Adaptability or efficiency : towards a theory of institutional development in organizations

Organizations, once established, tend not to change, typically going obsolete as society continues to evolve. This makes adaptability an important issue. Organizational members must make sense to each other, or coordination suffers. They must also make sense to environmental actors, or the organization will not achieve the support it needs to survive. This sense-making is a process of institutionalization, of constructing a shared understanding of the organization's enterprise, business and environment. When environmental actors adopt new priorities, ideas and modes of thinking, organizations must develop a new understanding of reality or go obsolete. To stay adaptable, organizations needs to contain competing perspectives. But the pressures to conform and to coordinate make it difficult for established organizations to adapt, trapped by the very benefits of increased efficiency. Using an agent-based model of organizational institutionalization, I show that an organization's adaptability is highly dependent on structural elements that affect the member interaction frequencies, and that organizations that leverage the strength of weak ties between member groups can maintain adaptability. The effects of changes to any of these elements are decidedly non-linear, however, which helps explain why it is difficult to design effective organizations. Organizational structure is one part of a tri-partite framework of institutional development in organizations and of organizational adaptability, where the other two parts are the individual characteristics of the members and the content of the organizational culture.