Duke Seminar Series

1. Duke Seminar Series Population Ecology Cholakova & Fu University Bocconi

2. OVERVIEW • Discussion Question • Theoretical Background • i. Main propositions • ii. Contributions • III. Criticism • IV. Comparison • V. Misconceptions • VI. Suggestions

3. Discussion Question Organizational ecology is a useful theory of strategy because, among other reasons, it emphasizes constraints that create competitive advantage and it provides a necessary balance to the field’s over-emphasis on innovation and novelty. Michael Hannan, Stanford University Cholakova & Fu John Freeman, University of California, Berkeley Res Questions Theory Criticism Comparisons Misconceptions Suggestions

4. Theoretical Background • Adaptation vs. Selection vs. Random Transformation • Adaptation: ‘Organizational variability reflects designed changes in the strategy’ in response to environmental changes; • Exchange theories (Levine & White, 1961), Contingency theories (Thompson, 1967); DM theories (March & Simon, 1958); Resource Dependence (Pfeffer & Salancik, 1978) • Population ecology: ‘adaptation of organizational structures to environments occurs at the populations level, with forms of organization replacing each other as conditions change’ • Variation, Selection, Retention • Structural inertia ; • Competition & Isomorphism; • Niche theory; • Density and Interdependence ; Cholakova & Fu (Hannan & Freeman, 1884, p. 149) (Hannan & Freeman, 1889) Theory (Hannan & Freeman, 1877) Criticism Comparisons Misconceptions Suggestions Res Questions

5. Main propositions • Foci of Organizational Ecology • Sources of variability and homogeneity of organizational forms • Rise of new organizational forms • Demise or Transformation of existing forms • Dynamics of organizational diversity • Evolution of organizational forms & Change • Diversity is not simply a result of recent adaptation. Historical record of variation and selection should also be considered (e.g., founding and disbanding of organizations ) • Organizational change is Darwinian (Inertia prevents radical changes; Density-constraints on adaptation), rather than Lamarckian in nature (change based on learning and imitation) • Organizational selection favors INERT structures, which do not change strategy and structure as a result of environmental fluctuations. (Hannan & Freeman, 1889) Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

6. Demographic Constraints - Age • Organizational Age – four liabilities of aging • Newness: young orgs lack the routines and experience necessary to underpin the development of capabilities (Stinchcombe 1965; Freeman et al. 1983) • Senescence:older orgs suffer deteriorated performance due to the ossifying effect of growing bureaucratization (Ranger & Moore 1997) • Obsolescence: orgs’ capabilities face increasing risk of becoming outdated, or obsolete as time passed by and demand changed (Carroll 1983; Baum 1989) • Adolescence: orgs’ chance of success are relatively high in the early years while they can still rely on their initial endowments (Bruderl &Schussler 1990) • Age-dependence theory contributes to sources and sustainability of competitive advantage (Henderson 1999) Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

7. Demographic Constraints - Size • Strategic management usually simply uses size as a control, yet in POE: • Absolute Effects • Large firms gain efficiencies from an expanded division of labor and unit specialization (Schumpeter 1950) • Small firms operate near an “extinction boundary” (Levinthal 1991) • Relative Effects • Larger firms possess leverage over smaller parties due to size asymmetry (resource dependency: Pfeffer and Salancik 1978); favorable treatment from regulators; scale and scope economies. • Still, smaller firms often find ways to avoid pressures of deleterious scale competition (Porter 1980) • Size localized competition model (Hannan et al 1978) • Scale-based selection model (Dobrev & Carroll 2003) Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

8. Niche Constraints - Width • Niche Width – an organization’s variance in resource utilization • Generalists & Specialists • Mediator of the frequency of variation: coarse & fine grain • Ecological models of industry evolution – scope is not always beneficial • Resource partitioning theory: the increased dominance of large orgs in an industry will enhance the life chances of small specialist orgs (Carroll 1985) • Niche evolution theory: overall positive effect of firm scope on performance is reversed in concentrated markets (Dobrev et al 2002) • Diversity dependence Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

9. Niche Constraints - Overlaps • Niche Overlaps • Niche overlaps theory argues how the balance between the pros and cons of a broad or a narrow scope work out under particular competitive circumstances • Niche overlaps reflect the potential for competition – competition density • Niche Non-overlaps • Niche non-overlaps capture the degree to which other orgs’ resource requirements do not overlap with those of the focal org, so are complementary (Baum and Singh 1994, 1996) • Niche overlap theory leads implications for theories of strategic positioning, vertical integration, diversification, organizational learning and multipoint competition. Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

10. Inertia & Changes • Size & Changes • The level of structural inertia increases with size for each form of org (H&F 1989) • Org’s size interacts with org’l change and impact on performance • powerful orgs not only withstand internal change, but to impact the course of industry development (Holcombe, 2006) • Niche width & Changes • Broad-niche orgs are more likely to produce and maintain the variation necessary for learning, which serve as buffers against inertial forces. • Broad-niche orgs have their hedging strategy and spread their bets across alternatives with uneven pay-off opportunities Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

11. Inertia & Learning • Perils of learning: experience constrains future transformation • “Competency trap” (Levit & March 1988) • Experiential learning • Interpretation of experience: how orgs interpret market signal; external environment mediates • Complexity of experience: size (amount of information) is negatively related with transformation • Ambiguity of success: broad niche width appears to be a double-edged sword for learning – enables internal variation-selection-based learning while creates risk of transferring routines inappropriately. • Different types of changes, types of orgs, and environmental conditions influences the outcomes of changes & learning to performance Cholakova & Fu Theory Criticism Comparisons Misconceptions Suggestions Res Questions

12. Criticism addressed: Ecology vs. Strategy • Selection favors inertia – Yet, adaptation, transformation & learning are not excluded; just not “taken-for-granted” • Recent research has relaxed the assumption that adaptation is rare • Direct Competition is considered – niche overlap, localized competition models • Financial performance could easily be incorporated • Many proposition are not necessarily universal but rather conditional • The field is not isolated from other disciplines (e.g., the role of technology choice and transaction alignment; creativity and innovation; social networks) (Dobrev et al., 2006, p. 4) (Aldrich & Rueff, 2006) Cholakova & Fu Criticism Theories Comparisons Misconceptions Suggestions Res Questions

13. Key Propositions: Links to other OTs • Main reasons for a drift between OTs & PE • OT too static (cross-sectional focus) • Anthropomorphism (e.g., sensemaking) • Managerial emphasis • Little consideration of inertial forces (Hannan & Freeman, 1889) Cholakova & Fu Comparisons Theories Criticism Misconceptions Suggestions Res Questions

14. Misconceptions • Not a social Darwinism approach • Probabilistic rather than Deterministic; Algorithmic • No emphasis on Hyperefficiency (organizations are not seen necessarily as rational optimizers) • Punctuated Equilibrium rather than Gradualism • Both large and small firms’ focus: • ‘our empirical studies contain data on very small organizations and very big ones’ (Hannan & Freeman, 1989, p. 39) • Labor unions with ‘as few as one hundred members’ (Hannan & Freeman, 1889) Cholakova & Fu Misconceptions Theories Criticism Comparisons Suggestions Res Questions

15. Some constructive suggestions • Based on Young’s (1988) propositions: • Even though competition is a critical factor in the theory, little empirical evidence exists to support its relevance. Future work should incorporate the impact of resource competition; • Multiple measures of the concepts proposed should be developed in order to validate them; • Cases of competition between org species should be studied and discussed in terms of their implications • Specify further how to differentiate different species of organizations from one another (this will also allow better understanding of ‘niches’ and ‘niche overlaps’) Cholakova & Fu Suggestions Theories Criticism Comparisons Misconceptions Res Questions

16. THANK YOU FOR YOUR ATTENTION! 16