Organizational Diversity

The ecological-evolutionary approach developed in this book directs attention primarily to organizational diversity. It seeks to answer the question. Why are there so many (or so few) kinds of organizations? Addressing this question means specifying (1) sources of increasing diversity, such as the creation of new forms, and (2) sources of decreasing diversity, such as competitive exclusion of forms. In other words, an ecology of organizations seeks to understand how social conditions affect the rates at which new organizations and new organizational forms arise, the rates at which organizations change forms, and the rates at which organizations and forms die out. In addition to focusing on the effects of social, economic, and political systems on these rates, an ecology of organizations also emphasizes the dynamics that take place within organizational populations.

Questions about the diversity of organizations in society might seem to have only academic interest. In fact, these issues bear directly on important social issues. Perhaps the most important is the capacity of a society to respond to uncertain future changes. Organizational diversity within any realm of activity, such as medical care, microelectronics production, or scientific research, constitutes a repository of alternative solutions to the problem of producing sets of collective outcomes. These solutions are embedded in organizational structures and strategies.

The key aspects of these solutions are usually subtle and complicated. In a large organization, no individual understands the full range of activities and their interrelations that constitute the organizational solution. Moreover, the subtle aspects of the structure, such as decision-making styles and organizational culture, defy attempts at formal engineering specification, as the voluminous literature on the disjunction between formal and informal structures suggests. For these reasons, it will often prove very difficult to resurrect any form of organization once it has ceased to operate. Therefore, reductions in organizational diversity imply losses of organized information about how to produce in certain environments.

A stock of alternative forms has value for a society whenever the future is uncertain. A society that relies on a few organizational forms may thrive for a time; but once the environment changes, such a society faces serious problems until existing organizations are reshaped or new organizational forms are created. Reorganization is costly and may not work at all because it threatens the interests of powerful coalitions within organizations. Relying on new organizations is problematic because such organizations are fragile. Therefore, the time it takes to adapt to the new conditions may be very long. A system with greater organizational diversity has a higher probability of having in hand some form that does a reasonably satisfactory job of dealing with the changed environmental conditions. Adaptation in such a system means reallocating resources from one type of existing organization to another, either by command or by market mechanisms, rather than trying to identify and create appropriate organizational forms.

The claim that diversity of organizational forms is a useful hedge against uncertain future environmental changes is a classic evolutionary argument. For example, it parallels an argument that has been made against going overboard with the so-called green revolution in agriculture. The spread of single strains of crops implies a great reduction in genetic diversity, which may prove problematic if new kinds of pests arise to which the “miracle” crops are vulnerable. The stock of existing solutions would decline.

Organizational diversity affects society in another way. Since careers are played out in organizations, the distribution of opportunities for individual achievement depends on the distribution of organizational forms. When diversity is high, individuals with different backgrounds, tastes, and skills are more likely to find organizational affiliations that match their own qualities and interests. For example, the fact that most industries in the United States contain many small businesses allows ethnic and immigrant communities to create ethnic enclaves within which to develop protected career paths (Wilson and Portes 1980). The presence of such ethnic niches in the economy, one kind of organizational diversity, has apparently proved crucial to the economic success of at least some ethnic communities.

Hannan (1988a) suggests that the diversity of careers in a society is proportional to the diversity of organizations offering employment. The diversity of possible career lines seems likely to have consequences for the level of inequality. When few kinds of careers are possible, a few charac- teristics are likely to be favored; individuals with these characteristics do well but others do not. As the diversity of possible careers increases, the likelihood that a few characteristics will dominate the processes leading to success declines. That is, increases in the diversity of organizations lead to increases in the diversity of careers, which in turn decreases inequality.

Diversity is also sometimes valued in its own right. Consider the case of the daily press. It is widely agreed in this country that diversity of editorial opinion is a social good and should not be sacrificed to economies of business concentration in the industry. Similar views pertain to the world of schooling, higher education, research laboratories, and all sorts of organizations whose outputs are largely symbolic or cultural.

How do social, economic, and political environments affect organizational diversity? Explaining variations in diversity has much in common with any effort to explain variability in the world of organizations. However, ecological perspectives emphasize the fact that much of the observed variability of organizations comes in a relatively small number of packages, which we call organizational forms (see Chapter 3). Thus explaining variations in diversity means explaining both the variation within forms and the variations between forms.

Almost all attempts to answer questions about the effects of social envi- ronments on organizational diversity focus on the controlling role of uncer- tainty. Stable and certain environments almost surely generate low levels of diversity. The main theoretical questions concern the manner in which environmental uncertainty affects diversity. The theoretical and empirical work reported here addresses the effects of environmental variability on organizational diversity from several points of view.

To this point we have discussed organizational dynamics with reference to processes of social change. We think that a population ecology perspective offers novel insights about the nature of organizational change and the role of organizations in broad processes of social change. There are other reasons for developing population ecology theories of organizations, however.

An obvious motivation for developing an ecology of organizations is an interest in the causes of the vital events: organizational foundings and failures. No one would argue that such events are rare; and few would claim that they are random. Yet organizational theory has little to say about when such events happen, and why.

Another motivation flows from a concern with building links between organization theory and social history. Research at the population level leads naturally to a concern with history because the study of population dynamics frequently requires analysis over long periods of time. The life expectancy of the kind of organization under study pushes the researcher to define a time frame for the study that will be long enough to capture variability in rates of founding and failure. The challenge posed by the historical context is separating replicable processes from idiosyncratic events. In later chapters we will show how quantitative analysis can be applied to the study of social processes operating over long periods of time—that is, to social history.

There is a second link between the study of organizational populations and historical research. Ecological research requires an understanding of the institutional contexts of organizational populations. Such information can come from interviewing those familiar with the organizations in question; it can come from the available historiography; and it can be gleaned from the popular press. Whatever the source, good research on the dynamics of organizational populations, which may be highly quantitative, relies on qualitative studies for realistic specification of models and useful research designs.

Finally, ecological studies of organizational populations offer potentially useful links to other branches of social science inquiry. Consider the case of organizational theory and economics. Since Cyert and March’s A Behavioral Theory of the Firm (1963), few organizational researchers have even tried to develop organizational theory in a manner that would inform microeconomics. It seems obvious that issues of ownership concentration which preoccupy economists interested in industrial organization are population-level phenomena. If it is true that perfectly competitive markets operate differently from oligopolistic markets and monopolies, the processes by which large numbers of buyers and sellers disappear and only a few survivors persist constitute common ground between economists and organizational researchers. The relationship among efficiency, market competition, and the survival of various kinds of firms could hardly be more central to the concerns of microeconomists.

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

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