Total Posts: 2
DATE: July 31, 2004
TO: Peter Murmann and Jan Rivkin
FROM: Sid Winter
RE: Your AOM PDW on Adaptation and Selection
I really wish I could participate in your PDW. This memo sets forth much of what I would surely say if I could be there.
The framing that you offer in the description of the PDW contrasts the view that "individual organizations are largely inert" with the perspective that organizations are "fairly flexible and open to redesign." You identify the former with organizational ecology and the latter with the positioning school.. Evolutionary economics, you say, occupies an intermediate position, but one that emphasizes the difficulties of change - hence "selection is crucial." These perspectives at the individual organizational level then imply corresponding answers to the question of how industries, or populations of firms, change. On the one view, it is mostly by way of the selection process, which is interpreted exclusively in survival terms, i.e., organizational births and deaths. On the other, change at the individual organization level (adaptation) plays a much more important role in industry change.
The framing you offer is, I concede, widely accepted. As such, it is reasonable enough as a starting point for your PDW discussion. Nevertheless, in my view this framing is far from satisfactory. Thus, I hope the PDW discussion will treat the framing as problematic.
Over the years, some evolutionary economists, organization theorists and others have sought to emphasize three closely related points that tend to be obscured by the accepted framing.
First, we cannot slide by the very basic question of what we mean by change. This is a problem with deep and ancient philosophical roots. Some of us, in fact, have talked about this in terms of the clash between two familiar and ancient quotations. Heraclitus said that "You cannot step into the same river twice, for new waters are ever flowing onto you." In the Book of Ecclesiastes, however, it is written that "there is no new thing under the sun." These are two very strong claims, each with an element of truth, and it is challenging to sort out how they can be related and reconciled.
My own efforts to grapple with this got a big boost when Michael Cohen pointed out to me the key role of the resolution, or "granularity" of the observations of the thing that is alleged to be changing / not changing. For example, at a sufficiently coarse level of resolution, the Heraclitus claim defies common sense: certainly there are numerous identifiable respects in which a river stays the same long enough for you to step into it twice. However, the explanatory comment about "new waters" indicates that Heraclitus proposes that we should look closely. If we look closely enough at the river, we will see that it is always changing noticeably, even over very short periods of time. (Over longer periods, we see change in terms of water levels, erosion patterns and even gross features of the river's course.) On the other hand, to side with Ecclesiastes in the clash of quotations is to rely on observations of coarser grain, and perhaps also to propose some particular choices regarding the attributes that are "significant" enough to be worth attending to.
These basic considerations transfer directly from rivers to business firms and other organizations . Firms change all the time-we might say that "you can never observe the same firm twice." Clearly, there is a flow of customers, employees, inputs and outputs, technologies, etc. that changes from day to day and implies change in the larger entity, much like the waters of the river. To make the claim that the firm is inert is either to adopt a level of resolution at which change is invisible, or it is to discount visible change on the ground that it is, from some viewpoint, not important.
Essentially the same puzzle appears in a variety of forms, and at the conceptual level the solution is much the same. Granted that they change in some ways, do firms "adapt" or perhaps undergo "strategically significant" change? If not all change "counts," when we try to answer such questions, we first need some basis for determining what sort of change does count. Having settled that, we then need to ask whether an apparent absence of change in that sense might be just a matter of resolution/ granuality - i.e., with more powerful instrumentation, we might see the change. There is also the spatial version of the puzzle; if we want to assess whether McDonalds or Intel operates two different establishments with the same routines, we need to understand "sameness" in a way that addresses the problems of granularity and significance.
The second of my three points brings routines and capabilities explicitly into the story. When the importance of routinized behavior is acknowledged, the distinction between "adaptation" and routinized response presents significant conceptual difficulties, and even more significant ones involving operational measurement. The issues here are similar to, and in fact overlap, those involved in the change/ no change distinction.
One part of the theoretical picture that Nelson and I tried to paint involves the image of a firm that is unchanging or "inert" specifically in the sense that its routines do not change. Firms that operate with unchanging routines can do an enormous amount of changing by Heraclitus' standards, but it is reactive change, pre-programmed response to a changing environment. Hence, some would prefer to view the same history in the Ecclesiastes perspective, as no change at all - the dismissive remark is that this is not the kind of change that matters, (but of course there are many respects in which it does matter). From a strategic perspective, one important question is what happens when the environment departs from its accustomed patterns of fluctuation and presents more substantial novelty - how well will the established routines do then? As we know, it often appears that an organization capable of very complex and flexible routine responses can be highly inert in the face of such a challenge
To me, at least, it is a common-sense, obvious proposition, that routine response governs a large fraction of day-to-day change in a business firm. Indeed, it is as obvious as (and similar to) the proposition that you can step into the same river twice. And it seems to me that this sort of change is not what people ordinarily mean, or should mean, by "adaptation." Presumably nobody thinks that "adaptation" is involved when the bookstore sells more Harry Potter books when a new Harry Potter book comes out, or more Bill Clinton autobiographies when that comes out. Since I am writing this on a delayed flight to Chicago, it also occurs to me to remark that I do not think that the typical adjustments in an airline flight occasioned by bad weather and traffic delays at O'Hare count as "adaptation" by the airline-even though this is not the fully "nominal" routine and the occurrence of the deviation may be hard to predict. (I would agree, however, that sometimes weather conditions impact airline operations sufficiently so that "adaptation" does come into play.) In these, and a great many other examples, our sparse knowledge of the processes is nevertheless enough to make us quite confident that the appropriate responses are largely obvious and familiar to the relevant organization members. And that means, at least to me, that it is not adaptation.
If routinized response should not be counted as "adaptation", there are troublesome implications for observing the latter. Visible, constructive and frequent change in firm behavior cannot be accepted as a reliable indication of "adaptation"—because a lot of that occurs in the form of routinized response. But then, what is a reliable indication of adaptation? Where do you draw the line? How do you establish that an observed change was not latent in the existing routines all along, and the change, when it happened, more a manifestation of inertia than of adaptation? Heraclitus comes back to trouble us here, because the less demanding our criteria for identifying a "constant routine," the more the routines will look constant, and the less adaptation we will see.
This puzzle appears in the most perplexing form when we consider dynamic capabilities - patterned and practiced modes of firm behavior that allow the firm to change its operational routines in a systematic way. My favorite way of dramatizing this point is to quote a statement by Ralph Gomory, made in a meeting at Yale during the time when he was VP for R&D of IBM Somebody made reference to innovation in semiconductors, whereupon Ralph said: "Innovation in semiconductors? I'm not sure there is innovation in semiconductors. They just keep doing the same thing, over and over." Exactly. The semiconductors themselves are changing dramatically and producing dramatic effects in the world as a result, but the processes by which that is happening are so highly crafted and repetitive that words like "innovation" or "adaptation" seem out of place. As Intel goes on enacting Moore's Law time after time, how much innovation/ adaptation is really involved?
It is pretty clear that the only path to resolving the adaptation vs. routinized response difficulty is by way of improved observation and understanding of routinized processes. Only if you know what the routine is can you be confident about the judgment that what is happening at a particular time is not the routine in operation - or parse in an intelligent way the various "matters of degree" that reality generally presents to us.
(continued on next post)