Organizational Design, Inertia and the Dynamics of Competitive Response

Organizational design research has largely ignored the effects of inertia on competitive response, despite the centrality of the concept in theories of organizational evolution. In evolutionary research, inertia is frequently invoked as an explanation for why organizations delay or completely fail to respond to changes in competitive pressure. Inertia is thus seen as a primary antecedent of strategic consequences such as impaired performance and organizational mortality. Such explanations, however, cannot be tested empirically without a satisfactory method for measuring levels of inertia. This paper draws on techniques from catastrophe theory to explore a means of assessing organizational inertia by modelling organizational response to competitive pressure. Specifically, this paper looks at competitive response in terms of the aggressiveness of an organization's strategy, and models this as a function of environmental pressure and the inhibiting or enabling effects of organizational design. This paper also reveals a method for measuring the level of inertia associated with organizational response to environmental pressure. The proposed methodology takes into account the rich, multidimensional nature of these constructs and accounts for effects that delay response in the face of radical change in competitive pressure. The method also captures both incremental and radical shifts in competitive response intensity. Key benefits of the methodology include the ability to measure inertia and to assess the effects of different design elements on this measure. It thus provides a means by which researchers can enrich their understanding of the antecedents of inertia and test its effects on such outcomes as performance and survival. Data from a savings and loan association illustrate the application of this methodology.