ORGANIZATIONAL DESIGN, INERTIA AND THE DYNAMICS OF COMPETITIVE RESPONSE

Organizational design research has largely ignored the effects of iner tia on competitive resPonse, despite the centrality of the concept in theories of organizational evolution. In evolutionary research, inerti a is frequently invoked as an explanation for why organizations delay or completely fail to respond to changes in competitive pressure. Iner tia is thus seen as a primary antecedent of strategic consequences suc h as impaired performance and organizational mortality. Such explanati ons, however, cannot be tested empirically without a satisfactory meth od for measuring levels of inertia. This paper draws on techniques fro m catastrophe theory to explore a means of assessing organizational in ertia by modelling organizational response to competitive pressure. Sp ecifically, this paper looks at competitive response in terms of the a ggressiveness of an organization's strategy, and models this as a func tion of environmental pressure and the inhibiting or enabling effects of organizational design. This paper also reveals a method for measuri ng the level of inertia associated with organizational response to env ironmental pressure. The proposed methodology takes into account the r ich, multidimensional nature of these constructs and accounts for effe cts that delay response in the face of radical change in competitive p ressure. The method also captures both incremental and radical shifts in competitive response intensity. Key benefits of the methodology inc lude the ability to measure inertia and to assess the effects of diffe rent design elements on this measure. It thus provides a means by whic h researchers can enrich their understanding of the antecedents of ine rtia and test its effects on such outcomes as performance and survival . Data from a savings and loan association illustrate the application of this methodology.