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The paradox of cost minimization and the survival of organizations

Author

Listed:
  • Zvi Winer

    (School of Management, Western Galilee College)

  • Yitzhak Samuel

    (University of Haifa)

Abstract

Organizations that operate in a dynamic environment must take steps to adapt to their changing circumstances; otherwise, they may collapse entirely. Yet, managers may postpone necessary change to minimize costs, while ignoring the risk that this myopic approach entails to the survival of their organizations. This paper proposes a model that considers failure as a stage-wise process of decline, in which the organization’s portfolio of products and the technological processes that it uses to produce them become increasingly misaligned with market conditions. Eventually, if management fails to adapt to the market in time, the gap between the organization and its environment expands to a point of no return, after which organizational collapse is inevitable. The model enables us to run computerized simulations to predict the lifespan of organizations.

Suggested Citation

  • Zvi Winer & Yitzhak Samuel, 2018. "The paradox of cost minimization and the survival of organizations," Computational and Mathematical Organization Theory, Springer, vol. 24(3), pages 401-421, September.
    • Handle: RePEc:spr:comaot:v:24:y:2018:i:3:d:10.1007_s10588-017-9261-5
    DOI: 10.1007/s10588-017-9261-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Change; Survival; Myopic management; Simulation;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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