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How Organizational Resources Affect Strategic Change and Performance in Turbulent Environments: Theory and Evidence Author(s): Matthew
S. Kraatz and Edward J. Zajac Reviewed work(s): Source: Organization Science, Vol. 12, No. 5 (Sep. - Oct., 2001), pp. 632-657 Published by: INFORMS Stable URL: http://www.jstor.org/stable/3086005 . Accessed: 05/02/2013 07:10
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How Organizational Resources Affect Strategic in Turbulent Changeand Performance Environments: Theory and Evidence
College of Commerce and BusinessAdministration, Illinois61820 University ofIllinois,Champaign, J.L. Kellogg GraduateSchool ofManagement, Northwestern University, Evanston, Illinois60208 kraatz@uiuc.edu * e-zajac @ nwu. edu
Matthew S. Kraatz * EdwardJ.Zajac
forextensive in stratereviews).In recent years,interest gic change seems to have even heightened and further, Thisstudy examines howhistorical resource endowments and theoccurrence, competencies affect anditsoutcomes examining amid and strategic en- manystudies change antecedents, vironmental turbulence. from bothbehavioral Drawing and performance consequences of of strategic change have economics-based we develop four distinct literatures, perspec- appeared(Miles and Cameron 1982, Smithand Grimm tives the effect ofresources regarding onstrategic likely change. 1987, Boeker 1989, Zajac and Shortell1989, Ginsberg Thesefour perspectives offer alternative about how and Buchholtz1990, Meyeret al. 1990, Goodsteinand predictions andwhy resource endowments should affect thelikelihood or Boeker 1991, Kelly and Amburgey1991, Lant et al. magnitude of strategic change, andhowandwhy should they et al. 1993, Zajac and moderate therelation between strategic changeand perfor- 1992, Haveman 1992, Amburgey mance. We examine thepredictive of these four power alter- Kraatz 1993, 1998). The studyof organizational resourcesand competennative arguments using extensive datafrom longitudinal a single industry context in strategic characterized both management bysubstantial resource cies also has a long history and, and environmental heterogeneity turbulence. Results indicate moregenerally, in organizational studies.Most recently, that organizations stocks ofhistorically possessing greater valu- thisbasic concern in theresource-based has surfaced view ableresources were much lesslikely toengage inadaptive stra- of thefirm, whichhas directed attention to important diftegicchange, butalso that thisresource-driven disinclination ferences in the resourceendowments of firms within an towards tended to havea benign change orevenbeneficial efindustry (Wernerfelt 1984, Barney 1991, and Mahoney fect onperformance. We discuss theimplications ofourtheory suggeststhatthesedifandfindings for thestrategic change literature andalsofor the Pandian 1992). This perspective ferences arise due to in markets imperfections forkeyproliterature on theresource-based viewofthefirm. (Strategic Change;Resources; Strategic ductionfactors Fit;Distinctive Orand/or variouspath-dependent, Competencies; historical ganizational Learning) processes oflearning andassetaccumulation (Barney 1991, Ghemawat 1991,Dierickx and Cool 1989).Itskeyinsights arethat scarce, valuable, andimperfectly imitable resources are the onlyfactors capable of creating sustained performancedifferences amongcompeting firms, and that these shouldfigure prominently in strategy making. A The studyof strategic change has long occupied an im- resources concernwithresource differences is also very portant positionin the largerfieldof strategic manage- prominent inthewritings apparent ofearly strategy ment.Strategic theorists who changehas been recognized as an impor- much tant SWOT (strengths, phenomenon weaknesses, because itrepresents opportunities, themeansthrough emphasized whichorganizations analysis as thebasis forstrategy maintain coalignment withshifting threats) formulation (Ancompetitive,technological, and social environments soff1965,Andrews 1971,Hoferand Schendel1978). The which occasionallypose threats to theircontinuedsur- origins ofconcern with organizational resources can also be vival and effectiveness. Over thepastfewdecades,there found in theworkofPenrose (1958), whoplacedresources has been a greatdeal of productive research on thistopic at theverycenter of hertheory of growth of thefirm, and (see Rajagapolan and Spreitzer 1997 and Ginsberg1988 in theevolutionary theory of Schumpeter (1942). Finally,
ORGANIZATION SCIENCE, ? 2001 INFORMS Vol. 12, No. 5, September-October 2001, pp. 632-657
Abstract
1047-7039/01/1205/0632/$05.00 1526-5455electronic ISSN
MATTHEW S. KRAATZ AND EDWARD J. ZAJAC
How Organizational ResourcesAffect StrategicChange
work is also apparent in theearly an emphasis on resources and labeled identified of Selznick(1949, 1957), who first andwhoemphasized competence, theconcept ofdistinctive nurture, and leadersto identify, theneedfororganizational that unand theuniqueresources protect thiscompetence derlieit. Ourstudy's is thesimpleobservation pointofdeparture dialogue betweenthese thattherehas been insufficient streams in stratlongstanding research two fundamental, on strategic change egy. We suggestthatpriorresearch resource heterogeneglectedthe issue of has generally considhas not sufficiently neityand, morespecifically, bothan orgaered how resourcedifferences may affect in responseto to change strategies nization'spropensity environmental changes,as well as theoutcomesof such strategic change(Zajac, Kraatz,and Bresser2000).1 The in largepartby opendirected strategic changeliterature, and Salancik systemtheoriesof organization(Pfeffer emphasizedtheneed for 1978, Scott 1998), has strongly contingencoalignment withchanging firms to maintain political, and incompetitive, technological, cies in their stitutional environments. While thisliterature has obviously acknowledged that a varietyof organizational and complicate therelationship befactors mayintervene tweenenvironmental shifts and strategic change,theneofpursuing "fitness" withtheenvironment is gencessity erallytakenas given. To the extentthatorganizational differences have been considered, they have largely been thatimpede or promotean organizaviewed as factors to environmental tion's necessaryadaptation pressures. of pursuing environmental This emphasison thebenefits withvarious is clearlynoteasilyreconciled fit, however, whichemphasizethe resource-based views on strategy, thatexof buildingand maintaining strategies benefits financial, repustocksof human, physical, ploitexisting and/or capital(Montgomery organizational tational, social, ofthese therespective insights 1995). Indeed, juxtaposing streams two research pointsup a wide rangeof conflicts roles of and unanswered questionsabout the respective bein shapingfirm resourcesand environments internal beas well as the interaction havior and performance, tweentheseforces. focuseson two issues thathave Our study, therefore, oftheory forthefurther relevance development particular how we consider on strategic and research change.First, endowresource in organizations' (and why)differences forstrategic affect their mentsmight change propensity whichgenerally turbulent under appearto neconditions, cessitateit. Should one expect organizations richlyenvaluable resourcesto be more, dowed withhistorically less well-endowed to their less, or equallylikely(relative
2001 ORGANIZATIONSCIENCE/Vol. 12, No. 5, September-October
by environwhenconfronted peers) to changestrategies preunderlies rationale(s) Whattheoretical mental shifts? how (and why)differences diction?Second,we consider therelationship might moderate in resource endowments Should one change and performance. betweenstrategic or will weaken,strengthen, expectthatsuchendowments associated benefits have no effecton the performance and what is the basis forthis adaptation, withstrategic prediction?2 In the followingsection,we review a wide range of contradic(and sometimes thatoffers relevant literature affect might abouthow and whyresources tory)insights adaptation and its outcomes.Based on thisrestrategic in theresource-based and classic research view ofcurrent learning andevolution, research on organizational tradition, ofPhilipSelznickand and workfrom theinstitutionalism about perspectives we distillfourdistinct his students, intoadaptivestrategic figure how resourceendowments a propoffers changeprocesses.Each of theperspectives orositionabout how and why resourcesshould affect in reto adapt theirstrategies ganizations' propensity change,as well as a proposition sponseto environmental therelationabouthow and whyresources maymoderate change and subsequentperforship between strategic as a key and synthesis mance. We view thisdistillation ofprepaucity theoretical contribution, giventherelative vious workin thisarea. empiricalevidence about We also provideimportant by of these fourperspectives the power and usefulness a longitudinal analysisof 422 liberalartscolconducting context the 1970s and 1980s. This empirical leges during heteroresource is well suitedto ourpurposesgiventhat in higher critical is pronounced and strategically geneity imperfectlyeducation.As we will discuss,untradeable, have resources and "sticky" history-dependent, imitable, in the in largepart, fordifferences accounted, historically and outcomesof private colleges (Clark 1970, strategies finanDierickxand Cool 1989). Many of thesephysical, can be resources and social readily cial, organizational, environprofound identified and measured.In addition, a the 1970s and 1980s suggested mentalchangesduring need forliberalartscolleges to engagein strategic strong thathad historically the curriculum change by altering their defined changedid Indeed,muchstrategic strategies. effects occur during thisperiod,withbroadlybeneficial and survival(Zajac and Kraatz 1993). on performance context providesone unique opporThus,thisempirical stracan affect differences to observehowresource tunity of envitegicchangeand its outcomesunderconditions exert strong that simultaneously turbulence ronmental effects upon theorganization. independent
633
StrategicChange ResourcesAffect How Organizational
Resources, Strategic Change,and Performance Organizational

on how a firm's accumulated stockof Our first perspective valuableresources mayaffect strategic changeemphasizes how resourcesmay deteror misdirect thesearchbehaviors and organizational foradaptation learning necessary in turbulent environments. Levittand March (1988) and Levinthaland March (1993) have notedhow the same resourcesthathave historically providedorganizations with competenciescan also create competencytraps conditionschange. They note that when environmental competency trapsmay occurlargelybecause of thegenoforganizations to engagein "exploitation" eraltendency of things (i.e., theuse and development alreadyknown) at the expense of "exploration" of new (i.e., thepursuit and March 1993). Because thereknowledge)(Levinthal turnsfromexploitingexistingresourcesare generally morecertain thanthosefrom theformer ofexploration, tendrivesoutthelatter. Thus,thevery possessionofvaluable resourcesparadoxically leads resource-rich organizationsto focus an increasing amountof attention upon and improving at theexpenseofexploring applying them, and developingthe new resourceswhich are oftenreidea that quiredforstrategic resource change.The general endowments can pose barriers to learning has been echoed byothers, Leonard-Barton including (1992), whodiscusses how "corecompetencies" can become "corerigidities" and Ghemawatand Costa (1993), who discussthe of some firms to focusunproductively on "static tendency at the expense of the "dynamicefficiency" efficiency" in changing required environments. This phenomenon may also arise because a firm's resources affect the way it perceivesand searchesits environment. Milliken(1990), forexample,has shownthat in resource-rich decisionmakers organizations perceived less environmental uncertainty thandid leaders of less distinctive, resource-poor organizations facingthe same objectiveenvironment. While such an interpretivist perspectiveseems morefamiliar to researchers interested in managerial cognition (Weick 1969),Levinthal (1995) and Cohen and Levinthal (1990) have also made broadly similararguments, notinghow a firm's existing competenciescan negatively affect itsenvironmental searchbehaviorand its abilityto interpret and absorbnew informationfrom a changing environment. The integratingtheme in these behavioral and economics-basedarguments is thatresourcesand competenciesshape the judgmentor cognitionof decision makers, thus making resource-rich organizationsless likely to choose to change strategies when confronted 634
to Learning Resources as Barriers
threats. Each ofthesearguments with external also clearly suggests that thisfailure to adapttoenvironmental change Resources will have negative performance consequences. the actual need forstrategic are not seen as mitigating of environmental misfit change,and thenegativeeffects are argued to be similar for both resource-rich and and March(1993, resource-poor Levinthal organizations. thisperspective: p. 102) aptlysummarize
Distinctive inviteutilization, whichfurthers their competencies The selfreinforcing additionaldevelopment. nature of learning fortheindividualor organization to sustain makes it attractive removedfrom current focus... Learnersbecome increasingly otherbases of experienceand knowledgeand morevulnerable to changein their environments.
The "Resources as Barriers to Learning"perspective provides a logic that thefollowing suggests testable propositions:
PROPOSITION 1. Organizations withgreaterresource willhavea lower tochangestratendowments propensity egies in responseto environmental change. PROPOSITION IA. Organizationalresourceswill not moderatethe effect of strategicchange on subsequent performance.
A somewhat on resources different and their perspective role in strategic holds that changeand firm performance withsubstantial accumulated stocksof reorganizations or social capisources(such as financial, organizational, from environmental tal) may be buffered threats. Where the priordiscussionof the learning barriers perspective role of resources in thecontinemphasizedthestrategic ued exploitation of known strategies (essentiallysugmisdirected in the"Environmental gesting learning), Buffers" perspective resources are viewedas moreanalogous to "organizational slack" thatcan make organizations morepassive(Cyert andMarch1963,Singh1986).3From this perspective, resourcesrestrict strategic change by looseningthecouplingbetweenthe organization and its environment and desensitizing decisionmakers to external trends.Thus, resource-rich organizations are less likelyto experiencea sense of urgency regarding adaptationand morelikelyto perceivean increased(perhaps false) sense of certainty aboutthefuture. From this view, a resource-rich organization will be able to sustain itself-if only for a limitedperiod of time-even as the organization faces a situation of increasingenvironmental misfit. Levinthal (1990) provides a vivid example of thisargument, noting how elite universities withvery largefinancial endowments couldcontinue to engage in inefficient and clearly maladaptive 5, September-October 2001
Resources as Environmental Buffers
ORGANIZATIONSCIENCE/Vol. 12, No.
anysigexperiencing practices forquitesometimebefore nificant threat to theirsurvival.In additionto the literal emphasizes, we suggest that endowment whichLevinthal of physical,social, organiorganizations'endowments bezational,or humancapital may also act as buffers environments. These tweenthemand theirsurrounding slack,may lessen thelikelihood resources, like financial an organization to external will perceiveand respond that threats. Such resources mayalso protect theorganization fitness withits environfrom death,despiteits declining ment, butwouldnotlessentherateofdeclinein operating resource-rich to thisperspective, performance. According enneed to maintain organizations stillhave a primary change. through strategic vironmental coalignment may be deThus, the followingtestablepropositions Buffers" rived fromthe "Resources as Environmental perspective:
to specific "bindtheorganization commitments creating freedom the greatly limiting often and procedures, aims different toward to deployitsresources" of theleadership by changed circumstrategicends when confronted is bound largely organization stances.The resource-rich because its resourcestendto become valued as ends in ratherthan being viewed as mere and of themselves, organizaof shifting means thatcan be used in pursuit he also sugtionalgoals. Because of thisvalue infusion, negative strongly politicalresistance, gests thatinternal dissent,and strongopprincipled emotionalreactions, will all be external constituents supportive positionfrom organization more likelywhen an especiallydistinctive change. At the same strategic substantial contemplates there arealso funche also makesclearthat though, time, to resist organizations tional reasons for resource-rich turbulence. changein responseto environmental does not see environmental In fact,Selznick's theory 2. Organizations withgreaterresource PROPOSITION objectiveor as organizational the ultimate coalignment tochangestratpropensity endowments willhavea lower organization the first among he was Although solution. change. egies in responseto environmental effect of the emphasizethepowerful theorists to strongly PROPOSITION 2A. Organizationalresources will not environment, exploitaSelznick saw the development, of strategicchange on subsequent tion,and protection moderatethe effect resources of distinctly organizational (operating) performance. He suggeststhatthereare as at least equally important. reandthat viability organizational pathstoward multiple Resources as Commitments from enoften protection meaningful sources can provide change on resourcesand strategic The third perspective that possess them. changesfororganizations resources often vironmental suggeststhatdistinctive thatwe identify is a function of success so much Because organizational in theorganizations thatpossess represent commitments to to the failure strategy adapt and resources, competence from thisperspective, is them.Exceptionalcompetence, not resource-rich organimay put change environmental of commitment and also a likelysource boththeproduct disadvantageat all. zations at much of a competitive of it. It can be expectedto affectstrategic change and too readilyto that adapting argues Moreover, Selznick This perspective, interestingly, performance accordingly. a negativeefhave actually environmental may changes rootsin bothbehavioraland economicliterahas strong the damaging on the well-being by fect organization's tures that inform strategyresearch (Selznick 1957, dehas success historically which its upon resources very Ghemawat1991). of what againstthedangers theconceptofdistinc- pended.He warnsrepeatedly Selznick(1957), who originated as defined organihe adaptation," terms "opportunistic commitment at the the idea of tive competence, placed considerasufficient without He contendsthatthe organi- zationalchangeundertaken verycenterof his theory. orcoms historical competencies tionoftheorganization' zation accumulatesthe resourcesthatprovideit witha that He suggests opportunistic against guarding and committed distinctive per- mitments. (e.g., talented competence of thefirst concern (p. importance" changeis "a practical or supa strong culture, sonnel,an esteemedreputation, leadersbecause suchchangemay only by makingbinding 139) fororganizational portiveexternalrelationships) and confused"competenceand in resultin "attenuated and commitments to specificgoals, practices, structures, ofcapabilities" mixture "an and disharmonious unordered will readHe arguesthat"a wise management standards. 144). commit- (p. irreversible accepting ily limitits own freedom, in a Ghemawat(1991, p. 14) discusses commitment and its whenthebasic values of theorganization ments, dethan does fashion value-neutral more Selznick, much are at stake"because thisacceptanceis thevery direction to of "the as persist strategies it tendency simply fining is created whichdistinctive competence processthrough to processes in for those over time." He traces this persistence (1957, p. 40). The clearpriceofthiscompetence and certain to "locked-in" are firms which strategies is a to few organizations luckyenough gain it,however, in the time to of developlags long others; "locked-out" of and a restricted loss of flexibility strategic options. range resources;and to important Selznick (1957, p. 18) explicitlynotes that resource- mentof many strategically
2001 ORGANIZATIONSCIENCE/VOl. 12, No. 5, September-October 635
Strategic Change Affect Resources MATTHEW S. KRAATZ AND EDWARD J. ZAJAC HowOrganizational
a variety of sources, behavioralinertia whichflowsfrom includingidentity politics.His centralthesisis thatthis or persistence is theonlyfactor commitment thatcan ulaccountforsustained differences timately in performance commitment an industry overtime.It is onlythrough that mechanisms are created. His ceneffective truly isolating is thatfirms make initial,committing tral prescription choices wisely and subsequentlystay on this initial course. s explanations forcommitment While Ghemawat' only partiallyoverlap with Selznick's, the conclusions are similar.Both suggestthatthoseorganizations strikingly thatare themostdistinctive and whichhave historically been the most successfulwill be most likelyto persist with their traditionalstrategydespite environmental about the change. They also hold similarexpectations of this resource-driven disinclination to functionality that theprotection, dechange.Specifically, theysuggest and exploitation of existingresourcesmay velopment, providean alternate pathto organizational success,even in periodsof substantial Furenvironmental turbulence. that ther,both indicatethatresource-rich organizations to environmental adapt theirstrategies change may acresourcesand jeopardize their tuallysacrifice important long-held differentiated positionsas a result. While this relative deemphasis on environmentally driven one can find adaptation mayseemunusual, parallel in thestrategy elsewhere and organizations litarguments erature. EarlyworkbyHoferand Schendel(1978, p. 144), for instance,suggestedthat exceptionalresourcescan thethreats that[a firm] faces in its external "parry environment" and thusmitigate its need forstrategic adaptation to achieve environmental fitness.More recently, Zajac et al. (forthcoming) have arguedand shown empiricallythat organizational contingencies such as resource endowments add significantly to the predictive powerof environmental contingencies in predicting strategic change and performance among U.S. savings and loan institutions. Rumelt(1995) has arguedthat resources such as reputation and customer loyalty may actually be damaged if an organization to enterexpanding attempts product markets that lie too farfrom itstraditional domain and/or to offer lower-quality products that might cheapen its image or weaken customers'identification withthe firm.One can also imagine how such decisions could damage organizational culture and other key internal resources.Finally, thepartial parallelbetween theresources as commitments view and some workin organizational ecology should also be noted. Hannan and Freeman (1984), forinstance, elaboratemanyreasonswhysignificantstrategic changeis likelytobe difficult anddamaging to theorganization, including its potentially negativeeffectson competence and identity. Thereis a verycritical 636
betweenecology and the "resources difference as comhowever. whileecolmitments" perspective, Specifically, madeuniversalistic claimsregarding ogistshave often rethe present sistanceto change and its negativeeffects, thatadaptation is a feasibleand argument acknowledges Resourcefor many organizations. oft-usedalternative outto changeand potentially drivenresistance negative at theupper comes of strategic changeare onlypredicted distribution. end of theresource In conclusion, the"Resourcesas Commitments" then, argument suggests that resource-richorganizations and shouldbe less likelyto pursueenvironmental fitness, of adaptation also thattheperformance benefits towards less-endowed fitness will be less forthemthanfortheir are derived peers. The followingtestablepropositions from thisargument.
PROPOSITION 3. Organizations withgreaterresource endowments willhavea lower tochangestratpropensity egies in responseto environmental change. PROPOSITION 3A. Organizational resourceswillnegamoderatethe effect tively of strategic change on subsequentperformance.
Resources as Facilitators The final we consider has itsroots in thework perspective of Schumpeter(1942) and in the later arguments of Penrose(1959) and Nelson and Winter (1982), who both debts to Schumpeter's earlier acknowledgesubstantial work.Rather thanviewinghistorical as becompetencies havioral orpractical to strategic impediments this change, thattheycan actively perspective it. It suggests promote also suggeststhatexisting resourcescan make strategic change an even more beneficialresponseforresourcerichorganizations. Thereare a number of relatedexplanations thisprediction. underlying Schumpeter (1942) had a primary concernwithenvironmental turbulence (i.e., the process of "creativedeand its effect on organizations struction") and industries. One of his centralideas is thatlarge organizations rich withvariousresources willbe morelikelyto survive such external threats due to their greater capacityforinnovativeand imitative change.Thus,historically valuableresources such as financial reserves, marketing expertise, researchand development capability, production capacity, and general managementexperience can all be viewed as potentially important facilitators of strategic change.These and other resources allow their possessors to respondbetter to environmental changesand to more readilyimitate or appropriate technological, product, or organizational innovations thatthreaten theirsurvival. Thus,in thisview,manyofthesameresource differences thatcreate staticcompetitive advantagesfor firms will 5, September-October 2001
ResourcesAffect StrategicChange How Organizational
in a turbulent advantages dynamic with them also provide environment. emphasizesthe role of Penrose (1959) also strongly successful anddirecting in promoting resources historical less as However,she viewsresources changeand growth. forcesand moreas to external of adaptation facilitators in theirown right. driversof expansionand innovation always have some stock She suggeststhatorganizations re(e.g., knowledge, resources of unused,or underused, managerialtalent,and physical reputation, lationships, in thecourseof develaccumulate assets) thatinevitably any given productor and marketing oping,producing, or underexploited service.In herview,theseunexploited determining factors are theprimary resources productive is Growth growth. of firm boththe extentand direction only in herview,limited motivation offirms thedominant While capacityof theorganization. by theadministrative to enPenrose does not devote much specificattention as (viewingfirms on organizations pressures vironmental herperspective thanreactive), rather proactive primarily change strategic successful impliesthat at leastindirectly alreadypossessinga will morelikelyoccuramongfirms resources. largestockof productive (1982), whichadds a The workof Nelson and Winter theory fromorganization number of the classic insights of Schum(Cyertand March 1963) onto thefoundation complementary, largely also has direct, thought, peterian and strateon resources forthisperspective implications view of organizational routine-based gic change.In their resources play a funaccumulated historically evolution, firmresponse and perfordamentalrole in predicting Their central conditions. mance underchanged market limits therangeof severely pathdependence pointis that by encan employwhenconfronted responsesthatfirms of theevolution affects and,thus, vironmental turbulence firms with greaterreTherefore, firmsand industries. menuof opand idiosyncratic sourcesface a less narrow set,"and enjoygreater "production tions, possess a larger advantages." Thus, like Schumpeter, "appropriability and powerful successful morehistorically they arguethat amid environmental change firms will adapt and thrive as a result. and become moresuccessful Some more recentworkalso indicatesthatresources in responseto environflexibility mayprovidenecessary amongtheseis Bowmanand mentalchanges.Prominent as optionsapproach. TheysugHurry's(1993) resources gestthat"theoptionslens providesa view of an organiand assets-as a bunzation's resources-its capabilities choice" (1993, p. 762). dle of optionsforfuture strategic capacCohen and Levinthal's(1990) workon absorptive resources thatcomplementary mayhelp ityalso suggests Helfat's change.Finally, engagein adaptive organizations U.S. of the industry prostudies petroleum (1997,1998)
ORGANIZATIONSCIENCE/VOl. 12, No.
forthisperspective. vide some partialempiricalsupport typesofrelewithcertain firms petroleum that She found vant resourcestocksengaged in more coal gasification in responseto thelargeexogenousoil priceinresearch duringthe 1970s and thisindustry creases thataffected 1980s. the to the threepriorperspectives, Thus, in contrast sees resource-rich perspective "Resourcesas Facilitators" as more highlyadaptive,and also more organizations fromleveraging benefits likelyto achieve performance resourcesin new ways. The "Resourcesas Faexisting proptestable thefollowing suggests argument cilitators" ositions withgreaterresource PROPOSITION 4. Organizations to change will have a greaterpropensity endowments change. in responseto environmental strategies resourceswillposiPROPOSITION 4A. Organizational change on subseof strategic moderatethe effect tively quentperformance. of each of thesefourreand predictions The rationale in Figure are summarized perspectives lated,butdistinct, diswhileanalytically 1. Note thatthefourperspectives, based on differing on a continuum can be arrayed tinct, are thedegreeto whichresources regarding assumptions in changing environstrength a sourceof organizational the assumed need forenvironmental mentalconditions, relevant dimensions. of other and a number fitness,
Method
ofresources theeffects Givenourobjectiveof examining duringturbulent on strategic change and performance context withat leastthree an empirical we require times, in whichena research setting First, attributes. important toward impelorganizations generally trends vironmental should Second,thecontext changeis necessary. strategic enresource withclearlydifferent includeorganizations and perforwhich are relevantfor strategy dowments, identify mance. Finally,we mustbe able to reasonably resources and measuremany,if notall, of theimportant distributed among organizawhich are heterogenously liberalartscolleges American tions.Our chosencontext, thesethreedesidduringthe 1970s and 1980s, satisfies erata. we know that desideratum, With respectto the first in student shifts faced degreeprefpronounced colleges erencesaway fromthe liberalartsand sciences and todurareasofstudy andvocational wardmoreprofessional and Bowen period(Astinet al. 1987,Turner ingthestudy data on plannedmajors 1990). Figure2, whichpresents
637
Context
2001 5, September-October
Resources Strategic Change Affect MATTHEW S. KRAATZ AND EDWARD J.ZAJAC HowOrganizational
Figure 1 Resource Endowments, Strategic Change, and Performance: A MultidimensionalClassification Resources as Barriers to Learning Resources as Environmental Buffers Negative Resources as Commitments Resources as Facilitators
Resources' effect on strategic change in turbulent environment BehavioralExplanation
Negative
Negative
Negative
Competencytrap prevents exploration
Loose coupling preventsproblem and recognition search No efficiency explanation None
Resources and competencies are value infused "Inertia" is rational decision to maintain isolatingmechanisms Negative
resources Underutilized promote experimentation Firmsseek to utilize resources to fullest extentpossible Positive
Economic Explanation
is statically Exploitation efficient None
effect of resources Moderating on change-performance relation of resources in Overallstrength face of environmental change Relativeemphasis on environmental fitness of Assumed fungibility resources Time horizonof decision makers of Expected performance resource-rich organizations after environmental change
Weak High Low Shortterm Clearlyworse
Semi-weak Moderateto high N/A Shortterm worse to no Slightly change
Semi-strong Low to moderate Low Long term better to no Slightly change
Strong Low High Long term Clearlybetter
from Astin'sannualstudy ofover200,000 entering freshman,demonstrates thistrend. This demandshift was parsalientforliberalartscolleges because they ticularly had historically specializedin humanistic, liberalartseducation,(and had accumulated resources thatsupported this type of education over theiraverage 100-yearlives). These colleges werefurther confronted withdramatically increased competitionfrom low-cost, state-supported, public higher education systems,which grew at an astounding rate in the 60s and 70s; and whose success raisedseriousquestionsaboutthecontinued need forprivate institutions, particularly small and specializedones. Figure 3 presents federalgovernment data showingthe relativeenrollment of public and privatehigher growth education from 1963 to 1986. Finally, liberalarts colleges werealso threatened by thelong-predicted declinein the college-agepopulation, whichultimately occurred around 1980. The forceof the threat presented by the convergence of these trendsis perhapsbest evidencedby the
638
factthatseveralrespected observers of higher education offered apocalyptic forecasts forthefuture ofprivate liberal artscollegesduring thisperiod, withsomepredicting as high as 50 percent(Jencksand Riesman mortality 1968, Cheit 1971, Astinand Lee 1972).
2 Figure
50 45 .0 40__ ___
Trendsin PlannedMajorsofCollege Freshmen
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25 .-_ 15
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Professional Fields ,
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66 67 68 69 70 71 72 7374757677787980
81 82 83 84 85
Year
MATTHEW S. KRAATZ AND EDWARD J. ZAJAC Figure 3 12000
StrategicChange How Organizational ResourcesAffect
EnrollmentTrends in Public and PrivateInstitutions
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_ ct
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85
Year
have demPreviousempiricalstudiesof thisindustry did impellibthreats thattheseenvironmental onstrated strategic eral artscolleges to engage in verysubstantial change,and have also shown thatthis change was, on performance fororganizational average,quite beneficial and survival(Breneman1990, St. John1991, Zajac and liberalartscolleges substanKraatz 1993). In particular, currictraditional relianceon their tiallydecreasedtheir ofof liberaleducationand increasedtheir ular strategy areas such as business,nursing, in professional ferings Indeed,by 1986 andjournalism. programming, computer only 37% of its the average liberalartscollege granted domhad historically that degreesin theliberalartsfields curricular This prevalent inatedits "product"offerings. forthecontinued in largepart, changehas been credited, of theseinof thegreatmajority survivaland prosperity (actual mortality despite all dire predictions stitutions, was closer to 10% thanto 50%) (St. John1991, Kraatz and Zajac 1996). heterotheexistence of resource Our second criterion, In general, few would disagree is also satisfied. geneity, in termsof theirresource that privatecolleges differ amassed bases, or with the conclusionthathistorically and outcomesof theseinthestrategies affect resources of highereducaThe fundamental inequality stitutions. bases of this historical and thepersistent tioninstitutions are among the most obvious featuresof the imparity landscape. This suggeststhe clear aphigher-education of resource-based analysis. necessity, perhaps plicability, is also met.While of identifiability The finalcriterion isolate essentialreit is never possible to definitively sources from epiphenomenalones, it is perhaps less herethanin otherindustries. Higher-education daunting pointtowarda fewmainfactors consistently researchers resources,which are largelyreas key differentiating sponsible for colleges' varyingsuccess. We focus on six of theseThe first typesof resources. eightspecific human rerelationships, externalsupport reputation, abilstudent and sources,financialassets, experience,
ORGANIZATION SCIENCEVol.
ity-have all been previously identifiedas critical forliberalartscolleges (Clark 1970,Breneman resources supportive 1994). Colleges with esteemedreputations, long histolargeendowments, alumni,excellentfaculty, advantagesthat enjoy enduring students ries,and gifted or competedaway. Each of cannotbe readilyimitated these resourcesalso has more or less directanalogs in theyare exactlythe typesof resources otherindustries; havebeenconcerned. scholars withwhichresource-based scale and scope of we consider, The finaltwo resources for been seen as critical have nottraditionally operations, liberal arts colleges but are included because of their (1942) of Schumpeter roles in the theorizing prominent (1982). and Nelson and Winter Each of these eighttypesof resourcescould clearly inaccordance changeandperformance strategic influence above. A offered withany of thefourbasic perspectives stracould facilitate forinstance, reputation, prominent providintonew fields, entry tegicchangeand successful fornew eduand legitimacy namerecognition inginstant 1982). Atthesame (NelsonandWinter cationalprograms may also obviatethe reputation a strong time,however, be changes-and could actually needformajorcurricular damagedas a resultof it (Selznick 1957, Rumelt1995). and largesize mayprevent financial resources Similarly, fromits the organization change by buffering strategic environment (Meyer and Zucker 1989) or misdirecting and March1993),butthey (Levinthal searchand learning innoand curricular new investment may also facilitate of these vation(Penrose1959). We discussourmeasures below. eightresources
Data and Measures
resource dataon thestrategies, time-varying We obtained outcomesof thecomplete and performance endowments, populationof Americanliberalartscolleges from1971 our sample includesall pri1986. Specifically, through liberalartscolleges in theUnitedStates vateindependent as of 1970, as classifiedby the Carnegie Commission (1973). Liberal arts colleges are readilydistinguished thatfall into fromotherhighereducationorganizations in the CarnegieCommisfourcategories one of theother doctoraluniversities, sion classification (research and unicolleges comprehensive universities, granting on the Constraints colleges). and two-year versities, resources availabilityof certaindata on organizational archival thesampleto 422 colleges. Our primary limited source was the HigherEducation General Information Survey,whichwas conductedannuallyby federalgovernment duringthis time period. Additionaldata were annualComparative from Cass and Birnbaum's obtained fromthe Guide to AmericanColleges and Universities,
639
2001 12, No. 5, September-October
of applicants in anygivenyear.This captures rejected the of reputation, in addition or strength to itsbreadth. depth, In general, national anyorganization with and recognition of would-becusthe abilityto rejecta large percentage a resource tomers can be seen as enjoying The advantage. second resourcewe considered, externalsupportrelaof a college's philantionships, was measuredin terms thropicsupport(total giving/total revenue) in a given from and year.Annualfinancial support alumni, parents, donorsis an important resource thatis highly other variable across colleges and has been identified as a distinfeature of eliteliberalartsschools(Clark 1970, guishing and StrategicChange. Our basic measureof Strategy "social capital"or supBreneman 1994). More generally, is the percentage of degreesthatit a college's strategy external withsuppliers of financial portive relationships grantsin non-liberal arts fields in a given year (nonresources and other production factors has beenidentified liberal-arts degrees/total undergraduate degrees).Liberal as an important asset (Coleman 1988, organizational artsfields weredefined to includethefollowing: Biology, Meyerand Zucker 1989, Dosi 1990, Levinthal1995). finearts, foreign humanities and letters, mathlanguages, We includedtwo time-varying measuresintended to social sciences, ematics,physicalsciences,psychology, the"richness" of a college withrespect to itshucapture and interdisciplinary studies.These fieldscontheology, is simplythe average (within man resources.The first stitutethe historicaldomain of liberal arts colleges This is a commonly rank)salaryof a college's faculty. (Breneman1990, Turner and Bowen 1990). Non-liberalof organizational used indicator educaqualityin higher artsfieldsare all others.In general,a college's strategy however to the tion,whichis clearlyrelated, imperfectly, is largelydefined and significant curricby its curricula, construct of faculty excellence. The second underlying ular change entails all of the complicationsand chalindicator measuredthe percentage of faculty who were lenges thatnormally attend otherstrategic changes.Our fullprofessors. We includedthison the logic thatrank measureof strategy is an information particular richone, of faculty providesan alternative indicator excellence. whichis especiallyappropriate giventhegeneraldecline Our measure offinancialassets was straightforward. Folin student demandforliberalartseducation that occurred lowing Levinthal(1995), we definedfinancial resource during thestudy period.This variablecaptures thedegree endowments as theannualmarket value of a colliterally to whicha liberalartscollege has departed from its tralege's endowment. ditionaland defining core strategy. Further, increasesin We includeda variablecapturing organizational age as thisvariableover timeprovidea particularly good indian indicator of theorganization's cumulative experience catorof strategic change.Increasing of nonpercentages and learning. While age is clearlya less specific resource liberal-arts degreesprovidea global indicator of numerindicator thanothers we consider, it is nonetheless releous relatedsignificant changes,including theaddition of vant.Levinthal (1991) has arguedthat age is often a critinew professional departments, majors,and courses; the cal indicator of accumulated competence, and thateach deletionof existing liberalartscoursesand majors;shifts additionalyear of an organization's continued survival in resource allocationsand hiring patterns amongexisting revealssome significant necessarily evidence of increasand changing programs; admissions policies.In short, the This maybe particularly ing capability. true, we suggest, extentto which an institution actuallyremainsa liberal for liberal arts colleges and otherorganizations whose artscollege is largelyevidentin terms of thepercentage basic have activities changed relatively little over their of degrees it grantsin non-liberal-arts fields(Carnegie life spans. Student was quality measured with two timeFoundation1987, Breneman1990). variables. Ourfirst varying indicator was themedianSAT OrganizationalResources. As noted, we examined scoreof entering freshmen. The secondwas thepercenthow strategic change and its outcomeswere affected by who continue age of students to graduate school. While eightdifferent typesof resources. The first of thesewas students are a college's customers, theyare also, in an a college's reputation, forwhichwe had twoindependent important sense,inputsor raw materials. The market for time-varying measures.One was the percentage of out- thisinput is clearly imperfect, andthosefewcollegeswith of-state whichcaptures enrollment, thebreadth of a colaccess to exceptionally talented students enjoya clearand lege's renownand the extentto which it has national enduring advantageover their peers. drawing power.Our second measurewas thepercentage The last two resourcemeasureswe considerare the Abstract. U.S. Census, and fromthe U.S. Statistical Fidonations to collegeswereobtained nally,data on private from theannualsurvey of voluntary to education support conducted by theCouncil forAid to Education. The studyrequiresmeasuresof three mainconstructs: organizational strategy (and change therein), organizational resources,and organizationalperformance. We of interaction termsto examine also calculate a variety role of resources thepotential in moderating therelationand performance. Several control ship betweenstrategy variablesare includedas well. 640
ORGANIZATIONSCIENCE/Vol.
12,No. 5, September-October 2001
ControlVariables.We also includedseveralimportant in our models. These includeda measurecapcontrols turing thecollege's initial(1971) position in non-liberalarts degrees,a measurecapturing the passage of time (whichrangedfrom1-16), and a measureof local competitionor "local density"(Carroll and Wade 1991), whichwas thenumber of four-year higher educationinstitutions in a college's state.We also includeda number of measures intended to capture thevarying levels of turbulence and resource constraint faced by individual colPerformance. We measuredperformance in termsof leges over time at the state level. These time-varying changesin a college's full-time-equivalent undergraduate measureswere: percentage of jobs in professional/techenrollment. While enrollment changesare by no meansa within thestate, percentage ofmanagerial jobs perfectindicatorof performance, they are clearly re- nicalfields withinthe state, state-levelunemployment, and stategardedby higher education researchers as a critical measure.Enrollments are thelifebloodof independent insti- level violentcrimerates.Finally,all models examining theperformance effects of strategic changealso included tutions and a majorconcern fortheir administrators. Also, shownto affect strategic change itself avoidingenrollment decline was themostpressing stra- all of the factors Time seriesmodelspredicttegicproblem facedby liberalartscollegesin thecontext (e.g., resources)as controls. ing changesin strategy overtheinterval from t to t + 4, of the ominouschanges mentioned earlier(Cheit 1971, also included of measures at t strategy as controls. Time Astinand Lee 1972). Enrollment changesalso providea series models t predicting enrollment at time + 5 also veryclear indicator of theorganization's fitness withits included the time t measure of enrollment as a control. environment (and changesin thisfitness). Finally, experts on higher educationfinance have also shownthat enroll- Analyses mentsand changesin enrollments are strongly correlated Ourstudy examines16 yearsoftime-varying dataon over withfinancial performance measuressuch as operating 400 colleges. Cross-sectional and time series data, or margin(Gilmartin 1981). We examinehow enrollment "panel data," like these create a varietyof complex, was affected as collegesdeemphasized theliberalartsand notintractable, though analytical problems (Sayrs 1989, sciences,and how resources mayhave moderated there- Greene1993). These complications stemmainly from the betweencurricular lationship In change and enrollment. of error terms nonindependence (i.e., heteroscedasticity). orderto be as comprehensive will oftenbe as possible, we address The errortermsfor a given organization witheach other acrossall of thedifferent time these questionsusing a numberof different statistical correlated is observed, thusviodifferent time lags, and different techniques, variables, periodsat whichthatorganization forOLS regression, and arnecessary including a dichotomous measureof enrollment change latingassumptions terms. error deflating (whichmaybe mostappropriate giventhat collegesdiffer tificially A variety ofmethods forcopingwith heteroscedasticity in growth). somewhatin theirinterest These issues are andgeneralized leastsquares fixed effects exist, including describedin moredetailbelow. (random effects) models. Fixed effects,or "withinInteraction Terms.We examinedthepotential moder- organization" all independent and demodels transform of resourcesthrough the use of interaction pendent atingeffects variablesfora given year intodeviationsfrom We examinedtheoverallmoderating terms. of re- the organization's effect remean across all years,effectively source endowments a resource by creating composite thedata variancefrom movingall between-organization measure(calculated as the average of the standardized and, thus,the error can thenused term.OLS estimation values of all eleven individualresourcevariables) and fixed-effects data. Unfortunately, on the transformed thisvariablewithstrategic interacting changeto predict modelsprevent characterof organizational theinclusion In a seriesof supporting enrollment. subsequent analyses, isticsthatdo not varyacross time(e.g., founding date), we also examinedhow and if each of our resourcesinofvariables oftheeffects and also provide poorestimates relation- thatvaryonly slightly SAT dividuallymoderatedthe change/performance over time (e.g., reputation, each individualresource scores). Randomeffects modelsdo not sharetheselimiship by separately interacting effect of financial tations.They allow one to examine both within-and withstrategic change.The moderating
2001 ORGANIZATIONSCIENCE/Vol. 12, No. 5, September-October 641
scale and scope of a college's operations. As noted,we includethesemeasuresbecause of their prominent place in the evolutionary theoriesof Schumpeter and Nelson and Winter.These theorists suggestedthat scale and scope represent capabilitiesthat,in additionto factors such as financialreserves,reputation, and human resources,will be particularly valuable in promoting adto emergent aptation environmental threats. We measured scale simplyas the size or enrollment of a college in a givenyear.We measuredscope of operations as a count variable,capturing thetotalnumber of fieldsin whicha college granted undergraduate majors.
endowment on thechange/performance relationship, for instance,was addressedby entering an "endowment X strategic change"interaction term.
MATTHEW S. KRAATZ AND EDWARD J.ZAJAC HowOrganizational Resources Strategic Change Affect
variance on independent and debetween-organization pendentmeasures.Ratherthancreating a "fixedeffect" variance across that isolates all organization-specific time,theyaddressthe problemof heteroscedasticity by whichis a combination ofthe creating a "random effect," fixedorganizational and a time-varying effect, compoof random-effects nent (Greene 1993). The limitation that all relevant modelsis their (seldommet)presumption variance are invariables accountingfor between-firm and DiNardo 1997). When cludedin themodel(Johnston thiscondition is notmet,it is possible thattheobserved effects of organizational variableswill be upwardbiased fixed effects arenotcompletely con(because unobserved trolled for). There are no definitive forchoosingbetween criteria random and fixed-effects models(Greene 1993,Johnston and DiNardo 1997). We chose to rely primarily on models because our theoretical random-effects interest centersfundamentally, thoughnot solely, on betweenvariance.The resourceswithwhichwe are organization acrossorganiconcerned, by their nature, varyprimarily zationsand onlysecondarily within them.In theinterest of completeness, however,we do also presentseveral fixed-effects modelspredicting bothstrategic changeand enrollment. These allow us to examinetherobustness of some key results to alternative specifications. Another alternative fordealing withthe complexities of pooled timeseriesdata is to disregard theintervening panels,lookinginsteadonlyat changesbetweenthefirst panel and thelast. Simple OLS estimation is appropriate with such data. This methodrequiresthe sacrifice of a amountof usefulinformation significant and is clearly in comparisonwith fixed-or random-effects primitive models.However,it providesa usefulstarting and point, we also present severalof thesemodels. A finalanalytic technique employedwas discrete-time event history analysis. We used this methodto model enrollment decline, which was measuredas a dichotomous variable.As mentioned earlier,it is important to also model this indicator variablebecause colleges can be assumed to be uniformly in avoidingeninterested rollment decline,though they maydiffer in terms of their desireforgrowth and expansion. Discrete-time eventhistoryanalysissimplyestimates a logitmodel of a dichotomous outcomeon pooled cross-sectional data (Allison 1984).
Descriptivestatistics and a pooled correlation matrix for all variablesincludedin thestudy paperappearin Table 1. Variablesin thecorrelation matrix are lagged overthe same intervals as in Tables 2-6. 642
Results
The first set of findings show the observedeffects of resource endowmentson strategicchange duringthe threeperspectives we identified studyperiod.The first reresourcesas buffers, (resourcesas learning barriers, all predicted-albeitfordiffersourcesas commitments) entreasons-thatresource-rich wouldcarry organizations turoutless strategic changein thefaceofenvironmental as bulence.Conversely, thefourth perspective (resources thatgreater resource endowments facilitators) suggested and change.Table 2 presents would promote adaptation findings thatspeak directly to thisissue. Model 1 of Table 2 providesa simpleand easilyinterof pretable,if somewhatprimitive, first approximation on strategic resourceeffects change.It examinestheefin 1971) on cufectsof colleges' resources (as measured mulativestrategic change over the entirestudyperiod of non-liberal-arts (i.e., change in proportion degrees from1971 to 1986). This model shows thatsevenof the 11 resourcevariablesexertedindependent negativeeffectson cumulative held strategic change.These effects even after forinitialstrategy controlling (i.e., percentage of non-liberal-arts degreesin 1971) and after controlling forlocal competition, notsurprisingly, bothofwhich, sigaffectedsubsequentchange. The exceptions nificantly were our two measuresof humanresources sal(faculty of fullprofessors), ariesand percentage and thescale and scope measuressuggested by Nelson and Winter (1982). On thewhole,Model 1 was highly predictive, explaining 37% of thevariancein strategic changeoverthe 15-year period. Model 2 of Table 2 providesadditionalestimates of whatare essentially thesame relationships, buttakesfull of thetimeseriesof observations advantage and presents random-effects coefficients. Here,ourdependent variable is change in the proportion of non-liberal-arts degrees over a seriesof rolling from t to t + four-year intervals, 4. Change over each of these intervals is predicted by time-varying resourcemeasures,taken at time t. This model allows us to observetheeffects of cross-temporal (as well as cross-organizational) variation in resources, and it places theresourcemeasurescloserin timeto the changesthattheypredict.4 This model producedeffects that werehighly similar to Model 1. Colleges withbetter reputations, longer histories, moresupportive external relationships, greater financial resources, and moretalented students at timet weresignificantly less likely to increase their on non-liberal-arts emphasis education overthesubsequentfour-year period(controlling for% non-liberalartsat timet). One measureof reputation (percent of applicationsrejected) dropped fromsignificance in this model. However,one of our humanresourcemeasures (faculty salaries)was found to exert a significant negative 12,No. 5, September-October 2001
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Resources MATTHEW S. KRAATZ AND EDWARD J.ZAJAC HowOrganizational Strategic Change Affect
Table 2 Effectsof Organizational Resources on Strategic Change (DV is Change in Proportionof Nonliberal Arts Degrees) Model 1 1 Panel OLS 1971 to 1986) (Change from -0.0919* (0.0372) -0.0969t (0.0504) - 4.1492** (1.3514) 0.0357 (1.1221) - 0.0066 (0.0488) - 2.2479** (0.8131) - 0.0338 (0.0221) - 0.0413*** (0.0081) - 0.1120* (0.531) -0.0025 (0.0021) 0.4821 (0.4286) Model 2 Random Effects tto t + 4) (Change from - 0.0743*** (0.0106) 0.0009 (0.0138) - 1.0125*** (0.3169) - 0.7686** (0.2994) -0.0114 (0.0111) - 1.0145*** (0.2439) - 0.0307*** (0.0061) - 0.0307*** (0.0022) - 0.0333* (0.0134) - 0.0001 (0.0005) 0.5660*** (0.0845) -(0.5641)*** (0.0139) 0.2465*** (0.0159) 0.0292** (0.0107) 0.0190 (0.1935) -0.1094 (0.1192) - 0.0399 (0.0850) 0.0003 (0.0002) 0.4643*** (0.0616) 21.2750*** 2.8950) 5046 (Org. Years) 0.16 1920.72*** Model 3 Fixed Effects tto t + 4) (Change from - 0.0975* (0.0253) 0.0108 (0.0157) 0.0366 (0.3659) - 0 7034t (0.3708) 0.0152 (0.0118) - 1.4015* (0.5545)
Predictor students' % out-of-state % applications rejected % revenues from giving Facultysalaries % fullprofessors Endowment Age FreshmenSAT scores % attending grad. school Enrollment Numbermajors offered % nonliberal arts degrees (t) % nonliberal arts degrees 1971 Numberof colleges in state % managerialjobs in state % prof./tech. jobs in state rate in state Unemployment Violent crimerate in state Time Constant N F Adjusted R. Squared Chi Square
- 0.0296* (0.0036) 0.0399* (0.0155) 0.0024* (0.0007) 0.4579* (0.1053) -(0.8930)* (0.0143)
-0.5629*** (0.0443) 0.0744* (0.0377) 0.3602 (0.9296) 0.1488 (0.5186) 0.7621 (0.7402) 0.0001 (0.0010)
38.6042** (12.8144) 420 (Orgs.) 15.32*** 0.37
- 0.4000* (0.1492) 0.1772 (0.2323) - 0.4840* (0.1686) - 0.0562 (0.0825) -0.0004 (0.0003) 1.1757* (0.0872) - 2.7386 (8.0708) 5046 (Org. Years) 237.87*** 0.05
1Allpredictorsin Model 1 are measured in 1971. Predictorsin Models 2 and 3 are measured at timet unless otherwisenoted. tp < 0.10 *p < 0.05 **p < 0.01 ***p< 0.001 (twotailed)
644
measure,which itdid notin Model 1. It was also found (t)." In each model,thisstatic strategy though here, effect change up to time t, had a positive of programs reveals cumulative (total number thatthe scope of operations net of all otherregresenrollment, on subsequent on stra- effect as a positiveinfluence at timet) emerged offered model. sors. Thus, Table 3 shows thatcumulativemovement tegicchangein therandom-effects effect to have a positive theliberalartstended of thesesame away from estimates fixed-effects Model 3 presents increasesin nonand, also, thatfurther As discussed, this model precludes the on enrollment relationships. educationtendedto produce additionalenthatare our primary liberal-arts comparisons between-organization period. thestudy gains throughout rollment with Models 1 and 2, however,it concern.Consistent questionof how Table 4 beginsto addressthecritical toengage a givencollegewas morelikely does revealthat betweenstratetherelationship may moderate thoseperiodswhenits out-ofresources changeduring in strategic which was demonstrated gic change and performance, and SAT salaries,endowment faculty stateenrollments, the to its overallmean).Interest- clearlyin Table 3. This is the second step in testing scoreswerelower(relative powerof thefourbasic perspectives for relative explanatory ingly, this model also shows that the propensity recalculateda "composite We first duringthose we have introduced. change was higherwithinan organization each of our eleven regreater sourcemeasure"by standardizing periodswhenits scale and scope were relatively scores.We then thesestandardized (i.e., increases in scale and scope promote further sourcesand summing all this measurewitha variablethatcaptureda interacted from emerging change). In general,then,the effects nonchange (i.e., percent strategic littlesupport college's cumulative threemodels in Table 2 providerelatively degrees) to look forevidence of positiveor view, but substantial liberal-arts forthe "resourcesas facilitators" As inTables 2 and 3, we beganwith moderation. each negative three perspectives, of theother evidencein support betweenre- an OLS model of change over the entirestudyperiod. a negativerelationship of which predicted of thecompositereModel 1 shows thattheinteraction and change. sourceendowments change source measure(for 1971) withthe "% non-liberal-arts of strategic Table 3 examinesthemaineffects efand negative analytictech- degrees1986" variablehad a significant using several different on performance, This period. the study across enrollment growth fect on premodel OLS with an begin we 2, As in Table niques. the away from movement whilecumulative that, suggests thefirst periodto thelast.Model 1 changesfrom dicting in growth on enrollment effect a positive had arts liberal the study across change strategic revealsthatcumulative effect less a much positive had change strategic general, on enrollment effect period had a strongand positive endowments. withlarger resource forthoseorganizations for all growthduringthe same time,aftercontrolling in Model 2 estimates series time random-effects, The variable dependent 1971 resources(note thatthe actual beThe relationship positive pattern. an analogous show the in 1986, but because in this model is enrollment and + 4 t at time non-liberal-arts granted degrees thefind- tween 1971 as a regressor, model includesenrollment to t + 5, is less positiveamongthose growth ings are identicalto thoseobtainedwhenthedependent enrollment en(and in thoseyears)in whichresource organizations 1971 to 1986). Model changefrom variableis enrollment fixedthe of The results higher. are relatively thefulltimeseries, dowments modelemploying 2, a random-effects analysis effects analysisin Model 3 and theeventhistory of at t + 5 as a function enrollment predicts analogously effect. in Model 4 showevidenceofthesame moderating t to t + 4. It also from changeovertheinterval strategic this are weakerthantheothers, fields WhileModel 3's findings intonon-liberal-arts movement shows thatgreater given thattheyonly take intoaccount control- is not surprising, after on enrollment, positiveeffect had a strong, On thewhole, varianceon resources. stra- within-organization thatwere shownto affect ling forall of thefactors withthereconsistent is strongly of findings model, produces thispattern Model 3, a fixed-effects itself. change tegic withthe view, and inconsistent all between-organization sourcesas commitments After results. eliminating similar thatresources whichpredicted otherthreeperspectives, it showsthata givencollege was mostlikelyto variance, on effect or a positivemoderating would have no effect growthsubsequentto those peexperienceenrollment and performance. between change the relationship of straamount in a greater it had engaged riodswherein these observedsigAn additionalquestionregarding to itsmeanacrossall years).Finally tegicchange(relative at some pointthe whether concerns interactions nificant nonthat 4 shows also Model increasing and consistently, and subsequent change between strategic relationship on effect and had a negative strong offerings liberal-arts thansimply (rather becomes negative truly performance all which of enrollment decline,something thelikelihood Schoonhoven method the by suggested less Using positive). 2-4 to avoid. Also notablein Models colleges surelytry pointsforthe moderating degrees (1981), we derivedinflection of the variable"% non-liberal-arts is the effect
2001 ORGANIZATIONSCIENCE/Vol. 12, No. 5, September-October 645
MATTHEW S. KRAATZ AND EDWARD J. ZAJAC Table 3
Main Effectsof Strategic Change on Performance (DV is Enrollment) Model 1 2 Panel OLS (Enrollment 1986) 4.0069** (1.4158) - 2.0262t (1.0644) 3.9924)** (1.4360) - 72.6903t (38.8096) - 44.3900 (31.8514) -0.3189 (1.3844) 86.8004*** (23.3006) - 1.1964t (0.6295) 0.1366 (0.2385) 2.3051 (1 .5144) 0.8326*** (0.0598) 5.8202 (12.1846) 0.2750 (1.4889) 0.0804 (1.0766) 4.5904 (26.3934) -3.1439 (14.7229) -6.0928 (21.0388) 0.0467t (0.0280) 67.9459 Model 2 2 Panel Logit (Enrollment t + 5) Model 3 Random Effects (Enrollment t + 5) Model 4 Fixed Effects (Enrollment t + 5) Model 5 EventHistory (Enrollment t + 5)
Predictor arts degrees Change in nonliberal (1971-1986) arts degrees Change in nonliberal (tto t + 4) % out-of-state students1 % applications rejected % revenues from giving Facultysalaries % fullprofessors Endowment Age FreshmenSAT scores % attending grad. school Enrollment 1971 Enrollment Numbermajors offered % nonliberal arts degrees (t) % nonliberal arts degrees 1971 Numberof colleges in state % managerialjobs in state % prof./tech. jobs in state rate in state Unemployment Violent crimerate in state Time Constant
-0.0199** (0.0074) 0.0107* (.0.0052) - 0.0205** (0.0073) -0.0545 (0.1934) 0.1887 (0.1593) -0.0009 (0.0070) - 0.6100* (0.2665) 0.0069* (0.0031) -0.0011 (0.0012) -0.0068 (0.0074) 0.0003 (0.0003) 0.0294 (0.0597) -0.0034 (0.0074) 0.0029 (0.0053) 0.0217 (0.1278) -0.0232 (0.0719) -0.0393 (0.1033) 0.0000 (0.0001) 0.7405
1.5075*** (0.3087) -0.2861 (0.3598) 0.3031 (0.3308) 5.3004 (7.5450) 74.5147*** (7.6633) 1.2638*** (0.2472) 51.1006*** (7.8974) - 0.5625* (0.2413) -0.0214 (0.0650) -0.4990 (0.3282) 0.5588*** (0.0137) 11.5655*** (2.0884) 2.3408*** (0.3944) - 2.5384*** (0.5478) 1.0148* (0.4135) -0.1646 (4.6369) -1.9840 (3.1701) 4.2546* (2.0009) 0.0201*** (0.0063) - 9.1753*** (1.5996) 271.6303***
1.7164*** (0.2942) -0.4294 (0.5324) -0.5062 (0.3230) 23.8949*** (7.3871) 70.1186*** (7.7935) 0.9814*** (0.2357) - 2.5769 (11.6594) - 0.1176 (0.0775) - 0.9247** (0.3222) 0.2511* (0.0152) 4.7248* (2.0981) 3.4293*** (0.3932) -9.5299** (3.0219) 2.1028 (4.6048) - 6.0014t (3.4338) 2.9851 (1.9044) 0.0129t (0.0078) - 8.7434*** (1.9082) 1409.4400***
- 0.0114* (0.0028) 0.0032* (0.0015) - 0.0055* (0.0025) 0.1312* (0.0562) -0.0517 (0.0503) -0.0014 (0.0020) -0.2557* (0.0447) 0.0061 (0.0009) -0.0006 (0.004) -0.0007 (0.0023) 0.0003* (0.0001) -0.0187 (0.0145) -0.0144* (0.0029) 0.0132* (0.0026) 0.0016 (0.0015) -0.0252 (0.0336) 0.0156 (0.0204) - 0.0510* (0.0193) 0.0000 (0.0000) 0.0616* (0.0124) -0.4454
(367.8380)
420 (Orgs.) 25.12*** 0.51
(1.8407)
420 (Orgs.)
(84.2962)
(164.0717)
(0.4906)
N F Adjusted RSquared Chi Square
4624 (Org.-years) 0.78 3195.94***
4624 (Org.-years) 39.85*** 0.10
420 (Orgs.)
47.72***
195.9***
1Allpredictorsin Model 1 are measured in 1971. Predictorsin Models 2-4 are measured at timet unless otherwisenoted. tp < 0.10 *p < 0.05 **p < 0.01 ***p< 0.001 (twotailed)
646
Table 4
Relationship (DV is Enrollment) Moderating Effectof Resources (Composite Measure) on the Strategy/Performance Model 1 2 Panel OLS 1986) (Enrollment -0.3971* (0.1798) 41.0968 (41.8417) 5.3056*** (1.5257) - 4.2193* (1.9954) 0.3127 (3.1111) - 151.2600* (75.6128) - 109.6304t (60.4358) - 2.6747 (2.2674) - 5.9003 (52.7970) - 2.6211 * (1.2141) -0.3508 (0.3880) -1.4942 (3.1718) 0.7268*** (0.0980) -3.5142 (17.6517) - 4.1823** (1.4167) 0.2888 (1.0753) 5.2884 (26.2838) - 2.5959 (14.7081) - 10.7992 (21.0910) 0.0459 (0.0280) 1354.8320 (1038.0750) 422 (Orgs.) 23.09*** 0.5133 Model 2 Random Effects (Enrollment t + 5) Model 3 Fixed Effects t + 5) (Enrollment Model 4 Analysis EventHistory Decline) (Enrollment
Predictor % nonliberal arts degrees 1986 X Composite resource measure arts degrees (t + 4) X % nonliberal Composite resource measure Composite resource measure arts degrees 1986 % nonliberal % nonliberal arts degrees (t + 4) % out-of-state students1 % applications rejected % revenues from giving Facultysalaries % fullprofessors Endowment Age FreshmenSAT scores % attending grad. school Enrollment Numbermajors offered arts degrees (t) % nonliberal % nonliberal arts degrees 1971 Numberof colleges in state % managerialjobs in state % prof./tech. jobs in state rate in state Unemployment crimerate in state Violent Time Constant
-0.1 195** (0.0406) -3.7549 (6.9098) 1.4804*** (0.3086) -0.3866 (0.4474) 0.1132 (0.5601) 2.1353 (12.6790) 71.2559*** (11.3778) 1.2102** (0.3894) 41.1756*** (10.7004) - 0.6332* (0.2960) -0.0601 (0.0819) -0.8483 (0.5677) 0.5551*** (0.0178) 11.8077*** (2.8598) 0.7813* (0.3116) - 2.5248*** (0.5484) 1.0238* (0.4141) 0.4355 (4.6463) - 2.1757 (3.1696) 4.2949* (2.0047) 0.0201*** (0.0063) - 9.3355*** (1.6066) 325.7005t (177.6687) 4624 (Org.-years) 0.7746 3196.57***
-0.905* (0.435) - 7.7649 (6.5917) 1.6808*** (0.2948) -0.2437 (0.5838) - 0.2888 (0.5318) 28.3079* (11.9683) 73.7136*** (11.1248) 1.1675** (0.3683) - 1.4004 (13.2251) (dropped) - 0.0967 (0.0908) -0.8957t (0.5421) 0.2579*** (0.0184) 5.8864* (2.7533) 1.6566*** (0.2894) (dropped) -9.6060*** (3.0220) 2.3966 (4.6110) - 5.9387t (3.4331) 3.0633 (1.9091) 0.0119 (0.0078) - 8.4376*** (1.9186) 1331.8480*** (208.8829) 4624 (Org.-years) 36.12*** 0.104
0.001 1 (0.0003) 0.1702* (0.0591) -0.0120* (0.0028) -0.0014 (0.0029) - 0.121 ** (0.0047) -0.0603 (0.1078) - 0.2034 (0.0880) - 0.0068* (0.0032) - 0.2797* (0.0765) 0Q0034t (0.0017) -0.0010t (0.0006) - 0.0083t (0.0047) 0.0001 (0.0001) - 0.0764* (0.0233) -0.0018 (0.0033) 0.0136* (0.0027) 0.0014 (0.0015) -0.0369 (0.0338) 0.0174 (0.0205) - 0.0484* (0.0194) 0.0000 (0.0000) 0.0654** (0.0125) 2.2707 (1.4575) 4625 (Org.-years)
N F Adjusted RSquared Chi Square
218.89***
in Models 2-4 are measured at timet unless otherwisenoted. 1All predictorsin Model 1 are measured in 1971. Predictors tp < 0.10 *p < 0.05 **p < 0.01 ***p< 0.001 (twotailed)
2001 ORGANIZATIONSCIENCE/VO1. 12, No. 5, September-October
647
Resources Change Strategic MATTHEW S. KRAATZ AND EDWARD J. ZAJAC HowOrganizational Affect
in Models 1-4. We found that relationships we identified of cumulative effect thepositive strategic changeactually of fourmodels-withintherange reversed itselfin three we found of theobserveddata. In Model 1, forinstance, resource measure an inflection pointwherethecomposite the 96th percentile of this was equal to 14.23 (roughly Forthoseelitefewcollegesabove variable'sdistribution). liberaleducation thispoint,strategically deemphasizing on enrollment. actuallyhad negativeeffects Up to this resources point,however, merely dampenedthepositive located inflection We also foundsimilarly relationship. in Models 2 pointsin the time series models presented the95thand 96thpercentiles and 4. These fellat roughly The of thecompositeresourcedistribution, respectively. of the in Model 3 fell outsidethe distribution inflection data. eviTables 5 and 6 provideadditionalcorroborating Rather influence of resources. dence on the moderating Tables 5 and 6 thanusinga compositeresource measure, examinehow each of the eleven specificresourcemeatheeffect ofcumulative suresmoderated strategic change on enrollment growthand enrollment decline, respecresults of eleven random-effects tively.Table 5 presents It showsthat four modelsof theseindividual interactions. of the11 resources interacted andnegatively significantly withstrategic enrollment changein predicting subsequent forall maineffects. The inflecgrowth, after controlling tionpointsfortwo of thesefourwerewithin therangeof thedata,indicating a nonmonotonic relationship. Specifbetween ically,therelationship percentage ofnon-liberalartsdegreesgranted and enrollment became neggrowth ative forcolleges thateither:1) rejectedmorethan70% of theirapplicantsor 2) had enrollments of more than 1,416students. Organizational age and percentage ofrevenue fromgivingsignificantly ameliorated thisrelationship,but did not reverseit within theobserveddistribution. Table 6 shows that seven of the 11 resources ameliorated the negativerelationship betweenstrategic changeand enrollment decline.Threeof theseseven interactions had inflection pointswithin theobserved range. Strategic change increasedthe likelihoodof enrollment decline forcolleges that: 1) rejectedmore than42% of applicants, 2) were olderthan223 yearsor,3) sentmore than63% of theirgraduates to graduateor professional schools.The percentage of out-of-state students, percentage of revenuesfromgiving,percentage of fullprofessors,and enrollment all ameliorated, butdid notreverse, thisrelationship. Coefficients fortwo of our interaction salariesand totalnumber terms, (faculty of programs offered) were negative-indicatingthese resourcesmay have made change even more beneficial.We consider thesefindings in moredetailin thediscussion.
648
Discussion
disconnect We began thisstudyby notingan important streams of researchin strategic betweentwo important Whilestrategy researchers management. have,in general, become increasingly concernedwiththe unique,inimiand heterogeneously distable,historically accumulated, from resourcesthatdifferentiate tributed organizations has acone another, verylittlestrategic changeresearch As differences. to theseresource or attended knowledged there has been littlediscussionor research cona result, how resourceendowments sidering may impactorganioraffect foradaptivestrategic zations'propensity change, andintegrated theoutcomes ofsuchchange.We reviewed litworkfrom a wide rangeof economicand behavioral strathatsuggestedthatresourcesshould affect erature tegic change and its outcomes,and offereddifferent it. We disviews aboutwhyand how theyshouldaffect tilled and synthesized this work into fourdistinct perto Learning, Resources spectives:Resourcesas Barriers Resourcesas Commitments, as Environmental Buffers, We view thistheoretical and Resources as Facilitators. to be a key contribution in its own reviewand synthesis it we will motivate and orient future right, and hope help research. in a context We also conducted an empirical well study suitedto evaluating theseperspectives, giventheimportant,observableresourcedifferences among liberalarts colleges and thethreatening environmental changesthey thestudy facedduring period.Ourempirical findings provided the greatest evidenceforthe"Resourcesas Commitments" This perspective, perspective. whichhas roots in both economic and behavioraltraditions, suggested that valuable distinctive resources-by theirvery nature-would make organizations possessingthemmore to changestrategies in response reluctant to environmental changes.However,it also predicts thatthisresourcedrivendisinclination towardschange shouldhave a benign,or evenbeneficial, effect on performance. Evidence in support of thisview was provided by thefinding that colleges withbetter reputations, longerhistories, more supportiveexternalrelationships, greaterfinancialresources,and more talentedstudents were less likelyto increasetheir emphasis on non-liberal-arts education, and by thefinding thatthesesame resources negatively moderatedtheotherwise positive relationship between curricular change and subsequentenrollment growth.Our findings were least supportive of the "Resourcesas Facilitators"perspective,as resources tended to exert strongly negativeeffects on change,and also tendedto weaken(rather thanstrengthen) thepositiverelationship between strategicchange and performance. We also
ORGANIZATIONSCIENCE/Vol. 12, No. 5, September-October 2001
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forthe "Resourcesas Envisupport foundno consistent to Learnand "Resourcesas Barriers Buffers" ronmental didpredict Whileboththeseperspectives ing"arguments. less prone to thatresourceswould make organizations would thatresources predicted neither changestrategies, betweenchange and performoderatethe relationship thatwe observed. mancein themanner and findings At the most basic level, our arguments changeresearchshouldacstrategic suggestthatfuture in substantially differ often that organizations knowledge to measureand and attempt resourceendowments, their While differences. of theseimportant examinetheeffects evidenceaboutpreour study maynotprovidedefinitive cisely how or why resourcesfigureinto the strategic and findings changeprocess,we believe thatour theory investiample reason forfurther provide,at minimum, thatregatingtheirrole. We are not simplysuggesting variablethat searchers considerresourcesas yetanother relationcreatesnoise in the organization-environment and ship. Rather,we believe thatthe conceptualization changeprocessneedsto be analysisof thebasic strategic to orconsideration expandedto give equal theoretical has long ganizationalresources. Strategyformulation simultaas a processin whichthefirm been understood constraints to adapt to environmental neously attempts We would arguethat capabilities. and to exploitexisting a processof stratchange-which is essentially strategic be and studconceptualized egy reformulation-should ied in thesame way. the supporting We believe thatour specificfindings also have subperspective "Resourcesas Commitments" forstrategic change research.Spestantial implications the thesefindings suggesta need to reconsider cifically, and coalthatpursuing adaptation commonpresumption desirableor rationalcourse for is a uniformly ignment with changing competitive, organizationsconfronted with Consistent or social environments. technological, research (Zajac and Kraatz 1993, Kraatzand Zajac prior changewas very 1996), we foundthatadaptivestrategic formost orenhancing and also performance prevalent that found organizational However,we also ganizations. foradaptivestrategic decreasedthepropensity resources theveryneedforit. changeand also appearedto mitigate evidencethatstrategic further changemay We presented actually damage existing resources and performance and richlyendowed orgaamong especially distinctive researchwill give more nizations.We hope thatfuture to disand attempt to theseimportant attention subtleties, inturbulent obtainin other results similar cernwhether contexts. dustry been to has primarily contribution While our intended we beon research extend and change, strategic clarify relieve thatour studymay also have some significant
2001 ORGANIZATIONSCIENCE/VOl. 12, No. 5, September-October
resource-based fortheburgeoning ciprocalimplications has examinedthe is one of veryfewthat view. Our study conindustry overtimein a dynamic of resources effects text(see also Millerand Shamsie 1996, Helfat1997). It on to examineresources'effects is also perhapsthefirst over time,in additionto actual strategies organizations' We believe thesecontribuon performance. their effects to especiallygiven the tendency tionsto be important, in staticterms.We conceptualizeresourcedifferences disshow thatthe same resourcesthathave historically peerscan indeed their from eliteorganizations tinguished threatofsubstantial valuableevenin thepresence remain for change-thoughnotnecessarily eningenvironmental thereasonssome have argued. approachWe also believe thatour generalresearch valuable resourcesand historically of firstidentifying subsequentlyexaminingtheir impact over time in a context-mayproveto be an efenvironmental changing to reconcilethe effort fectivemethodin the continuing resource-basedview with the problem of strategic change. One can contrastthis approach with another which to thissame problem, solution theoretical) (largely notionsof higherhas centeredon developingabstract orderresourcesor "dynamiccapabilities"thatare preand to more intelligently sumed to allow organizations changes.While the conadapt to environmental swiftly cept of dynamiccapabilitiesis appealing,it is a rather vague and elusive one whichhas thusfarprovenlargely If certainreand measurement. to observation resistant adaptiveadvansources can actuallyprovideenduring however,we believe thatlongitages to organizations, tudinalempiricalstudiessuch as ours have the greatest existence. their foruncovering and validating potential betweenthe tension We also wish to notetheinherent whichfound perspective, "Resourcesas Commitments" ofdynamic the in ourstudy, and concept themostsupport as Commit"Resources the capabilities. Specifically, and maintenance the creation that ments"view suggests choices of a distinctive requiresirreversible competence tradeis a clear there that and and deliberate persistence, and adaptability (Selznick off between distinctiveness 1957, Ghemawat 1991). Thus, the firmthat singleand whose primindedly pursuesdynamiccapabilities, dicis to change as the environment marycommitment sacrificemany of the tates,would seem to inevitably committhatmake deliberate, benefits accruingto firms and relationchoices (e.g. strong reputation tingstrategic loyaltyof ships, specialized knowledgeand expertise, etc.). Otherswho have employees,suppliers, customers, the notionof dynamiccapabilities criticized previously to the "happily referring have made relatedarguments, 1995, ever after"qualityof the concept (Montgomery
653
while sacrificing distinctiveness in Collis 1994). Further, and dynamiccapabilitymay the pursuitof flexibility our findings also suggestthat sometimes be worthwhile, this is not always a necessaryor preferable exchange, and threateven fororganizations faced witha turbulent eningenvironment. also raisesome natural Our findings and sugquestions research. forfuture One imgestsomepossibledirections thepossiblyidiosynset of questionsstemsfrom portant craticnatureof our empiricalcontextand the strategic unusualin changeswe examined.Colleges are somewhat in that that are typtheyare nonprofit organizations, they ically strongly imbuedwithvalues and ideology,and in arecharacterized andconthat they by shared governance flicting interests. the movement Further, away fromliberal educationwas a radical,almostheretical, strategic thatstrongly departure affected the identities and missions of these organizations (Kraatz and Zajac 1996). to find Given thesefacts,it is perhapsless surprising that enabled themto colleges whose resourceendowments avoid or resistsuch change used theirresourcesin this thanas a springboard to greater way rather and expansion educational diversification. We wouldnote,however, that thesecomplicating characteristics are not organizational entirely unique to highereducation.Further, lookingto otherindustries, it is relatively easy to findexamplesof othersituations whereexceptional resource endowments have led organizations to deliberately avoid adaptingto environmental changes,oftenwith similarly benign or beneficial consequences.Significantly, it is perhaps most easy to produceexamplesfrom otherindustries wherein resourceheterogeneity is truly pronounced, and wherein are clearlydistinguished organizations by their histories, reputations, relationships, personnel, etc.For example,in thewatchindustry, manyof theolder and better-known Swiss watchfirms ignoredwhatappearedto be an environmental to adapt to the quartztechnology imperative revolution. These venerablefirms todaynow note their nonadaptivestance with great pride, highlighting that theystayedtrueto their mechanicalwristwatch technology,whichnow commands a significant premium among wristwatch aficionados. Another issue thatmeritsdiscussionis our choice of resource specific measures. It is notclearthat all valuable resourcesand competencies are bestunderstood as commitments that require (and provoke)significant resistance to change. Generic resourcessuch as financial capital, sheersize and scope, and technological capability would appear to lend themselvesmore readilyto facilitating change thando others(Nelson and Winter1982). Such resources also seem less likelyto become valued in their own right, and thusmay be moreeasily applied toward 654
thisposends. We certainly new strategic acknowledge and some of ourresults sibility, provide marginal support for the notionthatscope increasedthe propensity for thoseresources that change.However,we would suggest an organization thatare mostlikelyto truly differentiate and to provideit withan enduring competitive advantage we beare actuallynongeneric ones. These resources, lieve, are likelyto flowfromand createcommitments, thusinhibiting the propensity foradaptivechange.It is to acknowledgethatresourcesare often also important interrelated-or even inseparable. highly Thus, even resources thatone mightexpect to promotechange may often failto do so, giventhat coexistwith they necessarily other morecommitting resources. Whilewe believethat ourfindings maywellprovegeneralizableto other we hope thatthepresent contexts, paper will engendersimilarlydesigned and intentioned in other studies Such studies settings. mayrevealdifferent forone or moreof the effects, perhapsproviding support threeotherperspectives we identified. While resources and deliberate may oftentendto generatecommitment avoidanceof adaptivechangeas we found, it is also true thattheyhave no deterministic or inevitableeffect on resourceendowments, strategic change. Organizational likedeclining performance (Ocasio 1995),affect strategic change only insomuchas they are constructed, interpreted, and acteduponbydecisionmakers within a larger social context.Thus, the same typesof resourcesmay exertdifferent effects on change,dependhypothetically ing on the organization, and strategic industry, changes underexamination. It is also usefulto considerthepossible limitsof our arguments and findings aboutthebenefits ofcommitment and avoidance of change. Clearly,well-intentioned efforts to protect and exploitexisting resources could lead resource-rich organizations intoperformance decline,or even a deathspiral,whenenvironmental variation is too great,changesare too rapid,competition is too intense, or organizational resourcesare too narrowand specialized. Selznick(1957; p. 18) notesthishimself, andone can easily imaginesuch an outcomeeven in thecontext we study here.Clearly,there is a fineand uncertain line betweenprudently protecting and exploiting existing competenciesand fallinginto a competency trap.Nonetheless, we believe that the benefitsof protecting and exploitingexistingresourcesare estimableand worth in most,if notall, contexts. considering Even in "hyperturbulent" industries whereinthe change imperative is greatest, firms maystillbenefit from thiscourse.Further, even whenchangedoes enhancethesurvival chancesof an organization, it stillmay damage and/or prevent the accumulation of variousimportant resources, thuscomplicating thecost/benefit ratioof strategic change.
ORGANIZATIONSCIENCENVOl. 12, No.
dynamically valuable, but, as willbe shown, this is only of Integrating organizational resources intothestudy of alsoprove possibilities that we analyze. strategic change is a deceptively difficult task.It seems four that the organization theory literature onslack-andits intuitive to suggestthatan organization's resources 3Werecognize toinnovation-has sometimes argued that slackprovides should (somehow) affect itspropensity for adaptive stra- relationship for greater experimentation, andhence, greater degrees ofintegic change andtheoutcomes ofthis change. However, latitude novation (Nohria andGulati 1996, Zajac etal. 1991).We address such when onemoves beyond this simple argument anddelves a possible effect inourlater ofresources discussion as facilitators. more into theliteratures that havedealt with stra- 4A four-year deeply interval was chosen becauseof theknown lag between andresources, thebarriers tegicchange to thedecision respectively, toadopt ofdegrees in newmajors andtheactual granting integration-and even communication-between these these majors (Kraatz andZajac 1996).As noted, ourstrategic change literatures becomeveryapparent. As we have shown, measure captures other changes asidefrom the adoption ofnew majors. intheir these literatures differ language andterminology, However, a four-year interval allowsus to observe resources' effects in their coreconcepts, and in their behavioral assump- on thecreation of newmajors in addition to their effects on other that more ofexisting mamayoccur quickly (e.g.,expansion tions. Theyseekto explain very different organizational changes ofnewfaculty, etc.). outcomes vs. organi- jors,hiring (sustained competitive advantage zational or stability), evenholdfundasurvival andthey of organizations References different viewsof thenature mentally CA. Park, Sage,Newbury Analysis. History P. D. 1984.Event ofproductive resources" vs.an adaptive Allison, (as "a collection clock: the Resetting 1993. Barnett. W. P. Kelly, L., D. T. Amburgey, or an "opensystem"). barsocialorganism Giventhese Sci. Admin. andfailure. change oforganizational The dynamics it is perhaps less surprising that researchers have riers, Quart.38 51-73. to focuson resources or change each tended processes, Dow JonesIrwin, K. R. The Conceptof CorporateStrategy. Andrews, thedistracting effects of the to "holdconstant" seeking IL. Homewood, areunfortunate, suchbarriers as each Ansoff, other. Nonetheless, New York. McGraw-Hill, H. I. 1965. CorporateStrategy. to benefit research tradition clearly stands from greater Astin, Freshman: American 1987.The W. S. Korn. A. W.,K. C. Green, We hopethat theother. ourtheowith communication Institute, Research Education UCLA Higher YearTrends. Twenty someevidence andempirical of retical analyses provide CA. Los Angeles, New and McGraw-Hill, barriers Colleges. andwillhelpmitigate thisbenefit, existing , C. B. T. Lee. 1972.TheInvisible York. at research that locates itself provide direction for future J. advantage. competitive and sustained resources . 1991.Firm ofideas. this intersection important
Acknowledgments
Richard thehelpful ofRanjayGulati, The authors comments acknowledge Harrison,Heather Haveman, Dan Levinthal,Tammy Madsen, Joe Jim BothauNandiniRajagapolan, Mahoney, Wade, and Jim Westphal. thors contributed equallyto thepaper.
andhisoffounding Theeffects change: W. 1989.Strategic Boeker, lens:An option the through 1993.Strategy Bowman, E. H., D. Hurry. and theincrementalinvestments view of resource integrated College colleges? arts ourliberal D. 1990.Arewe losing Breneman, DC. Washington, Institution, Brookings gered. of Education. 1973.A Classification on Higher Commission Carnegie A Clas1987. Advancement ofTeaching. for the Foundation Carnegie NJ. Princeton, tion, intheorganizadependence G. R.,J.B. Wade.1991.Density Carrol, different across industry American brewing ofthe tional evolution Soc. Sci. Res.20 271-302. levelsofanalysis.
Cass, J.,M. Birnbaum.1971-1986. ComparativeGuide to American Cheit, E. F. 1971. The New Depression in Higher Education, McChiCompany, College. AldinePublishing . 1970. TheDistinctive of HigherEducation. CarnegieFoundaof Institutions sification CA. Bass, San Francisco, Institutions ofHigherEducation.Jossey Board Rev. 29 16-21. or EndanSurviving, . 1994. Liberal Arts Colleges: Thriving, Rev. 18 760-782. choice process.Acad. Management J. 32 489-515. Acad. Management tory.
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Endnotes
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How Organizational Resources Affect Strategic Change and Performance in Turbulent Environments: Theory and Evidence Author(s): Matthew

Matthew S. Kraatz * EdwardJ.Zajac

1047-7039/01/1205/0632/$05.00 1526-5455electronic ISSN

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

How Organizational ResourcesAffect StrategicChange

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

StrategicChange ResourcesAffect How Organizational

Resources, Strategic Change,and Performance Organizational

to Learning Resources as Barriers

Resources as Environmental Buffers

ORGANIZATIONSCIENCE/Vol. 12, No.

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

How Organizational ResourcesAffect StrategicChange

ORGANIZATIONSCIENCE/Vol. 12, No.

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

ResourcesAffect StrategicChange How Organizational

Resources' effect on strategic change in turbulent environment BehavioralExplanation

Competencytrap prevents exploration

Loose coupling preventsproblem and recognition search No efficiency explanation None

is statically Exploitation efficient None

Weak High Low Shortterm Clearlyworse

Semi-weak Moderateto high N/A Shortterm worse to no Slightly change

Semi-strong Low to moderate Low Long term better to no Slightly change

Strong Low High Long term Clearlybetter

Trendsin PlannedMajorsofCollege Freshmen

ORGANIZATIONSCIENCE/Vol. 12, No.

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC Figure 3 12000

StrategicChange How Organizational ResourcesAffect

EnrollmentTrends in Public and PrivateInstitutions

. ......... ................... ................... ---._.___

Data and Measures

2001 12, No. 5, September-October

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

How Organizational ResourcesAffect StrategicChange

12,No. 5, September-October 2001

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

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12,No. 5, September-October 2001

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC

StrategicChange ResourcesAffect How Organizational

MATTHEW S. KRAATZ AND EDWARD J. ZAJAC Table 3

How Organizational ResourcesAffect StrategicChange

N F Adjusted RSquared Chi Square

4624 (Org.-years) 0.78 3195.94***

4624 (Org.-years) 39.85*** 0.10

12,No. 5, September-October 2001

N F Adjusted RSquared Chi Square

2001 ORGANIZATIONSCIENCE/VO1. 12, No. 5, September-October

ORGANIZATIONSCIENCE/Vol. 12, No. 5, September-October 2001

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