Organizational adaptation to institutional change: a comparative study of first-order change in prospector and defender banks

Administrative Science Quarterly,  March, 1998  by Susan J. Fox-Wolfgramm,  Kimberly B. Boal,  James G. Hunt

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Do organizations exhibit different processes of change in response to a pressing institutional issue, and if so, how and why does this occur? In spite of the ubiquity of research on change, the when, how, and why aspects are not at all clear. Van de Ven (1992) and Huff, Huff, and Thomas (1992) argued that we know very little about the order and sequence of events or activities that describe how things change over time, how organizations adapt to environmental changes, and whether these events or activities will lead to second-order change, in which the system itself changes, or to more modest first-order change, which occurs within the system itself.

Change is the movement away from a present state toward a future state (George and Jones, 1995). The popularity of studies on changes labeled second order, framebreaking, or radical might lead the casual reader to believe that these are the norm. Several authors have chronicled such changes as responses to environmental upheavals (e.g., Hrebiniak and Joyce, 1985; Meyer, Brooks, and Goes, 1990; Meyer, Goes, and Brooks, 1994; Miller and Friesen, 1980a, 1980b). Still other studies have described such changes in terms of cusp-catastrophe models (e.g., Gresov, Haveman, and Oliva, 1993) or by observing such changes in the organization's strategic orientation (Zajac and Shortell, 1989), structure (Meyer and Rowan, 1977), organizational identity (Dutton and Dukerich, 1991; Dutton, Dukerich, and Harquail, 1994), or even in the cognitive maps of top-level managers (Barr, Stimert, and Huff, 1992).

More substantial research suggests, however, that second-order change, a shift from one strategic orientation to another (cf. Greenwood and Hinings, 1988), is atypical even in times of environmental upheaval (Tushman and Romanelli, 1985). Authors have noted, for example, that organizations typically converge around a prevailing archetype: strategic orientation and inertia tend to bound the organizational change to that which is consistent with the archetype, representing first-order change. Empirically, Meyer and his colleagues (Meyer, Brooks, and Goes, 1990; Meyer, Goes, and Brooks, 1994) found that second-order change occurred only about 30 percent of the time, in spite of substantial upheaval in their organizations of study. In spite of its ubiquity, there appears to be a pejorative connotation to the study of first-order change. Perhaps because terms such as incrementalism, inertia, status quo, or even drift are often associated with it, its study appears to be out of fashion. For us, the literature's prevailing emphasis on second-order change, accompanied by a relative lack of emphasis on first-order change in response to environmental upheaval, substantially contributes to the dearth of information indicated above.

Our research is an attempt to present a more balanced perspective. Rather than emphasizing second-order change in response to pressing institutional forces, we focus on understanding how the interplay between the forces that resist or inhibit change and the forces that push the organization to change play out in differing processes of adaptation involving first-order change. Our emphasis is on first-order adaptive changes in two organizations, each with a different strategic orientation, as they respond to a major institutional issue over a seven-year period. We contrast the first"order, within-strategic-orientation adaptation patterns of two banks with different but relatively stable strategic orientation as they responded to major changes mandated in the banking industry by the Community Reinvestment Act (CRA) of 1977 (revised 1989 and 1990), an act passed to address the problem of banks discriminating against certain areas in their communities.

THEORETICAL BACKGROUND

Tracks as Modes of Adaptation

According to Greenwood and Hinings (1993), organizational structures and management systems are best understood as design archetypes or holistic patterns. These "patterns are a function of the ideas, beliefs, and values - the components of an 'interpretative scheme' (Ranson, Hinings, and Greenwood, 1980) - that underpin and are embodied in organizational structures and systems. A design archetype is thus a set of structures and systems that reflects a single interpretative scheme" (Greenwood and Hinings, 1993: 1052). To understand the interplay of sequences or events through which organizations adapt to changes in their environment, Greenwood and Hinings (1988, 1993) introduced the concept of change tracks. For them, the most important fact about organizations is change. Thus, Hinings and Greenwood (1988: 192) argued: "Because organizations are conceptualized as archetypes, tracks are configurations of interpretive decoupling and recoupling arising from the loss or retention of structural coherence and the displacement or stability of underpinning interpretive schemes." They maintain that all organizations generate tracks as they move through time, and these tracks reveal whether and how the organizations change. Tracks reveal the degree to which organizations either move from the constraining assumptions of a given archetype, for example, their strategic orientation, and assume the characteristics of an alternative one or remain within the assumptions and parameters of a given archetype over time. Tracks may be seen as combinations of cognitions and behaviors.