Optimal Structure, Market Dynamism, and the Strategy of Simple Rules

Abstract

Using computational and mathematical modeling, this study explores the tension between too little and too much structure that is shaped by the core tradeoff between efficiency and flexibility in dynamic environments. Our aim is to develop a more precise theory of the fundamental relationships among structure, performance, and environment. We find that the structure-performance relationship is unexpectedly asymmetric, in that it is better to err on the side of too much structure, and that different environmental dynamism dimensions (i.e., velocity, complexity, ambiguity, and unpredictability) have unique effects on performance. Increasing unpredictability decreases optimal structure and narrows its range from a wide to a narrow set of effective strategies. We also find that a strategy of simple rules, which combines improvisation with low-to-moderately structured rules to execute a variety of opportunities, is viable in many environments but essential in some. This sharpens the boundary condition between the strategic logics of positioning and opportunity. And juxtaposing the structural challenges of adaptation for entrepreneurial vs. established organizations, we find that entrepreneurial organizations should quickly add structure in all environments, while established organizations are better off seeking predictable environments unless they can devote sufficient attention to managing a dissipative equilibrium of structure (i.e., edge of chaos) in unpredictable environments.

Top management teams and the performance of entrepreneurial firms

“…The fourth study goes a step further to examine how top management teams design effective organizational structures by balancing at the ''edge of chaos'' (Davis et al 2009). By structure, we refer broadly to all manner of structures including formalization (e.g., rules and routines), centralization (e.g., hierarchy, verticality), span of control (e.g., scale of sub-units), coupling and structural embeddedness (e.g., tie strength, tie density), and specialization (e.g., role breadth).…”

“…Prior research across diverse literatures including network theory, strategy, organization studies, and the complexity sciences finds that a balance between too much and too little structure is essential for high performance in dynamic environments (see Davis et al 2009 for a review). Firms with too little structure lack enough guidance to perform efficiently while firms with too much structure are too constrained and lack flexibility.…”

“…The fourth study takes a much different methodological approach. It combines computer-based simulation and mathematical modeling to explore how top management teams should structure their organizations to achieve high firm performance (Davis et al 2009). The findings reveal that top management teams should poise at a structural ''edge of chaos'' to maintain superior performance, especially in the unpredictable markets that many entrepreneurial teams face.…”

“…I worked with Christopher Bingham and Nathan Furr in the study of simple rules (e.g., Bingham et al 2007;Bingham and Eisenhardt 2011), building on my work with Donald Sull (Eisenhardt and Sull 2001;Sull and Eisenhardt 2012) and Shona Brown Eisenhardt 1997, 1998). Jason Davis, Christopher Bingham and I collaborated on the simulation study (Davis et al 2009). …”

Dynamic Resource Allocation Withself-|Interested Agents in the Upstream Oil & Gas Iindustry

“…We choose this study approach because of the limited understanding of how interorganizational collaboration occurs and evolves (Davies et al, 2006). It is a preferred methodology when the theories are well known and understood, but the underlying theoretical logic (and the relationship between the theories) is limited (Davis et al, 2007a;Davis et al, 2007b). The results depicted in table 8 and 11 in section 7 will be analyzed using Excel solver.…”