Comments on the Resource Allocation Process

It is a pleasure and honor to have the opportunity to comment on this impressive body of work. As a graduate student in the early 1980s, I vividly recall my first reading of the resource allocation process (RAP). Here was a work that tackled one of the principle tasks of a firm: allocating scarce financial capital. The problem had been nominally solved by financial economists, but Bower presented it in a way that both brought forth the richness of the phenomena and provided a clear theoretical framework that illuminated the underlying processes at work. The ultimate test of a piece of scholarship is its ability to influence other scholars. By that standard, as illustrated in this collected volume, the RAP framework is a huge success. Not only has it attracted enormous attention (and citations) from scholars pursuing related topics, but it has generated multiple generations of scholars to build upon and enrich the original framework. As the theoretical structure becomes more elaborated, it may be worthwhile to reflect on the core features of the argument. Doing so, I believe, will help researchers outside the immediate RAP ‘family’ to see the power of the underlying theoretical argument and help embed this literature in the larger literature on organizational decision making and adaptation of which it is a part

Choice Interactions and Business Strategy

Choice settings are strategic to the extent that they entail cross-sectional or intertemporal linkages. These same factors may impose daunting demands on decision makers. We develop a graph-theoretic generalization of the NK model of fitness landscapes to model the way in which policy choices may be more or less strategic. We use this structure to examine, through simulation, how fully articulated a strategy or set of policy choices must be to achieve a high level of performance and how feasible it is to offset past strategic mistakes through tactical adjustments (instead of alignment). Our analysis highlights the role of asymmetry in the interaction of strategic choices and in particular the degree to which choices vary in terms of being influential, dependent, or autonomous from other choices

The Emergence of Emerging Technologies

What is discontinuous about the moment of radical technological change? We suggest that the discontinuity typically does not lie in a radical advancement in technology itself; rather, the discontinuity stems from a shift of an existing technical lineage to a new domain of application. Seeming revolutions such as wireless communication and the internet did not stem from an isolated technical breakthrough. Rather, the spectacular commercial impact was achieved when an existing technology was re-applied in a new application domain. We use the biological notion of speciation events, which form the basis for the theory of punctuated equilibrium, to reconcile the process of incremental change within a given line of technical development with the radical change associated with the shift of an existing technology to a new application domain. We then use this lens to explore how managers can cope with, and potentially exploit, such change processes

Co-Evolution of Capabilities and Industry: The Evolution of Mutual Fund Processing

The resource view of the firm has made substantial progress in identifying what attributes of a firm may provide a source of competitive advantage; however, the literature has far less to say about the emergence of these distinctive capabilities. We develop a simple framework based on the role of positive feedback effects of market activity, organizational factors that cause a firm to focus on a particular capability trajectory, and lastly the role of managerial choice with respect to anticipated feedback effects, which we term feedforward effects. We apply this framework to the emergence of competitive positions in the mutual fund-processing business from its inception to 1984

Bounded Rationality and the Search for Organizational Architecture: An Evolutionary Perspective on the Design of Organizations and Their Evolvability

We employ a computational model of organizational adaptation to answer three research questions: (1) How does the architecture or structure of complexity affect the feasibility and usefulness of boundedly rational design efforts? (2) Do efforts to adapt organizational forms complicate or complement the effectiveness of first-order change efforts? and (3) To what extent does the rate of environmental change nullify the usefulness of design efforts? We employ a computational model of organizational adaptation to examine these questions. Our results, in identifying the boundary conditions around successful design efforts, suggest that the underlying architecture of complexity of organizations, particularly the presence of hierarchy, is a critical determinant of the feasibility and effectiveness of design efforts. We also find that design efforts are generally complementary to efforts at local performance improvement and identify specific contingencies that determine the extent of complementarity. We discuss the implications of our findings for organization theory and design and the literature on modularity in products and organizations

Myopia of Selection: Does Organizational Adaptation Limit the Efficacy of Population Selection?

This paper develops and tests a model of the effectiveness of selection processes in eliminating less fit organizations from a population when organizations are undergoing adaptive change. Stable organizational traits, such as a search strategy or routine, do not imply that an organization\u27s performance will remain stable over time or that cross-sectional differences in performance will persist. These properties create the possibility that population-level selection processes will be inefficient in that organizations with potentially superior long-run performance will be selected out. We theorize that organizational-level adaptation often results in fluctuations in current performance across time. These fluctuations may attenuate the degree to which current performance differences among organizations are indicative of future performance. As a consequence, search strategies that generate systematically different performance trajectories, even if they share a common long-run outcome, will generate differing survival rates. These ideas are explored using a formal simulation model employing the framework of NK performance landscapes. Our central finding is that selection may be systematically prone to errors and that these selection errors are endogenous to, and differ markedly across, firms\u27 search strategies

Hoping for A to Z While Rewarding Only A: Complex Organizations and Multiple Goals

This paper explores the trade-offs inherent in the pursuit and fulfillment of multiple performance goals in complex organizations. We examine two related research questions: (1) What are the organizational implications of pursuing multiple performance goals? (2) Are local and myopic (as opposed to global) goal prioritization strategies effective in dealing with multiple goals? We employ a series of computational experiments to examine these questions. Our results from these experiments both formalize the intuition behind existing wisdom and provide new insights. We show that imposing a multitude of weakly correlated performance measures on even simple organizations (i.e., an organization comprised of independent employees) leads to a performance freeze in that actors are not able to identify choices that enhance organizational performance across the full array of goals. This problem increases as the degree of interdependence of organizational action increases. We also find that goal myopia, spatial differentiation of performance goals, and temporal differentiation of performance goals help rescue organizations from this status quo trap. In addition to highlighting a new class of organizational problems, we argue that in a world of boundedly rational actors, incomplete guides to action in the sense of providing only a subset of underlying goals prove more effective at directing and coordinating behavior than more complete representations of underlying objectives. Management, in the form of the articulation of a subset of goals, provides a degree of clarity and focus in a complex world

Complementary assets as pipes and prisms: Innovation incentives and trajectory choices

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/108073/1/smj2159.pd

Bridging Contested Terrain: Linking Incentive‐Based and Learning Perspectives on Organizational Evolution

In this paper we present a general model of organizational problem‐solving in which we explore the relationship between problem complexity, decentralization of tasks and reward schemes. When facing complex problems that require the co‐ordination of large numbers of interdependent elements, organizations face a decomposition problem that has both cognitive dimensions and reward and incentive dimensions. The former relate to the decomposition and allocation of the process of generation of new solutions: since the search space is too vast to be searched extensively, organizations employ heuristics for reducing it. The decomposition heuristic takes the form of division of cognitive labour and determines which solutions are generated and become candidates for selection. The reward and incentive dimensions fundamentally shape the selection environment which chooses over alternative solutions. The model we present begins to study the interrelationships between these two domains of analysis: in particular, we compare the problem‐solving performance of organizations characterized by various decompositions (of coarser or finer grain) and various reward schemes (at the level of the entire organization, team and individual). Moreover we investigate extensions of our model in order to account for (admittedly rudimentary) power and authority relationships (giving some parts of the organization the power to stop changes in other parts), and discuss the interaction of problem representations and incentive mechanisms

Strategy Making in Novel and Complex Worlds: The Power of Analogy

We examine how firms discover effective competitive positions in worlds that are both novel and complex. In such settings, neither rational deduction nor local search is likely to lead a firm to a successful array of choices. Analogical reasoning, however, may be helpful, allowing managers to transfer useful wisdom from similar settings they have experienced in the past. From a long list of observable industry characteristics, analogizing managers choose a subset they believe distinguishes similar industries from different ones. Faced with a novel industry, they seek a familiar industry which matches the novel one along that subset of characteristics. They transfer from the matching industry high-level policies that guide search in the novel industry. We embody this conceptualization of analogy in an agent-based simulation model. The model allows us to examine the impact of managerial and structural characteristics on the effectiveness of analogical reasoning. With respect to managerial characteristics, we find, not surprisingly, that analogical reasoning is especially powerful when managers pay attention to characteristics that truly distinguish similar industries from different ones. More surprisingly, we find that the marginal returns to depth of experience diminish rapidly while greater breadth of experience steadily improves performance. Both depth and breadth of experience are useful only when one accurately understands what distinguishes similar industries from different ones. We also discover that following an analogy in too orthodox a manner—strictly constraining search efforts to what the analogy suggests—can be dysfunctional. With regard to structural characteristics, we find that a well-informed analogy is particularly powerful when interactions among decisions cross policy boundaries so that the underlying decision problem is not easily decomposed. Overall, the results shed light on a form of managerial reasoning that we believe is prevalent among practicing strategists yet is largely absent from scholarly analysis of strategy