The Adaptive Organisation – lecture 4: Organizing Adaptation

In highly dynamic environments, firms need to focus on seizing new opportunities. i.e.
generate absorptive capacity.
Reacting to uncertainty requires some degree of knowledge about what is happening in a
firm’s environment
Transition: How can firms, especially in dynamic markets, identify new opportunities? The
answer lies in organizational design.

How can we design for adaption?

First, what is organizational design? Design typically refers to “how an organization is put together
or its structure.” The question that then arises is what is organizational structure?
Organizational structure is ‘the sum total of the ways in which it divides its labor into distinct tasks
and then achieves coordination among them’ (Mintzberg, 1979: 2). Organizational structure means
how firms allocate work to personnel.

What is organizational structure?

Organizational chart
An organization’s structure channels the activity of its members:
- Work flow: which employee should do what when
- Information flow: the movement of information

Does organizational structure matter?

Baron & Hannon, 2002: Investigated the effect of organizational structure on the performance of
approximately 200 start-ups in Silicon Valley between 1996 and 2001.
Identified 5 different structural models:
- Star -Autocrat -Engineer
- Bureaucracy -Commitment
 Slides 18, 19 20 grafieken
27.6% of all variance in performance stems from organizational structure. There seems to be evidence
supporting an effect of structure on start-ups but does structure also matter for mature firms. Make
sure to explain what a meta=anaysis is and that this coefficient represents the amount of explained
variance in the outcome across 40 different samples…also that this article does not define what
performance is

Differentiation and integration in complex systems - Part I: Lawrence &

Losch, 1967
Determinants of adaptive design
Differentiation is the subdivision of tasks into distinct organizational units:
- Differentiation ensures that a task can be carried out (division of labor) – people specialize in
production or distribution because these activities differ from one another
- But once you have a bunch of specialized people, they all have to work together
Integration is getting the different organizational units to work together to accomplish a task
Basic problem: Balance Differentiation and Integration

Differentiation
Differentiation is the subdivision of tasks into distinct organizational units:
- Within-unit focus on local task environments (Lawrence & Lorsch, 1967)
- This local responsiveness focus fosters local openness and new applicable ideas
- Structural differentiation leads to behavioral differentiation (e.g., formalization, time or social
orientation – Lawrence & Lorsch, 1967)

Integration
Integration is getting the different organizational units to work together to accomplish a task:
- Integration requires some type of overarching goal – a common point - that ensures
subsystems (the different parts of an organization) do not deviate too much
from each other.
- Integrative organizational structures arise in extremely differentiated organizations

Differences
Differentiation: Decentralisation, Structural separation, autonomy, stretch
Integration: Centralisation, cross-functional teams, group rewards, shared vision, social cohesion
Why do we need both?
Requisite variety (Morgan, 2006): design must match demands of the environment
Lawrence and Lorsch (1967): environmental uncertainty...
- ... lowers formalization within subsystems
- ... stimulates interpersonal- over task-orientation
- ... stimulates differentiation to cope with local task environments
- ... increases need for coordination (integration) between subsystems

Organizational adaption to interdependence shifts – Stan & Puranam, 2017

Basic idea
Article investigates the effect of integrators on firm performance. Focus specifically is whether
integrators positively impact firm performance following environmental change.
How does integration facilitate performance in the face of increasing environmental uncertainty? I
want to talk about what an integrator is according to this article. Doing so requires a short detour to
another fundamental part of this article, namely interdependence.

Interdependence
Specialization within a system inevitably leads to interdependence in the sense that the specialized
parts must eventually work together (March and Simon, 1958)

Working together leads to interdependence (performance of one unit depends on another).

Integrators coordinate interdependencies :

- Project managers (Allen, 1984; Wheelwright and Clark,1992);
- case managers in hospitals (Gittell, 2002);
- vehicle-integration managers (Iansiti and Clark, 1994; Loch et al., 2001),
- account managers in large, multiple-service banks (de la Torre, Martinez Peria, and
Schmukler, 2010)
in this paper: Focus is on doctors and nurses working together – different types of doctors and nurses
(scanning vs surgery) and labotoary (embryologists and scientists).

Interdependence shift
= The way that I rely on you has changed.
When I know what I need from you, it is easy for me to link actions to outcomes (e.g., I don’t achieve
the desired outcome because I didn’t provide what was needed or you didn’t provide what was
needed). Something interesting to think about…do interdependence shifts lead to risk or uncertainty?
Coordination failures
Interdependence shifts can lead to coordination failures – if I don’t know what I need from you then I
don’t necessarily work with you to achieve this.
Coordination problem:
- Harmonize different activities
- Example: scheduling production and logistics
- Tools: rules and directives, routines, mutual adjustment

Interdependence shift
Affect learning: Interdependence shifts affect learning…its difficult to link actions to outcomes
because success may come from my actions or it may come from your actions and I can’t tell which is
responsible.
Superstitious learning: Performance feedback contains information on multiple actions.

Getting back to integrators

Information flow
- integrators ensure communication channels remain open
Hierarchy or informal authority
- Control the rate of adaption to the environmental change so that rates of change do not vary
widely

Organizational design
- Hierarchy as control: centralize decision-making (e.g., bureaucracy). Coordination and
cooperation achieved through standardization.
- Hierarchy as coordination: coordination achieved through ‘rules of engagement’.
Structural Differentiation and Ambidexterity – Jansen et al
The ambidextrous organization
Organizational ambidexterity = simultaneous investment and engagement in exploration and
exploitation.
- Outside scope of current strategy and Within the scope of current strategy
- Entering new product-market domains and Extending current product-markt domains
- Mindset: experimental, creative, long-term and Mindset: Refinement, efficiency, focus,
short-term

Dual strategies
Emphasis falls on multi-market competition and the complex business models that it entails.
Why do companies need to be ambidextrous? Even though a company may be focused on a generic
strategy (i.e. differentiation/cost-leadership) at any given time, it will need to ‘hedge’ market risk.
- Cost efficiency as a hygiene factor for firms pursuing a differentiation strategy
- Innovations and customer-value as a hygiene factor for firms pursing a cost-leadership
strategy

Organizing for ambidexterity

Combining exploration and exploitation is a structure or design challenge as exploration and
exploitation have different requirements.
How do firms achieve ambidexterity?
Ambidexterity is a dynamic capability that requires constant attention (Jansen et al., 2009).
This dynamic capability is mostly related to integration:
- Mobilization, coordination, and integration of dispersed exploratory and exploitative efforts
- The creation of synergies between exploration and exploitation
Ambidexterity also requires...
- Investment routines, that adapt levels of exploration and exploitation to changing
circumstances
- Absorptive capacity to acquire and apply exploratory and exploitative knowledge
This is stimulated by differentiation.

Different requirements
The antecedents, consequences, and mediating role of organizational
ambidexterity – Gibson & Birkenshaw, 2004
Two forms of ambidexterity
- Structural ambidexterity
- Contextual ambidexterity:

Structural ambidexterity vs Contextual ambidexterity

Why do we need contextual ambidexterity?

Structural separation (structural ambidexterity)...
- Creates coordination costs
- Relies on managers’ judgement
Contextual ambidexterity...
- Avoids these costs
- Reflects that ambidexterity manifests itself through people

Contribution
- Where does contextual ambidexterity come from?
- How does contextual ambidexterity matter for performance?

How do firms become ambidextrous?

Organization context: systems, processes, and beliefs that shape individual-level behaviours in an
organization.

- Discipline - Trust

- Stretch - Support
Model

Recap
Differentiation and integration allow firms to
• Localize environmental disturbances
• Foster resource integration and reconfiguration

Ambidexterity gives adaptability throughout an organization (departments, teams, individuals

etc.)

Ambidextrous design points towards the role of individual initiative

• Gibson and Birkinshaw discuss ambidextrous individuals
• In the end, individuals need to create novelty, to keep the adaptive organizations from
dying out