Journal Article

Organizational Environments in Flux: The Impact of Regulatory Punctuations on Organizational Domains, CEO Succession, and Performance

Russo, Michael V, Haveman, Heather A, Meyer, Alan D

2001

Overview

A central debate in organizational theory concerns how organizations evolve. There are two diametrically opposing viewpoints. Adaptation theories predict that change occurs as fluid organizations adjust to meet shifting environmental demands, while selection theories predict that change occurs through the differential selection and replacement of inert organizations as environmental demands vary over time. Our paper bridges these polar opposites by using a punctuated equilibrium framework to examine organizations' responses to discontinuous industry-level change. This framework recognizes that the histories of many industries are occasionally punctuated by dramatic exogenous shocks, such as radical technological innovation, social and political turmoil, major changes in government regulation, and economic crashes. Our central thesis is that such environmental punctuations dramatically reduce pressures and rewards for organizational inertia and thereby alter both organizations' propensities for change and their survival chances following change. We focus on one form of punctuation, major regulatory change, and study firms in two industries: general hospitals and savings and loan associations. For organizations in both industries, we examine three important outcomes: shifts in organizational domain, CEO succession, and changes in financial performance. Our analyses show that punctuational regulatory change prompts shifts in organizational domains and executive leadership. Additionally, post-punctuation domain change and post-punctuation CEO succession both affect subsequent performance. We discuss our results in light of current thinking about the content and process effects of core organizational change, which has been developed in the context of stable environments. Finally, we argue for the development of more temporally sensitive theories of organizational action.

• Publisher: INFORMS,Institute for Operations Research and the Management Sciences
• Subject: Antitrust laws / Bank acquisitions & mergers / Banking regulation / Business organization / CEO Succession / Change agents / Changes / Chief executive officers / Civil rights / Commercial regulation / Communications industry / Cooperation / Deregulation / Ecological succession / Economic regulation / Equilibrium / Executives / Financial services / Hospitals / Industrial regulation / Innovations / Job performance / Leadership / Organization theory / Organizational Change / Organizational culture / Organizational effectiveness / Organizational environment / Organizational Evolution / Organizational Inertia / Organizational Performance / Politics / Punctuated Equilibrium / Punctuation / Regulation / Rewards / Sanctions / Savings & loan associations / Studies / Succession / Succession planning / Telecommunications services industry / Thrift / Wage & price controls / Work environment