Academic journal article Academy of Strategic Management Journal

All Hail the Benefits of Inertia: The Case of Smooth versus Rugged Landscapes

Academic journal article Academy of Strategic Management Journal

All Hail the Benefits of Inertia: The Case of Smooth versus Rugged Landscapes

Article excerpt

ABSTRACT

The benefits of inertia, both during times of industry environmental stability and instability have not received explicit research attention. The present study examines the benefits of inertia both during times of industry environmental stability and instability. Findings from this study suggest that firms do derive benefits from inertia. Specifically, findings suggest that within the context of strategic groups, that for the stable time period of 1968-1972, constant member firms exhibited higher performance levels than did shifting firms in 53.3% of the cases. For the unstable time period of 1978-1982, performance mean differences between constant versus shifting members were statistically significant in only 26.6% of the cases. Again, however, these differences tended to favor the constant member firms. These findings shed additional light on the ongoing debate concerning whether or not firms can or should adapt to their environments.

INTRODUCTION

A fundamental debate in the organization sciences revolves around the likelihood and benefits of organizational change (Child, 1972; Fox-Wolfgramm, Boal, and Hunt, 1998; Hannan and Freeman, 1977; and Meyer, Brooks, and Goes, 1990, 1994). Is it better for an organization to "stick to your knitting" as Peters and Waters suggested (1982), or should organizations adapt their strategies to changing times? The pejorative connotation attached to terms like drift, inertia, status quo (Finkelstein and Hambrick, 1996; Meyer, Brooks, and Goes, 1990; Miller and Friesen, 1980; Romanelli and Tushman, 1986, 1994) suggests that change is necessary and beneficial if organizations are to remain effective. This is based upon the assumption that organizational growth and survival is dependent upon maintaining a "fit" between the organization and its environment (Summer, Bettis, Duhaime, Grant, Hambrick, and Zeithaml, 1990). Furthermore, it is assumed that inertia builds up over time creating a misfit between the organization and its environment. This misfit creates a crisis that only can be solved, if at all, by a rapid and radical change in the organization (Gersick, 1991; Gresov, Haverman, and Oliva, 1993; Romanelli and Tushman, 1994). This is especially true in what some scholars characterize as the emerging competitive landscape where the organizational environment is in a constant state of flux, and only those organizations that match those changes will remain fit (Garud, Dunbar, and Raghuram, 1996; Hitt, Keats, and DeMarie, 1998). From this perspective, survival and change go hand in hand.

These perspectives emphasize the benefits of adaptability and flexibility while downplaying the benefits of stability. However, Brown and Eisenhardt (1998) argue that organizational survival and effectiveness depend on maintaining a balance between flexibility and stability. Under this perspective, it can be theorized that "inertia" is beneficial since it allows learning gains to be consolidated and it allows systems to increase in fitness. A system in a constant state of flux is doomed. Inertia also enables the accumulation of knowledge and complexity. Without inertia, improvements would vaporize at every new fad, and the system would never be able to move any distance from a random state.

The purpose of the current study is to test the proposition that inertia is beneficial. In the following paragraphs complexity theory is used to build a case for the benefits of inertia. Hypotheses are then developed regarding the benefits of inertia within the context of strategic groups. The methods used to test each hypothesis, results from the tests, and a discussion of the results then follow.

COMPLEXITY THEORY AND THE BENEFITS OF INERTIA

From a theoretical perspective, the new science of Chaos and Complexity theory provides an excellent theoretical lens from which to view the benefits of inertia. As organizational scholars continue to be interested in studying change (Van de Ven and Poole, 1995), they are increasingly turning to Chaos and Complexity theory to study change (e. …

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