We collected information about the life histories of all (or most) members of the organizational populations under study. In concrete terms, this means obtaining information on the timing of a series of vital events. Because organizations differ from other social actors such as individuals, a number of special issues arise in defining these vital events.
1. Starting Events
The first step is deciding when an organization begins. It is common in the literature on organizations to view the process of starting an organization as a set of stages (Van de Ven 1980), often assumed to be analogous to human birth and early development (Miles and Randolph 1980). We doubt that it is helpful to build on this analogy. The process of beginning an organization is a distinctive social activity which differs in important ways from biotic birth and development. Under close scrutiny, the founding process can be seen to consist of a set of subprocesses, including:
- Initiation: A group gathers and declares its intention to organize.
- Resource mobilization: Funding is sought, space is purchased, leased, or allocated, equipment is purchased or leased, and so forth.
- Legal establishment: Papers of incorporation are filed, a charter is issued, or a legislative mandate is passed.
- Social organization: Employees are hired, members join, social roles are worked out, norms are developed and authority relationships established.
- Operational start-up: The organization begins to function as products are shipped, services are provided, and/or information is processed.
We suspect that the dynamics of these subprocesses vary in important and systematic ways among organizational forms, and we doubt that there is a universal sequence of subprocesses. Formal announcement of an intention to organize may occur before or after resources have been gathered or allocated. Government agencies are often mandated by a legislature long before anyone has declared the intention to organize. Legal establishment of an organization often occurs before the founding group solicits venture capital or approaches others about their interest in joining. So the resource-gathering process may precede initiation or legal establishment, or it may follow.
Aside from their temporal ordering, these subprocesses may proceed at varying paces, and these are likely to differ by form. The start-up of manufacturing operations in the semiconductor industry, for example, is a lengthy process involving purchasing or leasing space and equipment, hiring operational employees, acquiring raw materials and the licenses necessary to transport and use them, and so forth. Voluntary social service organizations often require lengthy periods to acquire a legal charter and to recruit and organize members. But they begin providing services relatively quickly once these other hurdles have been crossed (Singh, Tucker, and House 1986).
The literature on organizational foundings has seldom clearly distinguished among these phases, much less specified the differences in the causal structures affecting them. It would be interesting to analyze the various components of an organizational founding rate separately. For example, we would like to know whether founding rates for certain forms are low because there are few attempts at founding such organizations, or because many attempts are made and most fail to produce a functioning organization. Unfortunately, it is difficult to bound the universe of attempts at making organizations with existing data. Therefore, we confine ourselves at present to studying variations in rates of starting, as indicated by the appearance of functioning organizations. Our empirical materials differ in how they define time of starting. For labor unions, it is the date of a national convention that writes a charter for a new union or the date on which a merger between unions is ratified at national conventions. For semiconductor manufacturing firms, the starting date is the date of entry into the production and sale of semiconductor devices. For newspaper publishers and restaurants, it is the date of start of business (publishing newspapers or serving meals).
2. Ending Events
Similar issues arise in the case of organizational mortality. Deciding on the time of ending for an organization is complicated by “lingering death.” Some organizations lose members and capital and virtually cease operations, but retain a corporate identity. Though such organizations eventually disappear as corporate entities, legal disbanding may come long after operations cease. (Of course similar problems now arise in defining human mortality, since modern technology has greatly expanded the capacity to maintain vital functions on life support devices even after so-called brain death.) Given our focus, we define mortality in strictly organizational terms. An organization ends when it ceases to carry out routine actions that sustain its structure, maintain flows of resources, and secure the allegiance of members. For example, in our view a labor union that still has a charter and a national office but no labor contracts, no organizers, and no active locals has ended as a union. Likewise, a manufacturing firm that retains a corporate name but does not rent or own space, employ workers, or maintain contracts has ended as a manufacturing firm.
Subprocesses in the mortality process include:
- Formal dissolution: Some formal decision is made to end an organi- In the case of firms, this step often involves a declaration of bankruptcy. Bankruptcy may be followed by closure and sale of as-sets. But even if these do not occur, the restructured organization that emerges from bankruptcy with the same name usually has a radically different mode of organizing.
- Resource contraction: Organizations, especially those tied to an area or to a technology, often experience a period of protracted decline in resources prior to failure.
- Loss of participation: Employees are laid off or quit, members re-sign, board members resign, regular customers and suppliers withdraw.
- Disorganization: The structure dissolves as people’s behavior no longer fits customary organizational roles, deviant behavior abounds, and coercive power replaces authority. This is the common pattern observed in military units defeated in battle.
- Cessation of operations: The organization no longer makes its prod-ucts, provides its services, or processes information. Whatever it claims to be doing is no longer done.
As in the case of starting events, these subprocesses may occur in char- acteristically different orders and at different speeds for different organiza- tional forms. For manufacturing firms loss of resources usually presages bankruptcy, but cessation of operations may lag far behind. When operations do cease, however, employees are laid off and disorganization occurs very quickly. Military organizations, in contrast, often retain resources and legal mandates but cease operations upon defeat in battle. Loss of participation may occur more gradually; some soldiers may maintain their identity with the army long after it ceases to function. During World War II Japan took the island of Guam and lost it two years later. An American soldier continued to behave as a member of the U.S. Army while hiding in the interim. Not to be outdone, some Japanese soldiers continued to behave as soldiers long after the war was over. A soldier of the Imperial Japanese Army was found on Guam in 1972, twenty-eight years after the island was retaken by the United States. He had known for twenty years that the war was over but is supposed to have explained that “we Japanese soldiers were told to prefer death to the disgrace of getting captured.” (Newsweek 1972).
There are at least four generic kinds of organizational mortality: dis- banding, absorption by another organization, merger, and radical change of form. In the first, the structure of the organization disintegrates, and it either breaks into subunits or its members withdraw participation completely. Because of the possibility of lingering death, there may be some arbitrariness in defining the time of disbanding. Whether this is a serious problem in research depends on the typical durations in the state of lingering disbanding relative to the life expectancy of organizations in the population. It is unlikely to be a serious problem in the study of populations of long-lived organizations. Moreover, the length of time spent in lingering death is undoubtedly affected by the opportunity costs of maintaining the organization. Organizations with high capital requirements (for example, hospitals, auto manufacturers) are unlikely to remain legally alive while not producing because their capital assets have resale value. Moreover, organizations run by individual founders may persist longer than more public organizations (such as publicly traded firms) because the founder has a stake in retaining the corporate identity of the failing organization in the hope of resurrecting it.
The cases of absorption and merger raise the most difficult conceptual issues. Does an organization end when it enters a merger? We consider three underlying features of organizations in answering this question. First, we consider the structure of the organization, particularly its governance structure. When leaders of the merged organization are replaced or clearly subordinated to the leaders of the organization with which it merges, there is reason to assume that its autonomy of action has disappeared, and it may make sense to view this as an ending. More generally, our interest is in organizational forms: if the structure of the organization changes radically as it merges, so that it no longer manifests the form in evidence before the merger, this is counted as an ending.
A second basis for making such decisions is the pattern of resource utilization of the organization before and after the merger. Since we view the niche as a characteristic of the form, we can sometimes observe changes in the use of resources when we cannot tell much about the internal structure of the organization. Thus a hospital operated as a local charity, when sold to a for-profit corporation, may change its patient base to exclude those not covered by health insurance. Such a merger can probably be safely viewed as a terminal event even though internal data on the operation of the hospital are not known.
Finally, we can rely on the way the organization represents itself to the outside world. Name changes and publicity generated by the organization often signal important life events such as endings. This basis for making a decision about how to treat a merger is likely to be more useful when the organization relies on such outward signals in acquiring resources. For example, retail firms invest heavily in establishing a presence in their markets, which they abandon reluctantly. When such firms are purchased by other organizations, customers are not likely to know it unless the new owner intends a dramatic change, one that we would probably treat as a change in form. Thus retail customers are rarely aware of the sale of a company such as Hertz or Avis in the automobile rental business. Each has been independent, and has been bought and sold repeatedly; but their names have not been changed when these events have occurred. In contrast, when the Federal Deposit Insurance Corporation takes over an insured bank and sells it to another bank, the name is usually changed eventually and the acquired bank is folded into the organization of the new owner. The change of name signals the end of the acquired organization, as it is meant to do. Insolvency is not the sort of “good will” that any organization can carry on its books as an asset.
We use these features of organizations in different ways in the studies reported in subsequent chapters. Emphasis of one over the others depends on the kind of organization under study and on the researcher’s understanding of the form of organization. It also depends on the availability of pertinent data. We consider merger again when we discuss the empirical studies later in this chapter and in subsequent chapters.
Discussion of the issue of merger is often sidetracked by consideration of an issue that we think is extraneous. Disbandings are often thought to be bad outcomes. But mergers are often good for some of the people involved. For example, individual labor unions have increased their social power by making mergers. Many entrepreneurs reportedly establish firms with the intention of selling out within a few years if the venture is successful. If some mergers are good and organizational disbandings are bad, how can organizations that merge be said to “die”? Are not mergers intended and disbandings not only unintended but avoided?
Ecological analysis is unconcerned with intentions. Instead, as we have already pointed out, it asks which of the many feasible forms of organization actually arise and persist. From an ecological viewpoint, it does not matter if the reason for the disappearance of a form of organization is that each organization in the population has been absorbed by organizations with different forms or that each has disbanded. In each case the social structure has changed—a distinctive form of social action has been lost. However, the absorption/merger and disbanding processes may operate quite differently. We show some of the differences in our analysis of unions.
As we discussed at length earlier in the book, we classify organizations by form. Although we think that changes in form by individual organizations are relatively infrequent, we have tried to record the timing of all such changes. So, for example, we note the time at which a union abandons the craft form in favor of the industrial form. Such changes do not mark the end of an organization as a distinctive corporate actor, but they do mark the end of an implementation of a certain organizing strategy. We discuss this issue further in describing the research designs we used and the populations we studied.
Source: Hannan Michael T., Freeman John (1993), Organizational Ecology, Harvard University Press; Reprint edition.