Modeling the Effect of Rigidity in Organizational Structure on Organizational Self-Renewal and Knowledge Diffusion: A Theoretical Framework

Combining and Extending the concepts of fluid viscosity, system dynamics and Cobb-Douglas production function, an attempt was made to propose a theoretical framework that models the effect of organizational structure on organizational self-renewal and knowledge diffusion. It was showed that rigidity in organizational structure creates an organizational viscosity (due to vertical layers of management) and conflict of interest (between functional divisions), that affects both the self- renewal exercise and Knowledge Diffusion, which are the two most integral aspects of staying competitive in volatile business environment. It was illustrated that with the increase in the rigidity of the organizational structure causes decrease in its self-renewal exercise and diffusion of knowledge. Ironically, the model also shows that absence of any structure also has a negative impact on organizational self-renewal and knowledge diffusion. Based on its self- renewal capability organizations are categorized here, as innovators, adapters (both early and late), laggards and virtual innovators. The model explained, graphically, how knowledge diffusion decreases the time to innovate.