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Theories of organizational niche

Theories of organizational niche. External dynamics of organizations. M. Hannan and J. Freeman. Competition. Organizations compete because resources are scarce. Resources are unevenly distributed.

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Theories of organizational niche

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  1. Theories of organizational niche • External dynamics of organizations

  2. M. Hannan and J. Freeman

  3. Competition • Organizations compete because resources are scarce. • Resources are unevenly distributed. • Competition starts when (local) resources do not support more organizations, the environment reaches its carrying capacity

  4. Resource availability • uni-modal resource distribution tastes Resource distribution

  5. Resource availability • bi-modal resource distribution tastes

  6. Multi-dimensionality of resource space • Examples: • Cars: Status, reliability/maintenance costs, petrol consumption, comfort, size, safety, trunk size, speed, environmental implications, etc., price • Computers: Speed, processor type, operating system, software availability, compatibility, etc., price

  7. Niche • Fundamental niche: those resource configurations the organization is able to exploit • Realized niche: Those resource configurations the organization actually exploits (in the presence of competitors) • Realized niches are normally (much) smaller then fundamental niches

  8. Parameters of organizational niche • Niche position • Niche width • Fragmentation (Convexity)

  9. Fitness • Organizational fitness defines the cost-quality relationship for the organization. • The higher the fitness the better the cost-quality position of the organization. • Fitness lowers mortality hazard.

  10. Principle of allocation • To maintain broad (fundamental) niche organizations have to keep several routines in shape, several technologies available • To achieve high fitness organizations need resources. • PA: Niche width is conversely proportional to fitness: the narrower the niche the fitter the organization can be (because resources are finite)

  11. Illustration • Apple: • High fitness in graphics and video editing • Narrow niche in compatibility • Narrow niche in software availability • HP: • Generic computers, broad niche • Somewhat lower fitness • IBM ?

  12. Generalist and specialist organizations • Specialist organizations have a narrow and not fragmented niche • Generalist organizations have broad and often fragmented niche • Specialist organizations have higher fitness within their niches.

  13. Empirical dilemma • Why do generalist organizations proliferate? They should have been over competed by fitter specialist. • Two solutions • A) generalists can cope better with environmental fluctuations • B) generalists are (often) larger and enjoy scale advantages

  14. A) Fluctuating environments Seasonal changes: restaurant Cyclic changes : in construction Electoral cycles: newspaper editing

  15. Relevant variables • How far different environmental patches are from one another • What is the proportion of the length of the “good” and the “bad” patches (for the specialists) • How frequent the changes are (form month to decades)

  16. Specialist organizations do better only in: • Stabile environments • In case the dissimilarity between the patches is high and the changes are not too frequent and the “good” patches are relatively longer

  17. Theory of Resource Partitioning

  18. B) Scale competition Production Marketing Distribution Realized niches

  19. Next phase

  20. Next phase

  21. Next phase

  22. Observation: • The winner takes large chunks of the realized niche of the looser. • The winner can not take all • This is the part where identity starts to matter: If a conservative newspaper wins competition it is unable to publish for the far left. • Illustration: Daimler-Chrysler has problems with the SMART.

  23. Prediction • In case of high concentration the narrow niche (peripheral) specialist organizations proliferate. • Specialists tend to be small because the generalist crowding concentrated around the market center, where resource availability is the highest. In the left over space resources are scarce. Enough only for small organizations

  24. However... • Successful specialists can GENERATE their own market, and grow • Illustration: The Wall Street Journal is a large specialist

  25. Specialists on the peripheries

  26. The population of U.S. Breweries • Density plot Prohibition 2000 1000 40 1985 Micro- Breweries

  27. Some populations with similar histories • Record companies (US) • Airlines (US) • Publishers (US) • Newspapers (US, NL, AUT) • Auditing (NL) • Banks (Denmark) • Automobile (D, I, F, UK)

  28. Four types of resource partitioning • Geographical partitioning (catchment area) • Partitioning without identity protection (Stability in the center big in and outflow on the peripheries) • Partitioning with identity protection (Stability both in the center and on the peripheries) • Size isomorphism

  29. Implications • Inertia makes it difficult to change the niche (width and position) (mortality!) • Inertia grows by age, but • Change experience makes similar changes more likely (the last lecture will explain why) • Founding in high density periods are less likely to succeed unless the niche is narrow

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