IDEAS home Printed from https://ideas.repec.org/a/inm/ororsc/v20y2009i2p422-440.html
   My bibliography  Save this article

Renewal Through Reorganization: The Value of Inconsistencies Between Formal and Informal Organization

Author

Listed:
  • Ranjay Gulati

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • Phanish Puranam

    (London Business School, University of London, London NW1 4SA, United Kingdom)

Abstract

We develop a theoretical perspective on how inconsistencies between formal and informal organization arising from reorganization can help create ambidextrous organizations. We argue that under some conditions, the informal organization can compensate for the formal organization by motivating a distinct but valuable form of employee behavior that the formal organization does not emphasize, and vice versa---an effect we label compensatory fit. We illustrate the concept of compensatory fit by drawing on qualitative data from a reorganization at Cisco Systems. We also derive formal boundary conditions for compensatory fit using a simple game theoretic representation. We show that compensatory fit can only work when there is a powerful informal organization already in existence, and when the gains from ambidexterity are substantial. Further, depending on the strength of the informal organization, breakdown in the conditions necessary for compensatory fit may lead to performance declines and further reorganizations.

Suggested Citation

  • Ranjay Gulati & Phanish Puranam, 2009. "Renewal Through Reorganization: The Value of Inconsistencies Between Formal and Informal Organization," Organization Science, INFORMS, vol. 20(2), pages 422-440, April.
    • Handle: RePEc:inm:ororsc:v:20:y:2009:i:2:p:422-440
    DOI: 10.1287/orsc.1090.0421
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/orsc.1090.0421
    Download Restriction: no
    File URL: https://libkey.io/10.1287/orsc.1090.0421?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jan W. Rivkin & Nicolaj Siggelkow, 2003. "Balancing Search and Stability: Interdependencies Among Elements of Organizational Design," Management Science, INFORMS, vol. 49(3), pages 290-311, March.
    2. Pankaj Ghemawat & Joan E. I Ricart Costa, 1993. "The organizational tension between static and dynamic efficiency," Strategic Management Journal, Wiley Blackwell, vol. 14(S2), pages 59-73, December.
    3. Jack A. Nickerson & Todd R. Zenger, 2002. "Being Efficiently Fickle: A Dynamic Theory of Organizational Choice," Organization Science, INFORMS, vol. 13(5), pages 547-566, October.
    4. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    5. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    6. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    7. Wendy K. Smith & Michael L. Tushman, 2005. "Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams," Organization Science, INFORMS, vol. 16(5), pages 522-536, October.
    8. Jay J. Ebben & Alec C. Johnson, 2005. "Efficiency, flexibility, or both? Evidence linking strategy to performance in small firms," Strategic Management Journal, Wiley Blackwell, vol. 26(13), pages 1249-1259, December.
    9. Henry Mintzberg, 1990. "The design school: Reconsidering the basic premises of strategic management," Strategic Management Journal, Wiley Blackwell, vol. 11(3), pages 171-195, March.
    10. J. P. Eggers & Sarah Kaplan, 2009. "Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change," Organization Science, INFORMS, vol. 20(2), pages 461-477, April.
    11. Bruce Kogut & Udo Zander, 1996. "What Firms Do? Coordination, Identity, and Learning," Organization Science, INFORMS, vol. 7(5), pages 502-518, October.
    12. Ghemawat, Pankaj & Ricart, Joan E., 1993. "Organizational tension between static and dynamic efficiency, The," IESE Research Papers D/255, IESE Business School.
    13. Nicolaj Siggelkow, 2002. "Misperceiving Interactions Among Complements and Substitutes: Organizational Consequences," Management Science, INFORMS, vol. 48(7), pages 900-916, July.
    14. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
    15. Danny Miller, 1992. "Environmental Fit Versus Internal Fit," Organization Science, INFORMS, vol. 3(2), pages 159-178, May.
    16. Zi-Lin He & Poh-Kam Wong, 2004. "Exploration vs. Exploitation: An Empirical Test of the Ambidexterity Hypothesis," Organization Science, INFORMS, vol. 15(4), pages 481-494, August.
    17. Daniel A. Levinthal & James G. March, 1993. "The myopia of learning," Strategic Management Journal, Wiley Blackwell, vol. 14(S2), pages 95-112, December.
    18. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
    19. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    20. Mary Tripsas, 2009. "Technology, Identity, and Inertia Through the Lens of “The Digital Photography Company”," Organization Science, INFORMS, vol. 20(2), pages 441-460, April.
    21. Nicolaj Siggelkow & Daniel A. Levinthal, 2003. "Temporarily Divide to Conquer: Centralized, Decentralized, and Reintegrated Organizational Approaches to Exploration and Adaptation," Organization Science, INFORMS, vol. 14(6), pages 650-669, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. O'Reilly, Charles A., III & Tushman, Michael, 2007. "Ambidexterity as a Dynamic Capability: Resolving the Innovator's Dilemma," Research Papers 1963, Stanford University, Graduate School of Business.
    2. Tobias Kretschmer & Phanish Puranam, 2008. "Integration Through Incentives Within Differentiated Organizations," Organization Science, INFORMS, vol. 19(6), pages 860-875, December.
    3. Oana Buliga & Christian W. Scheiner & Kai-Ingo Voigt, 2016. "Business model innovation and organizational resilience: towards an integrated conceptual framework," Journal of Business Economics, Springer, vol. 86(6), pages 647-670, August.
    4. Jan W. Rivkin & Nicolaj Siggelkow, 2003. "Balancing Search and Stability: Interdependencies Among Elements of Organizational Design," Management Science, INFORMS, vol. 49(3), pages 290-311, March.
    5. Matthews, Lane & Heyden, Mariano L.M. & Zhou, Dan, 2022. "Paradoxical transparency? Capital market responses to exploration and exploitation disclosure," Research Policy, Elsevier, vol. 51(1).
    6. Sabyasachi Sinha, 2015. "The Exploration–Exploitation Dilemma: A Review in the Context of Managing Growth of New Ventures," Vikalpa: The Journal for Decision Makers, , vol. 40(3), pages 313-323, September.
    7. Sung‐Choon Kang & Scott A. Snell, 2009. "Intellectual Capital Architectures and Ambidextrous Learning: A Framework for Human Resource Management," Journal of Management Studies, Wiley Blackwell, vol. 46(1), pages 65-92, January.
    8. Karl Aschenbrücker & Tobias Kretschmer, 2022. "Performance-based incentives and innovative activity in small firms: evidence from German manufacturing," Journal of Organization Design, Springer;Organizational Design Community, vol. 11(2), pages 47-64, June.
    9. Qing Cao & Eric Gedajlovic & Hongping Zhang, 2009. "Unpacking Organizational Ambidexterity: Dimensions, Contingencies, and Synergistic Effects," Organization Science, INFORMS, vol. 20(4), pages 781-796, August.
    10. O'Reilly, Charles A., III & Tushman, Michael L., 2013. "Organizational Ambidexterity: Past, Present and Future," Research Papers 2130, Stanford University, Graduate School of Business.
    11. Sebastian Raisch & Michael L. Tushman, 2016. "Growing New Corporate Businesses: From Initiation to Graduation," Organization Science, INFORMS, vol. 27(5), pages 1237-1257, October.
    12. François Constant & Richard Calvi & Thomas Johnsen, 2020. "Managing tensions between exploitative and exploratory innovation through purchasing function ambidexterity Managing tensions between exploitative and exploratory innovation through purchasing functio," Post-Print hal-02891790, HAL.
    13. Demetris Vrontis & Alkis Thrassou & Gabriele Santoro & Armando Papa, 2017. "Ambidexterity, external knowledge and performance in knowledge-intensive firms," The Journal of Technology Transfer, Springer, vol. 42(2), pages 374-388, April.
    14. Tom J. M. Mom & Frans A. J. van den Bosch & Henk W. Volberda, 2009. "Understanding Variation in Managers' Ambidexterity: Investigating Direct and Interaction Effects of Formal Structural and Personal Coordination Mechanisms," Organization Science, INFORMS, vol. 20(4), pages 812-828, August.
    15. Zhi Yang & Xuemin Zhou & Pengcheng Zhang, 2015. "Discipline versus passion: Collectivism, centralization, and ambidextrous innovation," Asia Pacific Journal of Management, Springer, vol. 32(3), pages 745-769, September.
    16. Hsu, Chia-Wen & Lien, Yung-Chih & Chen, Homin, 2013. "International ambidexterity and firm performance in small emerging economies," Journal of World Business, Elsevier, vol. 48(1), pages 58-67.
    17. Jingoo Kang & Sang‐Joon Kim, 2020. "Performance implications of incremental transition and discontinuous jump between exploration and exploitation," Strategic Management Journal, Wiley Blackwell, vol. 41(6), pages 1083-1111, June.
    18. Sebastian Raisch & Julian Birkinshaw & Gilbert Probst & Michael L. Tushman, 2009. "Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance," Organization Science, INFORMS, vol. 20(4), pages 685-695, August.
    19. Ng, Stephen C.H. & Rungtusanatham, Johnny M. & Zhao, Xiande & Lee, T.S., 2015. "Examining process management via the lens of exploitation and exploration: Reconceptualization and scale development," International Journal of Production Economics, Elsevier, vol. 163(C), pages 1-15.
    20. Feiz Abadi, Javad & Gligor, David M. & Alibakhshi Motlagh, Somayeh & Srivastava, Raj, 2024. "When and under what conditions ambidextrous supply chains prove effective? Insights from simulation and empirical studies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 183(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ororsc:v:20:y:2009:i:2:p:422-440. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.