units outside its branch. However, when thepattern of links is nonhierarchical, change inone subun it requires adjustment by m any moresubunits. Such adjustment processes can havecycles; chang e in one unit ca n se t off reactions


sponse to environmental threats and opportu-nities.

Although slow response doe s not necessarilyimply a lower rate of attempting structuralchange, it seems likely that this is the ten-dency. As we noted above, a slow speed ofresponse increases the likelihood that the envi-ronment will have changed before an organiza-tion can com plete a process of reorganization.Knowledge of this fact may dissuade organi-zational leader s from initiating change and m ayserve as a powerful objection to proposedchange by parties who benefit from the statusquo .

Complex systems have slow response t imesnot because they are any slower than simplersystem s in detecting environmental threats and

opportunities but because the process of ad-justment takes longer. In terms of the frame-work developed in earlier sections, this argu-ment implies:

Assumption 10. Complexity increases the ex-pected duration of reorganization.

Th at is, once a com plex organization has begunstructural change, it will tend to be expo sed toa longer period of reorganization than a sim plerorganization attempting similar changes. As-sumptions 9 and 10 imply:

Theorem 5. Complexity increases the risk ofdeath due to reorganization.

A complete analysis requires considerationof the effects of complexity on rates of initiat-ing change and of its effects on success in im-plementing change (as we discussed above inthe analysis of the effects of size). We are notyet ready to make any claims about effects ofcomplexity on these rates. Still, the result inTheorem 5 suggests that population-ecologicalanalysis might be more appropriate for ex-

plaining change in populations of complex or-ganizations than in populations of simple onesbecause complexity increases inertia by atleast one mechanism. This result, like that onsize, disagrees w ith the conventional wisdom.

C O N C L U S I O N S

We h ave attem pted to clarify w hen it is reason-able to assume that organizational structureshave inertia in the face of environmental tur-

bulence. We have argued that selection pres-sures in modern societies favor organizationsthat can reliably produce collective action andcan account rationally for their activities. Aprerequisite for reliable and accountable per-



163TRUCTURAL INERTIA AND ORGANIZATIONAL CHANGE

organizations, it also favors organizations withhigh levels of inertia. In this sense, inertia canbe considered to be a by-product of selection.Our argument on this point may be consideredan instance of the more general evolutionaryargument that selection tends to favor stable

systems (see Simon, 1962).Of course, the claim that selection favors

organizations with high inertia is not a warrantfor assuming that m ost organizations have highinertia. Selection pressures often may not bestrong enough to screen exhaustively for the"most fit" organizations. Moreover, most or-ganizational populations are replenished moreo r less continuously by an inflow of new m em-bers. Younger organizations tend to have lessinertia than older on es, and new organizations

are more likely to adopt structures that differgreatly from those that would dominate anysteady-state of the proc ess subject to selectionand closed to new entries.

Organizational selection operates on manyd i m e n s i o n s b e s i d e s r e p r o d u c i b i l i ty o fstructure. If selection pressures on specificfeatures of structure a re sufficiently strong, or-ganizations with the characteristics appropri-ate to the environment are favore d even if theyhave relatively low levels of reproducibility.

By the same token, environments in which

change is turbulent and uncertain may not con-stitute a systematic regime of selection. Thetraits that are favored may shift frequentlyenough that no clear trend emerges. Such set-tings may favor organizational forms that cantake quick advantage of new opportun ities andthe appearance of new habitats. The capacityto respond quickly to new opportunities pre-sumably competes with the capacity to per-form reliably and accountably (Brittain andF r e e m a n , 1 98 0; F r e e m a n , 1 9 82 ). S u c hdynamics may dilute the importance of relia-

bility and accountability in organizationalselection. We will address these issues in sub-sequent papers.

Fo r all of these re ason s, it is not sufficient toassume that selection processes favor organi-zations with high inertia and to proceed asthough observed populations contain only su chorganizations. Th ese con siderations lead natu-rally to consideration of systematic variationwithin populations in the strength of inertialpressures. Existing theory provides some in-

sights into these matters. One line of reason-ing, which we pursued, suggests that inertialpre ssur es increase with age-that organi-zations tend to ossify as they grow older. Wesuggest that the more fundamental process is

in our revised theory. It is widely agreed thatlarger organizations are more ponderous thansmall ones. We think that analysis of the ef-fects of size on inertia must consider severalkinds of transition rates. One is simply the rate(in an absolute time scale) of attempting fun-dam ental structural change. A nother transitionconcerns success in implementing change.There is also the effect of attempting change onthe death rate. We argue that small organi-zations a re not only more likely than large one sto attempt change, but are also more likely todie in the process. Without further informationon the magnitudes of the rates, it is not clearwhether small or large organizations havehigher overall rates of successfully imple-menting change. Ou r analysis suggests that it is

premature to conclude that ecological theorymay be applied m ore readily to small than largeorganizations. Clearly this matter deservesmore theoretical and empirical attention.

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Structural Inertia and Organizational Change

Michael T. Hannan; John Freeman


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References

Central Perspectives and Debates in Organization Theory

W. Graham Astley; Andrew H. Van de Ven

Administrative Science Quarterly, Vol. 28, No. 2. (Jun., 1983), pp. 245-273.

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Organizational Mortality in the Newspaper Industries of Argentina and Ireland: AnEcological Approach

Glenn R. Carroll; Jacques Delacroix


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Some Consequences of Crisis Which Limit the Viability of Organizations

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