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V. Competition Theory . . . Optimization raises two issues : Who is optimizing, and what is being optimized ? It is uile commonly held, as in the theory of the firm, that organizational decision makers opti-lize profit over sets of organizational actions from a population ecology perspective, it is the environment which optimizes. 3Whether or ot individual organizations are consciously udapting, the environment selects out optimal combinations of organizations. So if there is a rationality involved, it is the ” Rationality ” of natural selection. Organizational rationality and environmental rationality may coincide in the instance of firms in competilive markets. In this case. the optimal behavior of each firm is to maximize profit and the rule used by the environment (market, in this case) is to select out profit maximizers. . . . A focus on selection invites an emphasis on competition. Organizational forms presumably fail to flourish in certain environmental circumstances because other forms successfully compete with them for essential resources. As long as me resources which sustain organizations are finite and populations have unlimited capacity to expand, compelition must ensue. Hawley (1950, pp. 201-3) following Durkheim (1947) among others, places a heavy emphasis on competition as a determinant of patterns of social organization … In Hawley’s model, competition processes typically involve four stages : (1) demand for resources exceeds supply; (2) competitors become more similar as standard conditions of competition bring forth a uniform response; (3) selection eliminates the weakest competitors; and (4) deposed competitors differentiate either territorially or functionally, yielding a more complex division of labor . . . The first step in constructing an ecological model of competition is to stale the nature of the population growth process. At a minimum we wish the model to incorporate the idea that resources available at any moment for each form of organization are finite and fixed…. We also wish to incorporate the view that the rate at which units are added to populations of organizations depends on how much of the fixed capacity has already been exhausted. The greater the unexhausted capacity in an environment, the faster should be the rate of growth of populations of organizations. But the rate at which populations of organizations can expand into unused capacity varies among forms of organization. So there are two distinctive ecological considerations : the capacity of the environment to support froms of organization and the rate at which the populations grow (or decline) when the environmental support changes. . . . One can show that when growth in population is constrairied only by resource availability, the number of distinct resources sets an upper bound on diversity in the system4. Even more generally, the upper bound on diversity is equal to the number of distinct resources plus the number of additional constraints on growth (Levin 1970). . . . The increasingly important role of the state in regulating economic and social action provides numerous opportunities for analyzing the impact of changes in constraint structures on the diversity of organizational forms. Consider the impact of licensing laws minimum wage, health, and safety legislation, affirmative action, and other regulations on organizational action. When such regulations are applied to the full range of organizations in broad areas of activity they undoubtedly alter the site distributions of Organizations. Most often they select out the smallest organization But it is not difficult to imagine situations in which medium-sized organizations (more precisely, those with some minimum level of complexity) would be more adversely affected. Besides altering size distributions such regulations undoubtedly aftect the diversity of organizational arrangements in other ways. Here one could analyze the impact of stale action on the diversity of accounting systems wilhin industries, curricula within universities, departmental structures within hospitals, etc. In each case it would be essential to determine whether the newly imposed constraint replaced lower level constraints, in which case diversity should decline, or whether the constraint cumulated with the existing constraints in which case organizational diversity would be likely to increase . . . . When large-sized organizations emerge they pose a competitive threat to medium-sized but hardly any threat to smalt organizations. In fact, the rise of large organizations may increase the survival chances of small ones in a manner not anticipated in the classical model. When the large organizations enter, those in the middle of the sue distribution are trapped. Whatever strategy they adopt to fight off the challenge of the larger form makes them more vulnerable in competion with small organizations and vice versa. That is, at least in a stable environment the two ends of the size distribution ought to oulcompete the middle. . . . VI. Niche Theory . . . Intuition suggests that isomorphism holds as a good approximation only in stable environments. Faced with unstable environments, organizations ought (o develop a generalist structure that is not optimally adapted to any single environmental configuration but is optimal over an entire set of configurations. In other words, we ought to find specialized organizations in stable and certain environments and generalisi organizations in unstable and uncertain environments. Whether or not this simple proposition holds for social organizations, only empirical research will tell. However, a variety of population ecology models suggests that il is too simplistic…. The concept of ” niche “, initially borrowed by biologists from early social science, plays a central role in ecological theory. . . . The (realized) niche of a population is defined as that area in constraint space (the space whose dimensions are levels of resources, etc.) in which the population outcompetes all other local populations. The niche, then, consists of all those combinations of resource levels at which the population can survive and reproduce it self. Each population occupies a distinct niche. For present purposes it suffices to consider cases when pairs of populations differ with respect to a single environmental dimension, E, and are alike with respect to all others. Then relative competitive positions can be simply summarized as in Figure 1. As we have drawn Ihis figure, one population. A, occupies a very broad niche, whereas the other, B, has concentrated its fitness, denoted W, on a very narrow band of enviromental variation. This distinction, which is usually referred to as generalism versus ecialism, is crucial to biological ecology and a population ecology of organizations. Figure 1 Functions (niches) for specialist and genaralist In essence, the distinction between specialism did generalism refers to whether a population organizations flourishes because it maximizes is exploitation of the environment and accepts the risk of having that environment change or excause it accepts a lower level of exploitation return for greater security. Whether or not e equilibrium distribution of organizational firms is dominated by the specialist depends, we will see, on the shape of the fitness sets did on properties of the environment. Part of the efficiency resulting from special firm is derived from the lower requirements for access capacity. Given some uncertainty, most organizations maintain some excess capacity insure the reliability of performance. In rapidly changing environment, the definition excess capacity is likely to change freindnently. What is used today may become excess tomorrow, and what is excess today may be crucial tomorrow. . . . The importance of excess capacity is not impletely bound up with the issue of how such excess capacity will be maintained. It also volves the manner in which it is used. Organizations may insure reliable performance by creating specialized units, as Thompson (1967) suggests, or they may allocate excess capacity to organizational roles, by employing personnel.witli skills.and abilities which exceed the routine requirements of their jobs. . . . Excess capacity may also be allocated to the development and maintenance of procedural systems. When the certaintly of a given environmental state is high, organizational operations should be routine, and coordination can be ^accomplished by formalized rules and the investment of resources in training incumbents to follow those formalized procedures. . . . However, when certainty is low, organizational operations are less routine. Under these circumstances, a greater allocation of resources to develop and maintain procedural systems is counterproductive and optimal organizational forms will allocate resources to less formalized systems capable of more innovative responses (e.g., committees and teams). In this case, excess capacity is represented by the increased time it takes such structures to make decisions and by increased coordination costs. The point here is that populations of organizational forms will be selected for or against depending upon the amount of excess capacity they maintain and how they allocate it. . . . Under a given set of environmental circumstances the fundamental ecological question is : Which forms thruve and which forms disapears. Generalism may be observed in a population of organizations, then, either in it is reliance upon a wide variety of resources simultaneously or in its maintenance of excess capacity at any given time. This excess capacity allows such organizations to change in order to take advantage of resources,which become more readily available : Corportions which maintain an unusually large proportion of their total assets in fluid form (“slack,” in terms of theory of the firm; Penrose 1959; Cyertand March 1963) are generalizing. In either case, generalism is costly. Under stable environmental circumstances, generalists will be outcompeted by specialists. And at any given point in time ? static analysis will reveal excess capacity. An implication—shifting our focus to individual generalists—is that outside agents will often mistake excess capacity for waste. … Variation is fine-grained when typical durations in states are short relative to the lifetime of organizations. Otherwise, the environment is said to be coarse-grained. Demand for products or services is often characterized by finegrained variation whereas changes in legal Structures are more typically coarse-grained. The essential difference between two types of environmental variation is the cost of sub-optimal strategies; The problem of ecological adulation can be considered a game of chance in which the population chooses a strategy (specialism or generalism) and then the environment chooses an outcome (by, say, flipping a coin). If the environment “comes up” in a ..state favorable to the organizational form, it prospers; otherwise, it’declines. However, if the variation is fine-grained (durations arc short), each population of organizations experiences a great many trials and environment is experienced as an average. When variation is coarse-grained, however, the period of decline stemming from a wrong choice may exceed the organizational capacity to sustain itself under unfavorable conditions. . . . Consider first the cases in which the environ. ment is stable (i.e., p = 1). Not surprisingly. specialism is optimal. The results for unstable environments diverge. When the fitness set is convex (i.e., the demands of the different environmental states are similar and/or complementary), generalism is optimal. But when the environmental demands differ (and the fitness set is concave), specialism is optima). This is as strange a result as it first appears. When the environment changes rapidly among quite different states, the cost of generalism is high. Since the demands in different states are dissimilar, considerable structural management is required of generalists. But since the environment changes rapidly, these organizations wHI spend most of their time and_energies adjusting structure. It is apparently better under such conditions to adopt a specialized structure and “ride out*’ the adverse environments. The case of coarse-grained environments is’ somewhat more complex. Our intuitive understanding is that since the duration of an environmental state is long, maladaptation ought to be given greater weight. That is, the costs of maladaptation greatly outweigh any advantage “incurred by the correct choice.. . . The combination of coarse-grained environmental variation and concave fitness sets raises a further possibility. The optimal adaptation in the.faceof environmental uncertainty possesses fairly low levels of fitness in either state. It seems clear that there must be a better solution. Coarse-grained and uncertain variation favors a distinct form of generalism: polymorphism. We do not have to search very far to find an analogous outcome. Organizations may federate in such a way that supraorganiza-tions consisting of heterogeneous colections of specialist organizations pool resources. When the environment is uncertain and coarse-grained, and sub units difficult to set up and tear down, the costs of maintaining the unwieldy structure imposed by federation may be more than offset ,by the fact. that at least a portion of the. amalgamated organization will do well no matter what the state of the environment. In terms of the model suggested above there are no other situations in which such federated organizations ive a competitive advantage. And even in this ise, the only time during which they have such a advantage is when coarse-grained variation uncertain. . . . Much more can be said concerning applications of niche theory to organization-environment translations. We have focused on a simple version ghlighting the interplay between competition in environmental variation in the determination of optimal adaptive structure in order to that the principle of isomorphism needs insiderable expansion to deal with multiple invironmental outcomes and their associated icertainty. The literature in ecology to which, e have made reference is growing exponentlly at the moment and new results and models e appearing monthly. The products of these svelopments provide students of organizations with a rich potential for the study of organization-environment relations. . . . VII. Discussion Our aim in this paper has been to move ward an application of modern population ecology theory to the study of organization-invironment relations. For us, the central guestion is, why are there so many kinds of ganizations ? Phrasing the questions this any opens the possibility of applying a rich criety of formal models to the analysis of e effects of environmental variations on ganizational structure. We begin with Hawley’s classic formulations human ecology. However recognized that ecological theory has progressed enormously since sociologists last systematically applied eas from bioecology to social organization. onetheless, Hawley’s theoretical perspective mains a very useful point of departure. In particuailar we concentrate on the This principle asserts that there is one-to-one correspondence between structural ments of social organization and those units at mediate flows of essential resources into the system. It explains the variations in organizational forms in equilibrium. But any observed isomorphism can arise from purposeful adaptation of organizations to the common constraints they face or because nonisomorphic organizations are selected against. Surely both processes are a work in most social systems. We believe that the organizations literature.has emphasized the former, to the exclusion of the latter. We suspect that careful empirical research will reveal that for wide classes of organizations there are very strong inertial pressures on structure arising both from internal arrangements (e.g., internal politics) and the environment (e.g., public legitimation of organizational activity)., To claim othepvise is to ignore the most obvious feature of organizational life. Failing churches do not become retail stores; nor do firms transform themselves into churches. Even within broad areas of organizational action, such as higher education and labor union activity, there appear to be substantial obstacles to fundamental structural change. Research is needed on this issue. . . . We suggest that the concrete implication of generalism for organizations is the accumulation and ret?n}ion of varieties of excess capacity. To retain the flexibility of structure required for adaptation to different environmental outcomes.,,,,, requires that some capacities be held in reserve u and not committed to action. Generalists will always be outperformed by specialists who, with the same levels of resources, happen to have hit upon their optimal environment. Consequently, in any crosssection the generalists will appear inefficient because excess, capacity will often be judged waste. Nonetheless, organizational slack is a pervasive feature of many types of organizations. The question then arises: what types of environments favor generalists ? Answering this question comprehensively takes one a long way toward understanding the dynamic of organization-environment relations. … We have identified some of the leading conceptual and methodological obstacles to applying population ecology models to the study of organization environment relations. We pointed to differences between human and nonhuman social organization in terms of mechanisms of structural invariance and structural change, associated problems of delimiting populations of organizations, and difficulties in defining fitness for populations, of expandable units. In each case we have merely sketched the issues and proposed short-run simplifications which would facilitate the application of existing models,. Clearly, each issue deserves carerul scrutiny. . We doubt that many readers will dispute the contention that failure rates are high for new and / or small organizations. However, much of the sociological literature and virtually all of the critical literature on large organizations tacitly accepts the view that such organizations are not subject to strong selection pressures. While we do not yet have the empirical data to judge this hypothesis, we can make several comments. First, we do not dispute that the largest organizations individually and collectively exercise strong dominance over most of the organizations that constitute their environments. But it does not follow from the observation that such organizations are strong in any one period that they will be strong in every period. That, it is interesting to know how firmly embedded are the largest and most powerful organizations Consider the so-called Fortune 500, the largest publicly owned industrial firms in the United States. We contrasted to ? lists for 1955 and 1975 (adjusting for pure name changes). Of those on the list in 1955, only 268 (53.6%) were still listed in 1975. One hundred twenty-two, had disappeared through merger, 109 had slipped “off the “500,” and one (a firm specializing in Cuban sugar) had been liquidated. The number whose relative sales growth caused dropped from the list is that the,large, number of mergers opened many slots on the list. So we see that, whereas actual liquidation was rare for the largest industrial firms in the United States over a 20-year period, there was a good deal volatility with regard to position in this pseudodominance structure because of both mergers and slipping sales.5 Second, the choice of time perspective is important. Even the largest and most powerful organizations fail to survive over long periods. For example, of the thousands of firms in business in the Unites States during the Revolution, only 13 survive as autonomous firms and seven as reco’griizaftc divisions of firms (Nation’s Business 1976). Presumably one needs a longer time perspective to study the population ecology of the largest and most dominant organizations. Third, studying small organizations is not such a^bad idea. The sociological literature has concentrated on the largest organizations for obvious design reasons. But, if inertial pressures on certain, aspects of structure are strong enough, intense selection among small organizations may greatly constrain the variety observable among large organizations. At least some elements of structure change with size (as we argued in Section III) and the pressure toward inertia should not be overemphasized. Nonetheless we see much value in studies of the organizational life cycle that would inform us as to which aspects of structure get locked in during which phases of the cycle. For example, we conjecture that a critical period is. that during which the organization grows beyond the control of a single owner/manager. At this time the manner in which authority is delegated all, seems likely to have a lasting impact on organizational structure. This is the period during which an organization becomes less answer extension of one or a few dominant individuals and more an organization with a life of its own. If the selection pressures at this point are as intense as anecdotal evidence suggests they are, selection models will prove very useful in accounting for the varieties of forms among the whole range of organizations. . . . Fourth, we must consider what one ahony-mous reader, caught up in the spirit of our paper, called the anti-eugenic actions of the state in saving firms such as Lockheed from failure. This is a dramatic instance of the way which large dominant organizations can create linkages with other large and powerful ones so as to reduce selection pressures. If such moves are active, they alter the pattern of selection. In view the selection pressure is bumped up higher level. So instead of individual organizations failing, entire networks fail. The eral consequence of a large number of ages of this sort is an increase in the instay of the entire system (Simon 1962, 1973; /1973), and therefore we should see boom bust cycles of organizational outcomes. iction models retain relevance, then, even the systems of organizations are tightly pled (see Hannan 1976). Finally, some readers of earlier drafts have ne approvingly, some disapprovingly) treated arguments as metaphoric. This is not what ntend. In a fundamental sense all theoretical variety involves metaphoric activity (although littedly the term “analogue” comes closer it does ” metaphor”). The use of metaphors inalogues enters into the formulation of . . . Then statements. For example, certain ecular genetic models draw an analogy reen DNA surfaces and crystal structures, is latter have simple well-behaved geometric structures amenable to strong topological thematical) analysis. No one argues that \ proteins are crystals; but to the extent that r surfaces have certain crystal-like proper-the mathematical model used to analyze tals will shed light on the genetic structure. ; is, as we understand it, the general strategy model building. . . . Istead of applying biological laws to human al organization, we advocate the applica-of population ecology theories. As we have cated at a number of points, these theories quite general and must be modified for any We application (sociological or biological). Purpose has been twofold. First, we died some of the alterations in perspective lired if population ecology theories are to pplied to the study of organizations. Second, vished to stimulate a reopening of the lines of munication between sociology and ecology. s ironic that Hawley’s (1944, p. 399) .nosis of some 30 years ago remains apt y: “Probably most of the difficulties which ; ( human ecology may be traced to the isolation of the subject from the mainstream of ecological thought.”) Notes 1. There is a subtle relationship between selection and adaptation. Adaptive learning for individuals usually consists of selection among behavioral responses. Adaptation for a population involves selection among lypes of members. More generally, processes involving selection can usually be recast at a higher level of analysis as adaplation processes. However, once (he unit of analysis is chosen there is no ambiguity in distinguishing selection from adaptation. Organizations often adapt to environmental conditions in concert and this suggests a systems effect. Though few theorists would deny the existence of such systems effects, most do not make them a subject of central concern. It is important to notice that, from the point of view embraced by sociologists whose interests focus on the broader social system, selection in favor of organizations with one set of properties to the disfavor of those with others is often an adaptive process. Societies and communities which consist in part of formal organizations adapt partly through processes that adjust the mix-lure of various kinds of organizations found within them. Whereas a complete theory of organization and environment would have to consider both adaptation and selection, recognizing that they are complementary processes, our purpose here is to show what can be learned from studying selection alone (see Aldrich and Heifer [1976] for a synthetic review of the literature focusing on these different perspectives). 2. Mcyer’s (1970) discussion of an organization’s charter adds further support to the argument that normative agreements arrived at early in an organization’s history constrain greatly She organization’s range of adaptation to environmental constraints. 3. In biological applications, one assumes that power (in the physical sense) is optimized by natural selection in accordance with the so-called Darwin-Lotka law. For the case of human social organization, one might argue that selection optimizes the utilization of a specific set of resources including but not restricted to the power and the time of members. 4. A more precise statement of the theorem is that no stable equilibrium exists for a system of M competitors and N < M resources (MacArthur and Levins 1964). 5. From at least some perspectives, mergers can be viewed as changes in form. This will almost certainly be the case when the organizations merged have very different structures. These data also indicate a strong selective advantage for a conglomerate form of industrial organization.
