Duke Seminar Population Ecology

1. Duke Seminar Population Ecology Raffaele Conti Guia Beatrice Pirotti Ph.D in Management and Business Administration, 3rd year

2. Proposition 1: Organizational ecology is not a theory of strategy, because it assumes that organizations are inert, while strategy seeks to understand how firms change in the face of constraints to change

3. Agenda We will argue that: • The concept of inertia (despite some inconsistencies about its role) is central in Population Ecology • Strategy is instead based on the idea of firm’s flexibility and change

4. Inertia • Central statement of Population Ecology: “Existing organizations, especially the largest and most powerful, rarely change strategy and structure quickly enough to keep up with the demands of uncertain, changing environments” (Hannan & Freeman, 1989). • three broad points of view on organizational change (Selection Theories, Adaptation Theories, Random Transformation Theories): Population Ecology is focused on Selection. • Inertia and selection are linked…but how?

5. Why are organizations inert? • Structurally inert organizations are produced by: • external pressure to have reliable and accountable structures (Hannan & Freeman, 1984) • internal institutionalization forces, managerial bounded rationality, sunk costs

6. Why are organizations inert?External legitimation • Externally, organizations become embedded in networks of obligations and commitments as they age, pressuring their leaders to continue with past practices (Aldrich & Rueff, 2006). • As a consequence, only reliable and accountable (i.e. inert) organizations survive

7. Why are organizations inert?Internal factors • the capacities of managers to reshape existing organizations is limited by some internal constraints: • limitations on rationality (Kahneman, Slovic and Tversky, 1982) • members develop a homogeneous vision and protect traditional practices, locking existing structures in place • Sunk costs in plants, equipment, personnel etc.

8. An open issue • Inertia is central in PE, but is inertia antecedent or consequence of the selection process? • Because external stakeholder prefer reliable and accountable organizations, only the inert organizations survive.  Inertia is the consequence of selection. • Organizations are all (relatively) inert due to some constraints on managerial discretion. Selection results from the degree of fit between organizations and their environments.  Inertia is the antecedent of (precondition for) selection

9. Population Ecology Population ecology scholars believe that: • Firms are inert • Learning is not possible. Only the most concrete features of technique can be easily copied and inserted into ongoing organizations (Hannan & Freeman, 1989) • The managerial power is not influent. Organizational outcomes are decoupled from individual intentions. Moreover, individuals cannot determine in advance which variations will succeed (Carroll and Hannan, 2000).

10. Strategy Strategy researchers, even adopting really different perspectives (e.g. neoclassical economics, RBV and dynamic capability theory), agree that, to a certain extent: • Firms are flexible. “They can differentiate themselves from their competitors so that they can gain and sustain competitive advantages. They can adapt to the environmental changes” (Dobrev, van Witteloostuijn & Baum, 2006). • Firms learn. Despite the importance of path dependency (underlined, for instance, by evolutionary research), major changes may come about through learning and imitation • As the nature of task requirements changes, managers may redesign the organization. The organization is usually thought to be subject to the control of its managers, who direct it to accomplish the tasks at hand

11. Strategy vs Ecology We have shown that: • Population ecology is crucially based on organizational inertia concept • Strategy is instead based on the idea of flexibility, learning and change through the managerial action POPULATION ECOLOGY IS NOT A THEORY OF STRATEGY

12. Research proposal Density dependence theory: • Population density affects legitimation and competition • Legitimation and competition determine the avalaibility of resources for the organizations within the population • As a result,the probability of survival of organizations depends on population density but… • As Cattani et al. (2003) argue, firms act at the same time in geographically different arenas, facing different densities (e.g. local and national)

13. Research questions RQ1: Does the relationship between local and national densities, on one side, and firms’ survival, on the other side, vary over time? RQ1: How do local and national densities interact?

14. HypothesesRQ1 Legimation help firms to mobilize resources (e.g. skilled workers, financial resources etc.). The role of legitimation is particularly critical for young industries (Aldrich and Fiol 1994), while it is less relevant for more mature industries. Hp1 The legitimation effect of both local and national density on firms’ survival decreases with industry age As literature on clusters shows (Saxenian 1994), firms in the same location develop over time trust and a cooperative climate, increasingly reducing the competition among themselves. Hp2 The competition effect of local density on firms’ survival decreases with local population age

15. HypothesesRQ2 By cooperating (Saxenian 1994) and exploiting agglomeration economies (Marshall 1920), firms located in dense regions can afford more effectively the competitive pressures coming from the broader industry. Hp3 The higher the local density, the lower the competition effect of national density on firm’s survival