Effects of Environments on Carrying Capacities in Organizational Populations

The notion of a carrying capacity for a population of organizations summa- rizes the dependence of the growth rate of the population on numerous dimensions of the social and economic environment. We have found that sociologists tend to assume that use of the notion of carrying capacity implies that a society has some fixed or intrinsic capacity to support organizations of a particular type. But this is not so. Because the notion of carrying capacity summarizes the effects of social and economic conditions that usually vary over time, the carrying capacity of an organizational population also varies over time. In a dynamic context, we can think of a carrying capacity as a “moving target” toward which a population adjusts.

Analysis of the effects of social and material environments on carrying capacities provides points of contact between organizational ecology and much other sociological work on organization-environment relations. Indeed, we borrow freely from other research traditions in specifying how carrying capacities depend on classes of environmental conditions.

1. Institutional Rules

Creating an organization means mobilizing people and resources for specific purposes. Differences in social and political arrangements affect components of the mobilization process. First, there is the matter of specialized purposes. The notion that individuals and collections of individuals have autonomous interests is a relatively modern invention. John Meyer and his collaborators have emphasized the importance of the rise of modern institutional structures as a source of rational organization building (Meyer and Rowan 1977; Meyer and Scott 1983). These structures are “rationalized and impersonal prescriptions that identify various social pur-poses as technical ones and specify in a rulelike way the appropriate means to pursue these technical purposes rationally” (Meyer and Rowan 1977, pp. 343- 344). The existence of such modern views makes the job of constructing organizations easier; the existence of rational organizations gives greater force to the rational myths.

A major implication of this argument is that variations in the strength of institutional rules endorsing rational organization as the appropriate vehicle for attaining collective goals affect the ease of founding organizations. In particular, in the historical periods in which the social forces reflecting rationalistic views gained ascendancy, one would expect to find enormous waves of organization building, as in the Progressive era in the United States (see Chandler 1977 for discussion of the case of modern industrial administration).

Institutionalization of forms has obvious implications for mortality pro- cesses, as we noted earlier. Two main proposals have been offered about the nature of these effects. Meyer and Scott (1983) suggest that the world of organizations has been split into two sectors, a competitive sector in which survival depends on efficiency and an institutional sector in which survival depends on isomorphism to institutionally approved ways of organizing. If they are correct, the life chances of organizations in the institutional sector depend critically on the capacity to institute practices demonstrating symbolically that the organization conforms to prevailing norms. If these norms prescribe a narrow range of structures, they presumably rule out large classes of organizational forms. So changes in institutional rules will adversely affect the life chances of populations that cannot quickly display a new face to the institutional world.

DiMaggio and Powell (1983) make a similar argument but locate it in a time domain. They suggest that organizational populations have characteristic life histories with youthful periods in which efficiency properties shape selection and a mature period in which institutional isomorphism governs survival. Like Meyer and Scott, they give the impression that conformity to institutional pressures is easy and inexpensive since it involves only symbolic activities loosely tied to work within the organization. This assumption leads them to claim that mature populations do not face selection pressures.

Unlike most organization theorists, we do not see any contradiction between institutional processes and selection processes. In fact, we claim that the two generally apply to all kinds of organizations and in all sectors and tend to reinforce each other.

2. Availability of Resources

Institutionalization of rational organization or of particular organizational forms affects the likelihood that organizational solutions to collective- action problems will be tried. But whether a concrete organization will be built depends on the availability of resources, both human and material (Weber 1968; Eisenstadt 1958). There are two issues here: (1) the levels of resources that could potentially be mobilized, and (2) the degree to which these resources are fixed to other social units. Under norms of rationality, the founding rate of new organizations rises when the levels of resources rise and/or when a changing balance of power among contending groups frees resources from previous uses. The classic examples of the first process are population growth and economic development; the classic example of the second process is social revolution (Stinchcombe 1965). Such revolutions have been especially important historically in affecting organization building because they break legal and institutional constraints on the uses of resources.

Expansion of the resource base can affect both the founding rate and the diversity of new ventures. Durkheim’s theory about the causes of the division of labor in society is one version of an argument relating the size of the resource base to organizational diversity. According to Durkheim (1893/1933, p.266), “If work becomes divided more as societies become more voluminous and denser, it is not because external circumstances are more varied, but because the struggle for existence is more acute.” He developed the imagery of a set of isolated communities whose economic enterprises have expanded to the limits of the local markets and local competitive interactions. When these isolated communities are brought into close contact with one another by changes in the costs of communication and transportation, a competitive struggle ensues: “There is always a considerable number of enterprises which have not reached their limits and which have, consequently, power to go further. Since there is a free field for them, they seek necessarily to spread and fill it. If they meet similar enterprises which offer resistance, the second hold back the first . . . But if some of them present some inferiority, they will necessarily have to yield ground heretofore occupied by them, but in which they cannot be maintained under the new conditions of conflict. They no longer have any alternative but to disappear or transform, and this transformation must necessarily end in a new specialization . . . Although the preceding examples are drawn particularly from economic life, this explanation applies to all social functions indiscriminately” (Durkheim 1893/1933, pp. 268- 270). To the extent that new specializations come about by the creation of new enterprises, this argument implies that increased levels of interaction, which Durkheim called “moral density,” increase both the disbanding rate and the founding rate (see also Hawley 1950).

The second major process that affects organizational diversity concerns social revolutions, which reshape class structures and political structures, and other political crises. Social revolutions and political crisis almost invariably change the mix of organizations in society. Breaking the hegemony of ruling groups means destroying the organizations with which they ruled and extracted economic value. Solving political crises usually means constructing new organizations either to repress dissent or to incorporate contending groups into the polity. Social revolutions normally involve both the large-scale destruction of existing organizations and the creation of new ones. In contrast, institutional response to political and social crises usually involves the addition of new organizations and new organizational forms without the destruction of much existing organization. For example, the incorporation of organized labor into the American polity during the 1930s involved the creation of numerous state and local agencies designed to enforce the newly won rights of unions. Subsequent attempts by conservative governments to roll back New Deal concessions to labor unions often involved attempts to eliminate agencies. Similar reactions followed War on Poverty program development.

Periods of political crises and social revolution seem to be peak times for building new forms of organizations. Yet there is a strong current in orga- nization theory that makes an opposite prediction. Weber (1968) argued that rational-legal bureaucracies are politically neutral tools of such efficiency that they are nearly indestructible. New elites have no need to destroy existing bureaus and create new ones to change policies; doing so incurs needless costs when existing bureaus can be smoothly changed. Kaufman (1976) claims to have shown that Weber is right—that the disbanding rate of government bureaus is so low that they are nearly immortal.

If the Weberian argument were correct, changes in control over the state should not affect the demography of bureaus. But if bureaus, like other organizations, develop agendas of their own and become subject to strong inertial pressures, it may be very difficult to reshape their policies and practices. Changes in top management may mean little to the actual func- tioning of established bureaus. Therefore, elites intent on fundamental transformation will be inclined to close some bureaus and create new ones.

In fact, more careful analysis of the life chances of bureaus of the federal government shows that their life expectancies do not differ substantially from those of large business firms (Nystrom and Starbuck 1981). Moreover, at least some periods of intensive political transformation, such as the New Deal and the War on Poverty, involve the creation of many new kinds of organizations. So for these various reasons, the rate of organization building will rise during periods of political crisis and transformation.

Social changes that destroy monopolies of social units over resources can either increase or decrease diversity. Sometimes the victorious social forces create new organizational forms that coexist with and perhaps compete with existing organizations. For example, the creation of a secular public school system in France after the revolution increased diversity in the educational sector because parochial schools persisted. On the other hand, the Soviet revolution apparently destroyed most prerevolutionary forms of organization and replaced them with new ones. The set of forms changed, but the level of diversity probably declined. This means that the rate of destroying existing forms exceeded the rate of creating new ones. Presumably only a unified elite can effect such change. Dispersed power within the rising social groups is likely to result in the creation of many special-purpose organizational forms, each tailored to the distinctive agendas of the various factions.

Periods of social crisis and political transformation play an important role in affecting the timing of waves of organization building. These periods transform broad and cumulative social and economic change into bursts of organizational activity. Although the events surrounding the crisis may do little more than signal fundamental changes in the power balance among contending groups, the response to the crisis may profoundly affect the world of organizations. If organizations are imprinted with the milieu of their founding periods, then the timing of social and political crises with their attendant waves of organization building dictates the distribution of imprinted structures. In this way processes of political transformation filter the effects of broad economic, demographic, and social change for the world of organizations.

Strategic  Organizations

Some kinds of organizational innovations have multiplier effects on the rates of founding of other kinds of organizations and organizational forms. For example, the creation of banks and stock markets had such effects in the world of commerce. The chances of mobilizing the resources necessary to initiate a large venture improve dramatically with the creation of a stock market. A stock market lowers the time it takes to learn whether holders of capital are interested in participating in some joint venture, and it also increases the size of the potential pool of capital available. By jointly lowering the costs of search and increasing the size of possible combinations, this organizational innovation speeds the founding process. Once the stock market has been created, both the founding rate and the diversity of new ventures should increase.

In the case of the semiconductor industry, venture capital firms have supposedly played a similar role. These firms specialize in creating consortia of private investors to back small, risky, high-technology ventures. Like the stock market, they reduce the costs of searching for capital and increase the size of the pool of capital available to scientist-entrepreneurs.

Technical innovation has also played a key role in the creation of new organizations and especially new forms of organizations. We have already mentioned that the organizational forms used by the established vacuum tube producers were unsuitable for exploiting the new semiconductor technology. Other recent examples of technologically driven organization building are in biotechnology, which depends on new knowledge of recombinant DNA biochemistry, and in the overnight delivery business, which depends critically on extensive computer networks and scheduling algorithms. Each wave of technical innovation produces new sets of opportunities. Sometimes these new opportunities are exploited by members of existing organizational forms. Quite often, however, only new organizational strategies and structures can meet the demands of efficiently producing, servicing, and marketing the new products and services that arise from application of the new techniques.

In analysis of particular organizational populations, attention must be paid to the flow of specific technical innovations. But, for purposes of characterizing the broad features of the dynamics, it is interesting to focus on organizational innovations that affect the creation and dissemination of new technology. Two kinds of organizations have played a central role in these processes: research and development laboratories and research universities. We have already mentioned the role these organizations played in the establishment of the semiconductor industry. The initial technical breakthrough was made at a research and development lab, Bell Laboratories, where three scientists won a Nobel prize for inventing the transistor. A research university, Stanford University, trained several scientist-entre- preneurs and was an important source of technical support for many of the Silicon Valley high-technology firms. Stanford, along with other universities in the area, provided a labor pool of highly trained technical specialists who helped local firms develop. The result was a concentration of electronics firms in the Stanford area, often called Silicon Valley. The information flow from universities to private firms is asserted by some as a major mechanism of support (Gibson 1970; Cooper 1972). The location of various high-technology firms close to major research universities underscores the importance of these organizations in creating organizational diversity.

Discussion of environmental processes has thus far concentrated on the effects of levels of institutionalization or of various resources. Ecological theory directs attention as well to the effects of variation in relevant envi- ronments, as we discussed in the context of niche width in the previous chapter. This issue is examined in detail in Chapter 12.

Source: Hannan Michael T., Freeman John (1993), Organizational Ecology, Harvard University Press; Reprint edition.

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