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Being Efficiently Fickle: A Dynamic Theory of Organizational Choice

Author

Listed:
  • Jack A. Nickerson

    (John M. Olin School of Business, Washington University, Campus Box 1133, One Brookings Drive, St. Louis, Missouri 63130-4899)

  • Todd R. Zenger

    (John M. Olin School of Business, Washington University, Campus Box 1133, One Brookings Drive, St. Louis, Missouri 63130-4899)

Abstract

A central proposition in organization theory is that discrete organizational forms are matched to environmental conditions, market strategies, or exchange conditions. This paper develops a contrary theoretical proposition. We argue that efficiency may dictate modulating between discrete governance modes (i.e., structural modulation) in response to a stable set of exchange conditions. If governance choices are discrete, as much of organization theory argues, then the consequent steady-state functionality delivered by these organizational forms is itself discrete. However, if the desired functionality lies in-between the steady-state functionality delivered by two discrete choices, then efficiency gains may be available by modulating between modes. We develop an analytical model of structural modulation and examine factors that influence when modulation is ef- ficiency enhancing, as well as the optimal rate of modulation. We conclude that under certain conditions structural modulation is efficiency enhancing. Further, contrary to theories that highlight the potentially destructive consequences of inertia on organizational survival, we identify important efficiencyyielding benefits of inertia.

Suggested Citation

  • Jack A. Nickerson & Todd R. Zenger, 2002. "Being Efficiently Fickle: A Dynamic Theory of Organizational Choice," Organization Science, INFORMS, vol. 13(5), pages 547-566, October.
    • Handle: RePEc:inm:ororsc:v:13:y:2002:i:5:p:547-566
    DOI: 10.1287/orsc.13.5.547.7815
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    More about this item

    Keywords

    Organizational Change; Centralization vs. Decentralization; Theory of the Firm; Contingency Theory; Leadership; Organizational Inertia;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D20 - Microeconomics - - Production and Organizations - - - General

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