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Organizational mortality is what SMEs leaders should consider while re-organizing: lessons to learn from large organizations

Jamal A. O. Al Akkad, 2010

SME leaders face tough challenges where they are always on the edge to find creative solutions either for boosting up or at least for survival purposes. Re-organizing their firms is among these issues getting their attention especially when cost, for instance, is a pressuring drive. However, if reorganizing is deemed necessary, endorsing organizational change through a fast track process can be regarded as a high-risk process. Change entails assessment and planning; when these are lacking, severe complications can arise from under-evaluations, miscalculations or underestimating possible consequences. Under the umbrella of the games theory, for instance, Jehiel (2001) states that players are supposed to “form (rational) predictions about what will come in a very distant future as a function of what they currently plan to do”. For this, he calls to investigate the consequence that may arise from limited foresight as it affects the process of strategic communications. Hannan, Polos and Carroll (2004) say, “Reduced foresight matters”. This can lead to underestimate issues such as “the length of reorganization period and thus to underestimate the costs of change”. These factors can, in the worst cases, guarantee the mortality of an organization, due to the absence of needs assessment and a well-defined change plan. Such absence results in chain-of-reaction consequences triggered by the first change.  Per the structural inertia theory of Hannan and Freeman (1984), “the likelihood of change increases once a change occurs”. The chain-of-reaction probability increases once changes have occurred within the core features of an organization, and are usually due to a re-harmonization process or the “reorganization to environmental changes” as Hannan, Polos & Carroll (2007) stated.

It is true that “As time passes, structures stabilize and ties with environments become durable, causing death rates to fall” as stated by Freeman and Carroll (1983). Yet, per Hannan and Freeman (1984), there is a belief that changes in core features of an organization may lead to “an elevated probability of organizational failure and death” while transformations which focus on peripheral changes are less liable to negative consequences. Similarly, change can improve an organization’s performance, as well as degrade it, but it carries risks that may “violate identity codes” (Hannan, Polos, & Carroll, 2007) as in the example of changing curriculums, as this may lead to change several critical structural issues such as “employment models, staffing plans, budgets, and possibly even physical facilities”.

To conclude, two significant issues SMEs leaders may learn from large organizations’ experience in this regard and advisable to keep in mind for the future.  First, is that “initial architectural change in organizations often induces other subsequent changes, generating length cascades of changes in subordinate units” (Hannan, Polos, & Carroll, 2003). Second, is that limited assessment, due to critical situation of complexity and opacity, may deceive organizations leaders as they “easily choose to enter the change that cost far more then the expected benefits of successfully completing the change” (Hannan, Polos, & Carroll, 2004).

Suggested further reading:

Barnett, W., & Carroll, G. (1995). Modeling Internal Organizational Change. Annual Review of Sociology , 21, 217-236.

Hannan, M. T., Polos, L., & Carroll, G. R. (2007). Logics of Organization Theory. New Jersey: Princeton University Press.

Hannan, M. T., Polos, L., & Carroll, G. R. (2004). The evolution of inertia. Industrial and Corporate Change , 13 (1), 213-242.

Hannan, M., Polos, L., & Carroll, G. (2003). The fog of change: Opacity and asperity in organizations. Administrative Science Quarterly , 48 (3), 399-432.

Jehiel, P. (2001). Limited foresight may force cooperation. Review of Economic Studies , 68 (2), 369-391.

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