May I join the club? On the architecture of code systems and the success of strategic diversification

Abstract

Organizational ecology is oftentimes considered to be a theoretical framework that is not very informative for the analysis of strategic decisions. The reservation towards organizational ecology is primarily due to the original anchoring of this theory in organizational inertia. Indeed, the seminal paper of Hannan and Freeman (1977) portrayed organizational change as difficult and Hannan and Freeman (1984) reinforced this argument by proposing that inert organizations exhibit survival advantages thanks to reliability and accountability. Critics of organizational ecology interpreted this line of reasoning as downplaying the role of top managers in actively steering the fate of organizations. In this essay we aim to challenge this view and show how organizational ecology may be informative for strategic decision-making. In developing our arguments, we rely on the recent advancements of the theory (Hannan et al., 2007), which underscore that organizations are evaluated with respect to the standards of the social category to which they belong. Thus, the assessment of audience members (e.g. customers and other stakeholders) becomes fundamental for gaining access to the material and symbolic resources needed by organizations to survive. We extend this logic to the case of organizational change, thereby revisiting the original ecological approach to this topic in light of the more recent considerations concerning audience members’ expectations and evaluations. In particular, we argue that the extent and complexity of an organizational change remains contingent on the type of audience that an organization faces and on the type of industry in which it operates. We proceed by first reviewing a few common misunderstandings on organizational ecology. Then, we briefly review the inconsistencies of the empirical findings on organizational change, mostly due to the arbitrary distinction between core and peripheral aspects of change – an aspect that has led to a revision of the original arguments (Hannan et al., 2003a, 2003b). The role of expectations and external audience members’ evaluations in determining the magnitude of an organizational change are discussed and several propositions on the consequences of organizational change under different environmental conditions are presented. In developing our arguments, we focus on diversification as a specific instance of organizational change. Two reasons justify our decision. First, diversification into novel markets represents a topic central to strategic management (see Barney, 1986; Grant, 1996; Teece et al., 1997) and debated by ecologists as well (see McKendrick 453106 SOQ10310.1177/1476127012453106Beck and WezelStrategic Organization 2012