Speed and Search: Designing Organizations for Turbulence and Complexity

Abstract

We use an innovative technique to examine an enduring but recently neglected question: How do environmental turbulence and complexity affect the appropriate formal design of organizations? We construct an agent-based simulation in which multidepartment firms with different designs face environments whose turbulence and complexity we control. The model’s results produce two sets of testable hypotheses. One set pinpoints formal designs that cope well with three different environments: turbulent settings, in which firms must improve their performance speedily; complex environments, in which firms must search broadly; and settings with both turbulence and complexity, in which firms must balance speed and search. The results shed new light on longstanding notions such as equifinality. The other set of hypotheses argues that the impact of individual design elements on speed and search often depends delicately on specific powers granted to department heads, creating effects that run contrary to conventional wisdom and intuition. Ample processing power at the bottom of a firm, for instance, can slow down the improvement and narrow the search of the firm as a whole. Differences arise between our results and conventional wisdom when conventional thinking fails to account for the powers of department heads—powers to withhold information about departmental options, to control decision-making agendas, to veto firmwide alternatives, and to take unilateral action. Our results suggest how future empirical studies of organizational design might be fruitfully coupled with rigorous agent-based modeling efforts.

Modern Resource-Based Theory(ies)

“…An important theme there is that the search for new resource combinations is not a purely random process, even though luck and serendipity play an essential role in explaining heterogeneous firm performance (Lippman & Rumelt 1982;Rumelt 1984;Denrell, Fang & Winter 2003;Denrell 2004). The effectiveness of organizational search is influenced by internal factors such as a firm's internal structure (Siggelkow & Levinthal 2003;Rivkin & Siggelkow 2005;Knudsen & Levinthal 2007) and external linkages (Rosenkopf & Nerkar 2001;Holmquist 2004). What is more, goal-setting and performance feedback shape an organization's breadth of search.…”

Agent-based modeling in managerial science: an illustrative survey and study

“…Capturing the task and the constraints agents have to meet, the environment can be characterized with respect to various aspects: For example, the task might be simple or complex, in terms of being decomposable or not (Chang and Harrington 2006), or the environment could be stable or dynamic over the observation period (Siggelkow and Rivkin 2005). For dynamic environments, various causes of change could be modeled, like the occurrence of new agents (e.g.…”

“…How well different organizational forms can cope with changes in the environment while searching for higher levels of performance is a major issue in Siggelkow and Rivkin (2005). They introduce an agent-based model which has some features in common with the model of Dosi et al (2003) as sketched above.…”

The Complexity of the Business Network Context and Its Effect on Subsidiary Relational (Over-)Embeddedness

“…The notion of environmental complexity has been endowed with a range of diverse meanings (Siggelkow & Rivkin, 2005). For example, complexity is linked to the number of elements in a firm's environment that the firms need to consider for decision-making (Duncan, 1972).…”

“…Although the interdependencies of the decisions occur within the firm, it is assumed that they originate in the environment (Siggelkow & Rivkin, 2005).…”