Segregating and blending processes have immediate implications for organizational diversity, a main concern of ecological theories. When segregating processes dominate, institutional and other constraints create holes in the social structure in the sense that some feasible kinds of organizations do not exist because of these constraints. Thus it appears that (1) strong segregating processes limit diversity, and (2) elimination of boundaries necessarily increases diversity of forms. There are surely historically important cases in which this was so. As Marx and others insisted, the destruction of feudal constraints on production organization (especially constraints on reallocation of land and labor) was essential to the emergence of capitalism and the accompanying proliferation of forms. Stinchcombe (1965) provides a broad account of the importance of institutional and resource constraints on the creation of new kinds of organizations. His main conclusion reinforces and clarifies the Marxian notion that old social structures, with their institutional and infrastructural constraints, must be broken for new organizational diversity to arise.
We think that the relationship between segregating processes and diversity is more complicated than has been noted previously. The existence of holes in the social structure may actually increase organizational diversity. Consider processes of competitive exclusion, the tendency for one population to eliminate all others that depend on exactly the same set of resources. The existence of strong boundaries presumably localizes competitive struggles. That is, in a discontinuous world, competition processes operate strongly within boundaries and less strongly across boundaries. Although competitive exclusion may occur within some or all bounded sectors, it is unlikely that a single organizational form can outcompete rival forms in many sectors. Yet the relaxation of a constraint creating a boundary often unleashes a competitive struggle between populations that either did not compete before or competed only weakly. An example is the case of deregulation of banking mentioned earlier. Elimination of legal and institutional constraints may decrease organizational diversity in the financial sector, as one form comes to dominate the previously segmented activities of banking and stock brokerage.
When organizational forms can be copied, the absence of institutional barriers may permit a single form to dominate many sectors. However, if there are strong boundaries, imitation will be localized; it will occur mainly within the boundaries. Again, a relaxation of boundaries can lead to lowered diversity in such circumstances.
The two arguments implying that elimination of boundaries, with the constraints that sustain them, may lower diversity are instances of a general proposition. We have argued, by analogy to general ecological princi- pies, that the diversity of organizational forms is proportional to the diversity of resources and constraints (Hannan and Freeman 1977).
In the terms of this proposition, there is no disagreement between the views described earlier in the chapter. The social changes and revolutions that broke the constraints of feudalism greatly increased the diversity of productive resources available to build organizations. Reduction of constraints was apparently more than balanced by increased variety of resources. The central question in exploring the effects of discontinuities on diversity in the organizational world is whether the creation or elimination of a boundary increases or decreases the number of distinct resources and constraints. For any concrete historical case, answering this question demands close analysis of the boundaries and the processes underlying them. The perspective sketched in the previous section does not answer such questions, but it does provide a framework for addressing them.
Source: Hannan Michael T., Freeman John (1993), Organizational Ecology, Harvard University Press; Reprint edition.