ORGANIZATIONAL ECOLOGY
Organizational or Population Ecology offers a macro perspective on the creation and demise
of organizations resulting from environmental selection processes (Hannan and Freeman,
1977, 1984). The theory assumes that superior organizational performance is associated with
inertia, not change. Organizational Ecology therefore contrasts adaptive perspective
represented by, e.g., Performance Feedback Theory (Cyert and March, 1963) or Dynamic
Capabilities (Teece et al., 1997), which highlights the role of the organization itself and its
choice of strategies in response to the environment.
Keywords: organizational ecology; structural inertia theory; selection and adaptation; liability
of newness; liability of adolescence; liability of senescence; liability of obsolescence; liability
of smallness; niche theory
THE THEORY
The core assumption of Organizational Ecology (forming so-called structural inertia theory) is
that “…individual organizations are subject to strong inertial forces, that is, that they seldom
succeeded in making radical changes in strategy and structure in the face of environmental
threats,” (Hannan and Freeman, 1984:149). The examples of inertial forces in organizations
are (Hannan and Freeman, 1977): previous investments in assets; limited information of
decision makers; current political equilibrium in the organization; normative “how we do it”
agreements; legal and fiscal barriers to entry or exit; problems with obtaining information about
new environment; loss of legitimacy after change; difficulty of transferring successful
adaptations across multiple organizations.
It is important to highlight two important assumptions of the theory: (i) that the inertia is relative
to the environment, i.e., organizations inert in the rapidly changing environment may not be
considered as inert in the stable environment, and (ii) that the inertia covers only core
organizational competencies (mission, authority structure, technology, and marketing), not
peripheral ones.
The logic described above explains the reason why Organizational Ecology offers a macro
perspective of organizations as the success (survival) of individual organizations is not
determined by their adaptation, but by selection processes of the environment. Hannan and
Freeman (1984) argue that as the future environment is uncertain, any adaptation (innovation)
does not have guaranteed success – similarly to mutations in genes. Therefore, the
environment decides on the ultimate benefits of changes and leads to the spread of successful
innovations and the disappearance of unsuccessful ones.
Beside costs of production, every organization brings in additional costs necessary for
maintaining and reproducing its structure. Organizations possess two critical competencies
whose existence explain why they are formed despite the additional costs they bring. These
competencies are (Hannan and Freeman, 1984): (i) reliability – relative certainty in time and
quality of product delivery; and (ii) accountability – the ability to document and reconstruct
sequences of decisions. Organizational change undermines these competencies and therefore
justification of the existence of the organization. It thus leads to risk for the organization of
loosing support from the environment and of subsequent demise. Additionally, reliability and
accountability both rise with age and size of the organizations, creating liabilities
(disadvantages) of newness and smallness for young and small ones.
EXTENSIONS AND BOUNDARIES
Organizational age represents an important factor for the later conceptualization of the theory
(Dobrev, van Witteloostuijn and Baum, 2006). In the early stage of the organizational life cycle,
liability of newness (described above) and liability of adolescence (exposition of organizational
vulnerabilities after organizational initial endowment, i.e., resources invested into the
organization when created, is consumed) increase the risk of failure. In the late stage of the
life cycle, liabilities of senescence (caused by the growth of bureaucracy) and obsolescence
(risk of internal processes being outdated for the environment) also leads to the increased risk
of failure.
Another extension of Organizational Ecology is niche theory (Hannan and Freeman, 1977).
Inspired by bio-ecology, it distinguishes between two basic types of organizations – specialists
occupying a narrow niche and exhibiting a high level of fitness to it, and generalists occupying
a wider niche and exhibiting a lower level of fitness. The former type of organizations exploits
the environment but is under risk when environmental change comes; the latter type sacrifices
part of the exploitation in exchange for a greater level of security against an environmental
change. Besides the niche width, to assess competitive processes, it is important to consider
both niche overlap and non-overlap with the competitors of the organization.
EMPIRICAL APPLICATIONS
A thorough overview of Organizational Ecology research is offered by Baum and Shipilov
(2006). They conclude that while the theory advances some theoretical concepts, only a few
of them have been conclusively supported in the empirical research. The empirical application
is much limited by the availability of data on populations of firms (popular populations are
geographically-delimited samples of newspapers, manufacturers or hotels) – especially on
niche theory. These can be the reasons why we do not see much research after also
conclusive works of Baum, Dobrev, and Witteloostuijn (2006) and Baum and Shipilov (2006).
The typical empirical application may be Baum and Ingram’s (1998) study of the relationship
between experience and failure of Manhattan hotels. This paper can be tied to liabilities of age
we discussed above.
FURTHER READING
Hannan and Freeman (1977) – original conceptualization of the theory.
Hannan and Freeman (1984) – updated conceptualization of the theory.
Baum, Dobrev, and Witteloostuijn (2006) – edited book on Organizational Ecology and
Strategic Management.
Baum and Shipilov (2006) – review of the theory.
REFERENCES
Baum, Joel A. C., Stanislav D. Dobrev, and Arjen Van Witteloostuijn, eds. 2006. Ecology and
Strategy. Advances in Strategic Management 23. Bingley: Emerald.
Baum, Joel A. C., and Paul Ingram. 1998. “Survival-Enhancing Learning in the Manhattan
Hotel Industry, 1898–1980.” Management Science 44 (7): 996–1016.
Baum, Joel A. C., and Andrew V. Shipilov. 2007. “Ecological Approaches to Organizations.” In
Sage Handbook for Organization Studies, 55–110. Thousand Oaks: Sage.
Cyert, Richard Michael, and James G. March. 1963. A Behavioral Theory of the Firm. 1st ed.
Upper Saddle River: Prentice Hall/Pearson Education.
Dobrev, Stanislav D., Arjen van Witteloostuijn, and Joel A.C. Baum. 2006. “Introduction:
Ecology versus Strategy or Strategy and Ecology?” In Ecology and Strategy, 1–26. Advances
in Strategic Management 23. Emerald Group Publishing Limited.
Hannan, Michael T., and John Freeman. 1977. “The Population Ecology of Organizations.”
American Journal of Sociology 82 (5): 929–964.
———. 1984. “Structural Inertia and Organizational Change.” American Sociological Review
49 (2): 149–164.
Teece, David J., Gary Pisano, and Amy Shuen. 1997. “Dynamic Capabilities and Strategic
Management.” Strategic Management Journal 18 (7): 509–33.