The Formation of Breakaway Organizations: Observations and a Process Model

Article excerpt

Two qualitative studies examined the processes leading to the formation of breakaway organizations, which result when groups leave existing organizations to form new organizations. In the first study, analysis of interviews at 11 organizations in which group exit occurred revealed that the process unfolded in six stages: relative harmony, idea development, change, resistance, intense conflict, and exit. Five trigger events--introduction of conflicting ideas, legitimizing them, alarm, polarization of views, and justification--moved the participants through the group exit process. Study 2, conducted in three organizations in which group exit was avoided, revealed a trigger harmonizing event instead of a polarization event and a final dissonant harmony stage, instead of exit. Implications for the exit/voice/loyalty/neglect paradigm, the group studies literature, and organization theory in general are discussed. [*]

A breakaway organization forms when a group of organizational members, frustrated by their inability to implement change in their parent organization, leave it and start up a new organization in which they are free to implement their ideas. Although empirical investigations of breakaway organizations are scarce, the phenomenon may actually be quite common (Davis, 1990; Worchel, 1998). For example, three different advertising agencies experienced group exit when several executives left to form new agencies (Heitzman, 1993; Tyrer, 1993; O'Leary and Warneford, 1995). The most high-profile of these occurred at Saatchi & Saatchi co., the fifth largest advertising agency in the world, when cofounder Maurice Saatchi and several other key executives left the company to form the New Saatchi Agency (now M&C Saatchi). Another example occurred at 3Com Corp., where the inventors of the popular Palm Pilot hand-held computer left 3Com and formed Handspring Inc. after they were unable to convince 3Com to spin off the Palm Pi lot division (Avery, 1999). One recent study that examined organizations in both the profit and not-for-profit sectors found that about 20 percent of existing organizations were started by groups of people who left their parent organization (Dyck, 1997a). Moreover, given the increasing emphasis on teams in organizations, group exit may become even more prevalent in the future (e.g., Cohen and Bailey, 1997; Lau and Murnighan, 1998; Lembke and Wilson, 1998) and the loss to these organizations even greater.

The importance of studying group exit is evident in at least three general streams of literature. First, and perhaps most well known, is Hirschman's (1970) original formulation of what has developed into the exit/voice/loyalty/neglect (EVLN) paradigm (e.g., Rusbult, Zembrodt, and Gunn, 1982; Farrell, 1983; Rusbult et al., 1988; Withey and Cooper, 1989). Hirschman was particularly interested in the defection of substantial numbers of people who were frustrated by their inability to implement what they saw as necessary organizational changes. Scholars within the EVLN paradigm have called for longitudinal research to examine whether there is an identifiable process leading up to exit behavior (Rusbult et al., 1988; Withey and Cooper, 1989).

Second, attention to the processes and stages leading up to group exit behavior is evident in the group studies literature. Both Pondy (1967) and Worchel (1998) developed stage models that posited an observable sequence of stages leading up to group exit, and both drew attention to the need for researchers to identify trigger events that explain the movement of groups through the various stages (see also Worchel, Coutant-Sassic, and Grossman, 1992). Lau and Murnighan (1998), while describing "group faultlines" that can develop between subgroups in organizations, identified factors that may activate and strengthen faultlines and increase the probability of a split. Similarly, Lembke and Wilson (1998) drew on social identity theory to describe factors that affect the formation and development of groups within organizations. …