Empirical research in co-evolutionary processes of strategic adaptation and change: the promise and the challenge. (Editorial).
Research on the emergence or evolution of new organizations has been gaining increasing attention over the past fifteen to twenty years (Tushman and Romanelli 1985; Romanelli 1991; Lewin et al. 1999). However, most empirical studies of organization evolution and strategic adaptation involve studies of short-term adaptations, or retrospective case studies (Pettigrew 1985; Baden-Fuller and Stopford 1992). Most of such studies have focused on restructuring and transformations of existing organizations and have not been specifically concerned with the co-evolution of organizations and their environment and the emergence of new organizational forms. Although several theories propose that new organizational forms emerge from the entrepreneurial activities of new entrants (Aldrich and Mueller 1982; Aldrich and Zimmer 1986) or from the creative destruction of existing industry competencies (Schumpeter 1950; Tushman and Anderson 1986), only a very few studies attempt to characterize the co-evolutionary dynamics of fir m adaptation over time.
In this Special Issue, we have assembled empirical papers that collectively explore aspects of the co-evolution perspective as a new lens for research in organization studies and for re-integrating organization theory and strategy research. We concur with the view that co-evolution frameworks have the potential to inform research in organization studies that spans levels of analyses and shares organization adaptation or change over time as the focal research question. It is our assessment that the co-evolution framework has the potential to integrate micro- and macro-level evolution within a unifying theoretical and empirical approach that incorporates multiple levels of analyses and contingent effects, leading to new insights, new theories, new empirical methods, and new understanding.
Of course, evolutionary theory is not a new idea in organization science. Weber (1978/1910) argued that the bureaucratic form of organization arose at a particular time in history in response to the confluence of forces of change that ushered in the industrial age. Chandler (1962) supported co-evolutionary logic by noting that the M-Form of organization emerged and co-evolved with the development of the transportation and communication industries, which created the opportunity for managing across time and space. Weick (1979) represents the environment as simultaneously endogenous and exogenous and conceptualizes a view of organizing in which organization members are seen as enacting and socially constructing their environment. Aldrich (1979) was amongst the earliest scholars to propose an evolutionary theory based on processes of variation, selection, and retention. Nelson and Winter (1982) have outlined a routine-based theory which links internal variation, selection and retention with such processes in the external environment. Levitt and March (1988) have proposed models of mutual learning and adaptation processes that retain and reinforce learning and incremental improvements of successful routines. Other studies have examined the macro co-evolution of industry structure and distinctive capabilities of firms within the industry (e.g. Levinthal and Myatt 1994). Studies that incorporate both firm and industry levels of analysis implicitly or explicitly assume possible interactions between internal processes such as the variation and replication of routines, capabilities, competencies and industry-level competitive dynamics and selection.
Other co-evolutionary studies and theoretical models have involved population studies of, for example, evolution among Illinois banks (Barnett and Hansen 1996) providing support for dynamic interactions between firm learning level and adaptation, and competition and selection at the industry level. The concept of hypercompetition (D'Aveni and Gunther 1994), in which escalating competition results in short periods of advantage to the firm, punctuated by frequent industry disruptions, represents a similar approach (Ilinitch et al. 1998) where the assumed symmetry between forces of adaptation and selection results in their cancelling each other Out. In other words, search and adaptation at the firm level may result in unique capabilities and competitive advantage, but because of increased competitive dynamics, such advantages are short lived. The unstated implication of these studies is that organizational forms are in a continuous state of flux and that sustained competitive advantage is only fleeting.
In addition to the perspective of competitive co-evolution, several studies investigate cooperative co-evolutionary systems. For example, Koza and Lewin (1998) have advanced the argument that strategic alliances are embedded in the firm strategic portfolio and need to be understood in the context of how firm strategy, institutional, organizational, and competitive environments co-evolve. Other studies have focused on intra-organization co-evolution of firm resources, dynamic capabilities and competencies within an intrafirm ecological context (Barnett et al. 1994; Galunic and Eisenhardt 1996; Burgelman 1994, 1996). Burgelman's (1994, 1996) case studies of Intel supports the evolutionary economics formulation of selection processes inside the firm and views the structuring of rules for managing intraorganizational ecological processes as a means by which the firm can internalize the learning benefits of external and internal selection.
Research on professional service networks (Koza and Lewin 1999) extends this line of reasoning and demonstrates potential negative effects of serendipitous learning on organizational morphology and evolution.
Finally, a line of sociological research has emphasized the effects of regulatory change on organizational evolution. Koza (1988) studied the effects of regulation on school districts and found that internal organizational process mediated the relationship between the fiscal and political aspects of the environment and certain characteristics of organizational production. Wholey (1991) found similar effects on medical organizations. Haveman et al. (2001) compared regulatory effects in two industries: general hospitals and savings and loan associations. These studies use regulation as a natural experiment to decompose the bivariate relationship between certain attributes of organizational morphology and the environment. Organizations or organizational sub-units enact environments and environments select organizations in a dynamic process of co-evolution.
In summary, the co-evolution construct has been gaining acceptance in organization studies over the past two decades. However, as Lewin et al. (1999) and Lewi n and Volberda (1999) note, empirical co-evolutionary research is distinct from longitudinal adaptation research in that it incorporates simultaneously:
(a) longitudinal time series of microstate adaptation events and studying organization adaptations over a long period;
(b) organization adaptation within a historical context of the firm and its environment;
(c) multidirectional causalities between micro-and macro co-evolution, where the distinction between dependent--independent variables becomes indeterminate, and where changes in any one variable may be caused endogenously by changes in the other;
(d) mutual, simultaneous, lagged, and nested effects;
(e) path dependence, that enables and restricts adaptation at the firm and population level;
(f) changes to the institutional systems within which firms and industries are embedded;
(g) economic, social, and political macro-variables that may change over time and influence the deep structure within which micro- and macro co-evolution operate.
Figure 1 captures the promise and the empirical challenge of conducting co-evolutionary research.
It is evident to us, that satisfying the requirements for co-evolutionary research will require consideration of fundamentally new empirical research strategies and approaches for determining the contribution of strategy and managerial intentionality to explain organizational adaptation and change relative to competitive dynamics and contingent environmental factors. Theory development anchored in complexity science (Thietart and Forgues 1995; Anderson et al. 1999), emergence (Holland 1999), computational organization theory (Carley 1995), and population ecology has created a much needed theoretical footing for co-evolutionary research. However, it is altogether clear that empirical research represents the next frontier for empirically resolving the adaptation selection debate (Baum and Kom 1999). It is with this challenge in mind that we conceived of this special issue, following explorations of the theme at the first International (10th annual) MESO conference at Duke University in Spring 1999. The MESO con ference amply demonstrated the need for encouraging and publishing empirical research that sets out to investigate co-evolutionary systems and involves longitudinal data sets and multi levels of analyses. The call for papers resulted in 10 submissions of which we are pleased to feature the five papers accepted for this special issue. While all the papers share longitudinal time-series data of adaptations, they differ greatly in focus and scope and in the application of co-evolutionary perspective.
The lead paper by Candace Jones, 'Co-evolution of Entrepeneurial Careers, Institutional Rules and Competitive Dynamics in American Film, 1985-1920', represents an ambitious analysis of co-evolutionary processes of entrepreneurial careers, institutional rules and competitive dynamics in the context of the emergence the American film industry. The historical study compares the technology and film-content--centred periods, which were driven by entrepreneurs with different career histories and characterized by distinct institutional rules and competitive dynamics. The study uses archival data and historical analysis to trace how entrepreneurial careers, firm capabilities, institutional rules, and competitive dynamics co-evolved. A co-evolutionary perspective is integrated with insights from institutional and resource-based theories to establish time lines that provide the basis for explaining how the American film industry emerged, embarked on an initial evolutionary trajectory with specific institutional rules a nd competitive dynamics, and then changed direction with the emergence of new entrants that defined film content as the basis for competition in the industry.
The second paper by Huygens et al. 'Co-evolution of Firm Capabilities and Industry Competition: Investigating the Music Industry 1877-1997' is anchored in evolutionary economics, and explores the degree to which rival firms search for new capabilities within their organization and also throughout their competitive environmental space. A multi-level analysis of these search processes at both firm and industry levels shows that this mutual interaction captures the co-evolution of the industry and firms over time. The empirical analysis involves a dynamic meso-and micro framework involving a longitudinal study of the music industry with a time-span of 120 years. The two-stage analysis involves a historical study covering the period 1877-1990. Stage two consists of a multiple-case study, covering the period 1990-1997. The analysis provides empirical support for co-evolutionary mutual adaptation through search behaviour for new capabilities based on competitive dynamics among new entrants and incumbent firms that is manifested in the simultaneous emergence of new business models and new organizational forms.
The third paper, 'Subsidiary Embeddedness and Competence Development in MNCs -- A Multi-Level Analysis' by Andersson et al., focuses on the ability of MNC subsidiaries to assimilate new knowledge from their external environment. Such an ability is assumed to be important for the individual subsidiary's own performance as well as for the MNC's ability to combine and use resources from different parts of the corporate system. The paper explores the nature of business knowledge embeddedness at the subsidiary level and its role at the corporate level. The nature of subsidiary embeddedness in a network of business actors is assumed to explain why certain subsidiaries demonstrate higher performance, both in terms of their market performance and in terms of their internal role in competence development within the MNC. Specifically, the paper investigates the extent to which the closeness of the relationship between the subsidiary and its external relationships to suppliers and customers affects the ability of the or ganization to assimilate new knowledge from outside, its innovative capacity and its performance in the local market.
The analysis of the relationships between the external technical embeddedness of a subsidiary, its market performance and its contribution to competence development at the level of the MNC were tested in a LISREL model, using data from 97 subsidiaries belonging to 20 global divisions in 15 Swedish multinational corporations. The results indicate that the degree of external technical embeddedness of a subsidiary is a strong predictor of its own market performance and of its role as a provider of competencies to other MNC units. This multi-level analysis links micro mutual adaptation at the subsidiary level, vis a vis its external environment, with the adaptation of capabilities at the corporate level.
The fourth paper, 'Trajectories in the Evolution of Technology: A Multilevel Study of Competition in Formula 1 Racing' by Mark Jenkins and Steven Floyd, explores the evolutionary trajectories of three key technologies in Formula 1 racing at the component, firm and system levels of analysis. Using archival data and contemporaneous accounts of the period from 1967-1982, the paper develops a framework for analyzing relationships between technological transparency, co-evolution, and the emergence of dominant designs. Specifically, the authors argue that when the costs and difficulty associated with transferring component knowledge between firms is low (and technological transparency is high), technologies tend to co-evolve across firms, leading to the development of complementary technologies and increasing the likelihood of industry dominance. Where transparency is low, however, technologies tend to co-evolve across functions within firms, leading to the development of competing technologies across firms and inc reasing the likelihood of technology dominance within the firm. The data suggest that the forces acting on these two types of technological trajectories are self-reinforcing, so that as momentum builds behind a trajectory, it becomes more likely that its evolutionary path will end in either firm- or industry-level dominance.
The fifth and final paper 'Project Networks and Changing Industry Practices -- Collaborative Content Production in the German Television Industry' by Arnold Windeler and Jorg Sydow uses co-evolutionary analysis based on structuration theory to explore changing industry practices and forms of production organization as conduits and outcomes of co-evolutionary processes of change. The context of the study is the disruptive event of the transformation of the German TV industry into a dual private and public system. This institutional change event triggered the change of programme content production from in-house to collaborative forms in project networks. These project structures turn out to be highly sensitive to changes in ongoing and anticipated project practices, and also to changing industry practices. The analysis of the changes to the content production organization is shown to influence recursively the reproduction of industry practices. Empirical research on business dynamics and strategic adaptations o f firms over time is at an early stage.
The studies represented in this collection of papers are noteworthy for their assembly of archival data sets, the consideration of cross-level variables and the application of co-evolutionary frameworks. However, we expect that, increasingly, future studies will also apply event-history modelling and contextual insights to describe the type of co-evolution taking place such as, competition, mutual adaptation, predator effects, red queen outcomes, regime changes, etc. For example, the Jones paper probably involves regime changes and competitive co-evolution. However, in our view, faster progress will be achieved from studies that triangulate analytical time-dependent models such as event-history specifications with contextual qualitative insights using extensive archival data sets such as those represented in some of the papers featured in this special issue. In practice, this would imply that case researchers may wish to acquire the requisite modelling skills, or that modellers and qualitative researchers wil l form collaborations that will lead to new insights and new levels of understanding. In the absence of such cross-over collaborations or the training of a new generation of researchers skilled in multi methods, the computational organization theorists, the event-history modellers and the qualitative researchers will remain in their respective silos. To train a new generation of multi-method researchers will take time. However, we believe that, in the foreseeable future, much progress could be made through constituting teams of researchers that complement each another empirically and share a passion for researching co-evolutionary business dynamics.
(*.) We would like to express our thanks for the administrative support we have received from Danielle Trojan, The Fuqua School of Business and Alison Southgate, Cranfield School of Management.
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Arie Y. Lewin, The Fuqua School of Business, Duke University, Durham, NC, USA
Mitchell P. Koza, Cranfield School of Management, Cranfield University, UK
Arie Y. Lewin
Arie Y. Lewin is Professor of Business Administration and Sociology and IBM Research Fellow at the Fuqua School of Business, Duke University. He is the Director of the Center for International Business Education and Research (CIBER), and lead Principal Investigator for the International Project on New Organizational Forms. Professor Lewin has recently been named the Editor-in-Chief of the Journal of International Business Studies (JIBS). His previous appointments include Program Director for Decision, Risk and Management Science at the National Science Foundation (1986-1988) and visiting professorships at Keio and Hitotsubashi Universities, Japan (1993-1995). He is the founding Editor-in-Chief of Organization Science and was active in this capacity from 1989 to 1998. Professor Lewin's primary research interests involve the co-evolution of new organizational forms and the management of strategy and organizational change in times of increasing disorder. He is the author or editor of several books and many resea rch articles.
Mailing Address: The Fuqua School of Business, Duke University, Box 90120, Durham, NC 27708-0120, U.S.A.
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