European Management Journal (2014) 32, 104– 116
journal homepage: www.elsevier.com/locate/emj
The Resilience Architecture Framework: Four organizational archetypes Elena Alexandra Mamouni Limnios Steven G.M. Schilizzi c
a,*
, Tim Mazzarol a, Anas Ghadouani b,
a
UWA Business School, The University of Western Australia, 35 Stirling Highway Crawley, WA 6009, Australia School of Environmental Systems Engineering, The University of Western Australia, 35 Stirling Highway Crawley, WA 6009, Australia c School of Agricultural and Resource Economics, The University of Western Australia, 35 Stirling Highway Crawley, WA 6009, Australia b
KEYWORDS Resilience; Organizational adaptation; Organizational rigidity
This paper extends prior research in organizational resilience, which has failed to recognize that resilience can be a desirable or undesirable system characteristic depending on the system state. We introduce an organizational typology, the Resilience Architecture Framework (RAF), which forms a platform for the integration of divergent research streams – organizational rigidity, dynamic capabilities and organizational ambidexterity – into the study of organizational resilience. We conclude with framework implications and directions for future research. Crown Copyright ª 2012 Published by Elsevier Ltd. All rights reserved.
Summary
Introduction Corporations are complex systems that start their existence as flexible and fragile reeds. Gradually they develop the structure and tactics that enable them to manage the blows of competition and environmental change. Despite recent advancements in the area of complex, socio-ecological systems resilience (Liu et al., 2007) and the exploration of resilience within the field of ecological economics (Brand, 2009; Derissen, Quass, & Baumgartner, 2011), organizational resilience has been inadequately theorized and * Corresponding author. Address: The University of Western Australia, The UWA Business School, 300 Newcastle Street, Perth, WA 6000, Australia. Tel.: +61 404 554854. E-mail addresses:
[email protected], emamouni@ gmail.com (E.A. Mamouni Limnios).
related work appears scattered in literatures of highreliability organizing, organizational learning and human resources management. Resilience often appears not as a component of corporate strategy, but rather as a residual to explain unexpected survival or thrive (Sutcliffe & Vogus, 2003). In this article we attempt to integrate findings from research in socio-ecological systems and organizations in order to develop an operational conceptualization and typology of organizational resilience, providing a platform for a better understating of the evolution of resilience and its relationship to organizational structure, processes and strategy. We will define resilience as the magnitude of disturbance the system can tolerate and still persist, following the seminal work in complex socio-ecological systems by Gunderson and Holling (2001). We shall aim to build on existing theory through a typical method of theory criticism (through
0263-2373/$ - see front matter Crown Copyright ª 2012 Published by Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.emj.2012.11.007
The Resilience Architecture Framework: Four organizational archetypes explication and evaluation) and then theory construction (through emendation and extension) (see Steiner, 1998). As part of theory critical evaluation, we revisit and classify existing approaches to organizational resilience in Section ÔConceptualizations of organizational resilienceÕ of this paper. We illustrate that existing approaches of resilience in the management literature fail to recognize the dual manifestation of persistence as either capacity for adaptive learning or resistance to change. The major consequence of this conceptualization is that resilience is not always a desirable system characteristic and thus cannot be a target in itself. Section ÔResilience as strategic offence vs defenceÕ of this paper aims to extend current theory, offering a new conceptualization of organizational resilience by integrating new literature from socio-ecological systems resilience that has not yet been reflected in organizational resilience works. The Resilience Architecture Framework (RAF) emerges from the theory as a model of organizational typologies, which captures the duality of the resilience construct and provides a platform for the integration of theoretical aspects from divergent research streams such as organizational rigidity, dynamic capabilities and organizational ambidexterity, into the study of organizational resilience. Section ÔThe Resilience Architecture FrameworkÕ of this paper introduces the RAF framework, explores these theoretical relationships and offers case examples to illustrate the applicability of the framework in real life. Finally the last section of this paper discusses how RAF could be implemented, tested and validated in an organizational setting, including the challenge of selecting and applying appropriate resilience determinants and thresholds, as well as the potential contribution of this model to further theory development and practice.
Conceptualizations of organizational resilience Strategic management theory has a distinguished history which has evolved strongly since the early work of Selznick (1948), Selznick (1957) and Penrose (1959). As noted by Hoskisson, Hitt, Wan, and Yiu (1999), the field of strategy has swung like a pendulum from an ‘‘inside’’ perspective focusing on leadership and decision making, to an ‘‘outside’’ perspective led by the industrial economics paradigms of Porter (1981), and back to an ‘‘inside’’ one with the resource based view (Barney, 1986a, 1986b, 1991; Rumelt, 1974, 1984). Research has focused on the firmÕs evolutionary cycle and how resources and dynamic capabilities are dealt with via path dependencies as a means of coping with complex contingencies over time (Eriksson, Majkgard, & Sharma, 2000). The strategic behavior of the firm has been viewed as river flowing through a series of pathways as the organization seeks to adapt to the complexity, change and uncertainty that confront its leadership within competitive market environments (Lamberg & Parvinen, 2003). These analogies have emerged as a means of helping to explain why some firms succeed while others fail, and why seemingly successful firms during one period decline in following years. Our understanding of adaptive and environmental fit has progressed following the trajectories of the works of scholars such as Chakravarthy (1982) and Miller and Friesen (1980). Some attention
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has been given to the application of organizational resilience to strategic human resources management (Lengnick-Hall, Beck, & Lengnick-Hall, 2011). However, there has been little attention given to the lessons that can be obtained from ecological economics and the concept of resilience within the wider strategic management theory. The term resilience originated in the field of ecology (Holling, 1973), but has had a much wider influence, and from the mid-1990s onwards has been applied in multi-disciplinary contexts to study the interactions between people and nature. Academic and practitioner interest in resilience accelerated in the first decade of this century upon the conceptual work of Gunderson and Holling (2001). A new body of research has evolved, focusing on the resilience of complex, socio-ecological systems, with special journal issues appearing in Ecology and Society and Environment and Development Economics (Perrings, 2006; Walker et al., 2006). Despite these recent advancements in the socioecological literature, there is little systematic work on organizational resilience that has received independent attention. Some approaches to organizational resilience are influenced by the engineering definition of robustness, recognizing a single stable state where the system can return after perturbation and are usually applied to improve systems efficiency. Resilience in core physics and engineering is the ability of the system to absorb disturbances and consecutively return to equilibrium. A perfectly resilient system in that respect is for example a perfectly elastic mechanical system, where any energy that is absorbed can be emitted without any losses, returning the system to its previous stable state. Some earlier approaches to ecological resilience also focus on resistance to disturbance and return to equilibrium (Pimm, 1984). Organizational resilience in that context is interpreted as the ‘‘capacity to be robust under conditions of enormous stress and change’’ (Coutu, 2002, p. 52), which is translated into the ability to respond while avoiding engagement in regressive behavior (Horne, 1997) and being able to return to a stable state after disruption (Bhamra, Dani, & Burnard, 2011). The focus of these approaches is in robustness, efficiency and recovery or return to equilibrium, rather than adaptive change. Furthermore, organizational resilience has also been defined as a psychological or behavioral attribute, applied at the individual or collective behavioral level, commonly adopting an agency rather than structural approach. According to this school of thought organizational resilience ‘‘builds on the foundation of the resilience of members of that organization’’ (Riolli & Savicki, 2003, p. 228) and it requires ‘‘people who can respond quickly and effectively to change while enduring minimal stress’’ (Mallak, 1998, p. 8). Various behavioral characteristics have therefore been proposed as contributors to organizational resilience. Examples include HorneÕs (1997) seven streams of behavior; MallakÕs (1998) principles and CoutuÕs (2002) organizational resilience characteristics, being a staunch acceptance of reality, a deep belief that life is meaningful and the uncanny ability to improvise. There is some merit in this research stream, which aims at the development of a social system of collaboration and participation that is able to respond to change (Diamond, 1996). However, these interpretations do not link behavioral responses to complex system dynamics.
106 Viewing resilience as adaptability in the context of being able to ‘‘rebound from adversity strengthened and more resourceful’’ (Sutcliffe & Vogus, 2003, p. 97) is observed in the literature of high reliability organizations (HROÕs). HROÕs are organizational systems in which reliability is a more pressing issue than efficiency, as failures can escalate rapidly causing wide scale damage (Weick, 1987). Examples of such systems include nuclear power generators, aircraft operations, air traffic control systems, emergency medical treatment, continuous processing firms and wildland firefighting crews (Weick & Sutcliffe, 2001). The unique characteristic of such organizations is that exploration is not an alternative option for organizational learning due to the prohibitively high cost to failure ratio. This consecutively leads to the development of an array of adaptive strategies such as decentralized decision making dynamics that allow ‘‘migration’’ of decisions in search for the person of higher expertise or tenure on the job (Roberts, Stout, & Halpern, 1994) and a ‘‘reluctance to simplify interpretations’’ coupled with high ‘‘sensitivity to operations’’, which result in well-developed situational awareness and the acknowledgement of troublesome situations in their infancy (Weick & Sutcliffe, 2001). Failures within HROÕs do take place, there are however sophisticated structural and cultural mechanisms in place to reduce the number of such occurrences or manage to contain them within smaller scales, avoiding large scale collapse. HROÕs have successfully developed a pattern of organizational mindfulness, whereby they systematically ‘‘preserve detail, refine distinctions, create new categories, draw attention to context, and guard against misspecification, misestimation, and misunderstanding’’ (Weick & Putnam, 2006, p. 284). It is important to note that HROÕs achieve high reliability at a technical level. The challenge lies in transferring learning from the operational to the strategic level. In doing so one must be aware of the differences in cost to failure ratios as well as the increased complexities and interrelations when dealing with larger-scale complex system management. Organizational resilience has more recently been examined as the ‘‘primary strategic purpose of complexity logic’’ (Lengnick-Hall & Wolff, 1999, p. 1118), viewing complexity as an independent research stream, where predictability and control over market conditions is limited and where small changes in initial conditions can result in great variety of outcomes. The objective of survival is differentiated from the improvement of performance, with some researchers advocating the need for a dual management mode, where the linear success criteria are applied in stable conditions, whereas resilience criteria substitute those in conditions of turbulence (Dervitsiotis, 2003). Others conceive resilience-focus management as a continuous anticipation and adjustment to disturbances that can permanently impair the earning capacity of the corporation (Hamel & Valikangas, 2003). In all cases however, management for resilience diverges from optimization and requires the development of the ability to balance efficiency and adaptability, ‘‘unity and diversity’’ (Hamel & Valikangas, 2003, p. 63). This research stream is influenced by emerging literature in socio-ecological systems resilience, which accepts increased fluctuation and transformation between multiple equilibrium states, shifting the focus of enquiry from systems efficiency and return to equilibrium to maintenance
E.A. Mamouni Limnios et al. of critical system functions and processes (Gunderson & Holling, 2001; Holling, 2001). Whether scholars refer to complex systems survival, system adaptation, absorbance of disturbance, or robustness and ability to rebound and recover from adversity, organizational resilience is always approached as a positive and desirable concept or system characteristic. In that sense all previous approaches of organizational resilience have something in common. Table 1 provides a summary of major contributions to the organizational resilience literature, illustrating the difference in conceptual focus and context of analysis, whilst adopting a common positive connotation of the construct.
Resilience as strategic offence vs defence Although resilience is also approached as a positive construct in the majority of socio-ecological systems literature (Cumming, Cumming, & Redman, 2006; Folke, 2006; Folke, Hahn, Olsson, & Norberg, 2005; Lebel et al., 2006; Liu et al., 2007; Olsson, Folke, & Berkes, 2004), some researchers have highlighted that unlike sustainability, resilience can be desirable or undesirable depending on the system state (Carpenter, Walker, Anderies, & Abel, 2001; Derissen et al., 2011). For example, system states that decrease social welfare, such as polluted water supplies and dictatorships, can be highly resilient (Carpenter et al., 2001). Similarly, large organizations that fail to satisfy key stakeholdersÕ needs can be very resilient and maintain an underperforming system state for extended periods of time. Derissen et al. (2011) discuss the complex relationship between the dynamic concept of resilience and the normative concept of sustainability, which captures ideas of human wellbeing, intra- and intergenerational justice. They conclude that ‘‘resilience is neither desirable in itself nor is it in general a necessary or sufficient condition for sustainable development’’ (Derissen et al., 2011). Referring to the work of Gunderson and Holling (2001), we observe that they measure resilience by the magnitude of disturbance the system can tolerate and still persist. High levels of resilience can therefore be due to the systemÕs adaptive capacity, where the system reacts to disturbance by changing its structure, processes and functions in order to increase its ability to persist. Adaptive capacity is often used interchangeably with resilience in the literature of complex socio-ecological systems. However, a system may also be very resilient due to its ability to resist change and maintain its current structure and processes. In this case the system is able to tolerate disturbance and absorb shocks rather than adapt to change. Differentiating between these two opposing manifestations of resilience as either offence (adaptation) or defense (resistance) to internal or external disturbance is critical, especially in organizational systems, where these attributes assume a strategic character and can be influenced and adjusted upon a better understanding of the system state and condition. Organizations exhibit a combination of both adaptive capacity and resistance to change. It is obvious that an organization cannot change its tactics as a reaction to each slight change of the environment it operates in, and it is also not able to remain static, as it will necessarily evolve
Resilience: a positive construct in organizational literature.
Focus • • • •
Robustness Recovery Efficiency Single system state
Context
Positive connotations of resilience conceptualization
Researchers
Human resources Mgt/Psychology/ Organizational Behavior
Resilience is one of the ‘‘ four positive psychological resources’’ that compose an individualÕs psychological capital, it has a ‘‘positive impact on attitudes, behaviors and performance’’ Resilience is a process that leads to ‘‘superior outcomes’’, a form of ‘‘spontaneous prevention from risk that occurs without outside intervention’’ Resilience as ‘‘the ability to adapt and strengthen in the face of challenge, trauma, or stress’’ Resilience as the ability to ‘‘rebound from adversity strengthened and more resourceful’’ Resilience as one of the ‘‘signs of life in organizations’’ Resilience as the ‘‘capacity to be robust under conditions of enormous stress and change’’, ‘‘more than education, more than experience, more than training, a personÕs level of resilience will determine who succeeds and who fails’’ ‘‘for an organization to be resilient, it needs people who can respond quickly and effectively to change while enduring minimal stress’’, ‘‘these positive adaptive capabilities are what differentiate the competition’’ Resilience is ‘‘the ability of the system to withstand the stresses of environmental loading’’, ‘‘it allows a positive response to significant change. . .without resulting in regressive/ non-productive behavior’’ Resilience is the ‘‘capacity to absorb the impact and recover from drastic environmental change associated with weather extremes’’ Resilience as ability to return to stable equilibrium and avoid the tipping point
Avey et al. (2011); Luthans and Youssef (2007)
Environmental change/ Disaster management
Brodsky et al. (2011)
Gallos (2008) Sutcliffe and Vogus (2003) Dutton (2003) Coutu (2002)
Mallak (1998)
Horne (1997), Riolli and Savicki (2003)
The Resilience Architecture Framework: Four organizational archetypes
Table 1
Linnenluecke and Griffiths (2010)
Rudolph and Repenning (2002) (continued on next page)
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108
Table 1 continued Focus • • • • •
Adaptation Transformation Complexity Renewal Maintain function Multiple system states
Context
Positive connotations of resilience conceptualization
Researchers
Human Resources Mgt
Resilient organizations are ‘‘able to maintain positive adjustments under challenging conditions’’, they ‘‘actually thrive and become better’’ Resilience is ‘‘an analytical category for building corporate adaptation strategies’’ Resilience as ‘‘a solution to organizations facing high levels of threat in all aspects of their operating environment’’ Resilience is closely related to adaptability, ‘‘investments counter to eco-efficiency’’ can be important for sustainability and resilience building Organizational resilience as a ‘‘means to develop organizational systems capable of overcoming this complexity within turbulent environmental conditions’’ Resilience capacity is ‘‘a unique blend of cognitive, behavioral, and contextual properties that increase a firmÕs ability to understand i ts current situation and to develop customized responses that reflect that understanding’’ Resilience is ‘‘the capability to self-renew over time through innovation’’ Strategic resilience is ‘‘ the ability to dynamically reinvent business models and strategies as circumstances change’’, it requires ‘‘alternatives as well as awareness-the ability to create a plethora of new options as compelling alternatives to dying strategies’’ ‘‘organizations must adopt a dual management mode to accommodate periods of stability and periods of turbulence’’, resilience is required ‘‘to enable a transformation to survive in new and unclear competitive business landscapes’’
Lengnick-Hall et al. (2011)
Environmental change/ Disaster management
Strategic Management/Strategic Change
Beermann (2011) Sullivan-Taylor and Wilson (2009) Korhonen and Seager (2008)
Burnard and Bhamra (2011)
Lengnick-Hall and Beck (2005)
Reinmoeller and van Baardwijk (2005) Hamel and Valikangas (2003)
Dervitsiotis (2003)
E.A. Mamouni Limnios et al.
Rigidity Quadrant
Adaptability Quadrant
System mode: Denial Characteristics: Exploitation, High internal connectedness, Low selforganizing ability Relevant concepts: Architecture of simplicity, routine rigidity, dysfunctional momentum
System mode: Adaptive Characteristics: Balancing exploration and exploitation, High selforganizing ability Relevant concepts: Dynamic capabilities, organizational ambidexterity, functional momentum
Transience Quadrant
Vulnerability Quadrant
System mode: Uncertainty Characteristics: Exploration, Low external connectedness, High selforganizing ability Relevant concepts: Early phase in organizational development, radical change
System mode: Situational Dependence Characteristics: Exploitation, High external connectedness, Low selforganizing ability Relevant concepts: Resource rigidity
Low
Figure 1
Desirability of system state
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Their state is termed a ‘‘rigidity trap’’, which is contrasted to a ‘‘poverty trap’’, the latter being the case of a system with low potential (system wealth) and low connectivity, still exhibiting high resilience and thus maintaining its maladaptive state. Polluted ecosystems, natural systems that have lost their diversity, and social systems traumatized by social disruption or conflict and have lost their cultural cohesion and adaptive abilities are examples of systems operating in the poverty trap. This condition is less applicable to organizational systems, which being man-made systems will not be highly resilient in such circumstances of low connectivity and internal capital. They are more likely to enter a reorganization phase or fail to survive.
Resilience dimensions
Low
Resilience
High
The Resilience Architecture Framework: Four organizational archetypes
High
The Resilience Architecture Framework (RAF).
through time, even if it has a tendency to adapt towards momentum (Miller & Friesen, 1980) by re-enforcing its strategies rather than adapting them to its environment. The interchange between adaptability and pervasive momentum has been widely studied in the literatures of organizational adaptation and learning and it relates to the adoption of exploitation (i.e., improving efficiency of existing skills) or exploration (i.e., looking for new possibilities) processes of organizational learning (March, 1991; March & Weil, 2005). Organizations that balance exploration and exploitation are able to continuously scan their environment and identify the need and opportunity to change when it presents itself, while maintaining and evolving the key organizational capabilities. Such organizations are resilient through a balanced combination of strategic offense and defense, operating in a highly desirable system state. However, incremental successes achieved through exploitation tend to discourage exploration, and have thus been proven to result in cycles of exploitation reinforcement (March, 1991). This can take place both at the organizational and the individual employee level, leading to the formation of rigid monocultures. Such systems maintain a narrow strategic focus and employ minimal adaptation which is incremental in nature. The benefits of this tactic decrease with time, and have been advocated to ultimately trigger corporate failure (March, 1991; Miller, 1990; Miller, 1993). In such cases resilience is exhibited due to the systemÕs ability to resist change and persist and becomes an undesirable system characteristic, as it prevents the system from entering a phase of change, and retains its current, suboptimal state. It is worth noting that in complex socio-ecological systems literature, the manifestation of resilience as resistance to change is treated as an exception to the norm and is not therefore integrated in the generic approach, which views a resilient system as creative and adaptive. Such systems are termed maladaptive and are considered to display ‘‘a kind of perverse resilience’’ (Holling, 2001).
It becomes evident that resilience cannot be a target in itself, which is how the concept has been primarily approached in organizational research. The strategic use of the concept will depend on whether at the time of examination resilience is a more or less desirable system characteristic. For example, underperforming or vulnerable organizations and their stakeholders benefit by entering a phase of change, a new regime, rather than maintaining their current functional state. We therefore advocate than when assessing organizational resilience one should consider two critical dimensions: the ‘‘magnitude dimension’’, which refers to the level of the systemÕs resilience (higher or lower levels of disturbance the system can tolerate and still persist); and the ‘‘desirability dimension’’, which refers to the level of desirability of the system state (more or less desirable system state at its current functional level). We note that the magnitude of resilience will depend primarily on the characteristics of the organizational system and its ability to interact with its environment in an either ‘‘offensive’’ (adaptive) or ‘‘defensive’’ (reactive) way and still persist. The development of organizational resilience criteria and rating scales would be necessary to result in a consistent way of evaluating the level or magnitude of resilience as further discussed in Section ÔFuture research: testing and validating RAFÕ of this paper. The desirability dimension effectively introduces a stakeholder perspective when assessing organizational resilience. The organization can be approached as an open system that interacts with its socio-ecological environment. It is therefore a nested system within a wider network of organizational stakeholders, which can include individuals, institutions, social networks and natural systems (the latter also referred to as silent stakeholders). System desirability is therefore dependent upon the perspectives of internal actors (such as employees, management and shareholders), as well as external actors that operate in the market, the technical–economic and the scientific sub-environments (Lawrence & Lorsch, 1967). The network of external organizational stakeholders could therefore include customers, suppliers, competitors, financiers, government and community agents, all of which directly or indirectly influence the organization. Consideration of organizational resilience thus requires a clear definition of the boundaries of the organizational system, as networks of interrelated
110 actors will not always coincide with their legal boundaries. Some large corporations for example may have subdivisions that pursue diverse strategic goals, thus encompassing a number of organizational sub-systems. On the other hand, franchise, co-operative, and horizontally or vertically integrated business structures (such as the Japanese keiretsu), can be classified as single organizational systems.
The Resilience Architecture Framework When examining organizational systemsÕ magnitude of resilience against desirability of system state we observe that: • High magnitude – low desirability: High resilience assumes a primarily defensive character (resistance to change) when the system operates at an undesirable system state. Processes and defense mechanisms have built system rigidity and the current functional state is maintained despite evidence that the system is not operating at a desirable state for key organizational stakeholders. • High magnitude – high desirability: High resilience assumes a primarily offensive character (adaptability) when the system operates at a desirable system state. This is the dominant conceptualization of organizational resilience in the management literature as it has been this far associated (only) with a desirable system state. This simple, however powerful, realization has led to the emergence of the Resilience Architecture Framework (RAF), which considers the interaction of resilience manifestation and desirability of system state (Fig. 1). By doing so, RAF provides a useful typology of organizational resilience. In the following sections we identify the characteristics of four organizational archetypes as they relate to the frameworkÕs quadrants and draw the connections to relevant organizational management literature. The conceptual RAF model is a theoretical model that is devised from theory, ‘‘so that theories can impact upon practical decision-making’’ (Steiner, 1998, p.9). In our analysis below, we therefore provide empirical examples of organizations operating in each quadrant in order to illustrate the applicability and potential use of the framework in practice. Although we use multiple examples, we refer to two famous cases, Enron Corporation and IBM, throughout our analysis, in order to demonstrate that the framework captures organizational transformation between various states over time.
Adaptability quadrant Systems in the adaptability quadrant enjoy prosperity and exhibit high levels of resilience in the form of adaptive capacity. They have developed a set of dynamic capabilities which result in a strategic ability to adapt, integrate, and reconfigure internal and external organizational skills, resources, and functional competences to match the requirements of a changing environment (Teece, Pisano, & Shuen, 1997). Their business model satisfies the majority of stakeholder needs, through the establishment of win–win relationships and successful negotiations that generate a high level of stakeholder consent over corporate activities.
E.A. Mamouni Limnios et al. These companies have developed appropriate structures and processes that enable them to assess their internal and external environment and successfully innovate and adapt through a balance of exploitation of existing competencies and exploration of new capabilities, achieving what Miller and Friesen (1980) describe as functional momentum. A closely related concept in organization theory is the notion of the ambidextrous organization, which suggests that superior performance is expected by organizations that are capable of simultaneously applying exploration and exploitation (Tushman & OÕReilly, 1996). Raisch, Birkinshaw, Probst, and Tushman (2009) in their introduction to a special issue on organizational ambidexterity highlight that research in organizational ambidexterity has this far adopted a static perspective to organizational behavior, examining static configurations associated with this ideal system state. The need to examine the dynamic processes underlying the emergence of ambidexterity was stressed, as well as the significance of complex social networks that determine a firmÕs ability to integrate internal and external knowledge in this process. Companies may operate in the adaptability quadrant for various periods of time, from a few years to whole decades. IBM, for instance, was functioning in the adaptability quadrant in the 1970s and until the early 1980s. At the time the company was the world leader in computer manufacturing and the best example of a vertical integrated organization, with almost all stages of design, production and commercialization of semiconductors, hardware, operating systems and application software remaining internal to the firm (Dittrich, Duysters, & De Mand, 2007). IBM effectively built on its success in selling to the corporate market in the Fifties and Sixties. High stakeholder satisfaction was coupled with structures and processes that combined market power in the three areas of technology, production and distribution, in order to dominate all competition and create profound customer loyalty (Heller, 1995, pp. 88–89). Another example of a company passing through this quadrant, however eventually failing to survive in the longer term is that of Enron Corporation. The company after a restructure in the late 1980s embraced the deregulation of the gas industry and built its strategy around it. The creation of the Gas Bank, the innovative introduction of financial arrangements known as Volumetric Production Payments with oil and gas producers and the development of long-term gas contracts with power plants boosted corporate growth. Market capitalization rose from $2.65 billion at the start of 1990 to $8.26 billion in 1994 (Fox, 2003, p. 42). An innovative gas, electricity and financial trading company, Enron revolutionized the energy industry, expanding the use of derivatives, introducing new ways of managing risk and lowering the costs of energyrelated transactions for businesses. In addition to resilient structure and strategic decision making the company enjoyed high stakeholder satisfaction. A 1996 poll by Fortune magazine characteristically named Enron as the ‘‘most admired company in America’’ (Fox, 2003, p. 75). Enron remained in the adaptability quadrant until the late 1990s.
The Resilience Architecture Framework: Four organizational archetypes
Vulnerability quadrant Systems in the vulnerability quadrant achieve stakeholder satisfaction, but only under specific conditions, which make them vulnerable to change. These conditions may be external, internal, or a combination of both. While their situational dependence is concealed, such systems can temporarily disguise their vulnerability. Situational dependence can be caused by underinvestment in exploration. A related concept in organizational theory is that of resource rigidity (Gilbert, 2005), which materializes due to resource dependency and incumbent reinvestment incentives. In such cases, external resource providers and market forces shape and constrain the systemÕs strategic choices, resulting in the observed unwillingness to invest. According to Gilbert (2005), in the face of threat to the existing business model, organizations experiencing resource rigidity tend to exit inertia and unlock resources. Systems operating in the vulnerability quadrant are therefore susceptible to external disturbance such as: government actions, shift in demographics, sociocultural perception, technology development, changes in the natural environment, capital market shifts, labor market shifts and regulatory changes (Johnson, Scholes, & Whittington, 2005). Examples here include technological and socio-cultural changes that have historically been detrimental to entire industries, such as the invention of the cassette that drove the vinyl industry obsolete (Manuel, 1991) and the socio-cultural and legal changes in the western world that greatly impacted the international tobacco industry (Feldman, 2006). Current examples include the impact of climate change on agricultural businesses operating in marginal climatic environments, as well as carbon intensive industries that are being adversely affected by economic regulation and public pressure. Another recent example is the effect of the 2008 credit crisis on the automotive industry, making evident that a number of key players were functioning in the vulnerability quadrant, as entire production and supply chains were highly dependent on the availability of credit. In addition to the above, companies may operate in this quadrant due to internal undisclosed dependencies, commonly surfacing as cases of corporate fraud and corruption. Following the previous example of Enron Corporation, the company was functioning in the vulnerability quadrant from the late 1990s until the period prior to August 2001. On the surface the company was highly successful, expanding in various industries, investing in international projects and reporting continuously increasing profits repetitively exceeding analystsÕ expectations. Consecutively, Enron enjoyed high stakeholder satisfaction, being named in a 2000 survey of Fortune magazine the ‘‘most innovative U.S. company’’ for the fifth straight year (Fox, 2003, p. 189). EnronÕs revenue growth was however engineered by a number of accounting strategies. Firstly, the use of markto-market accounting allowed Enron to book all the profits up-front from 2-year up to 20-year deals. Secondly Enron built a web of Special Purpose Entities, partnerships which were considered independent for accounting purposes and could therefore carry some of EnronÕs debt and allow the mother company to present a much healthier financial statement, concealing increasing amounts of debt associated with their non-core businesses. Thirdly, the company
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used a gap in the accounting rules that did not specify how to account for energy trading to often book the full value of transactions as revenue, rather than the gross profit they made in each deal (Fox, 2003, p.221). In 1999 the Board of Directors went one step further and waived the ethics code to allow the CFO to manage one of these partnerships, a practice that was later repeated, allowing some Enron employees and their circle of friends to invest in these ventures. EnronÕs leadership failed to control personal egos and greed that was fostered by the aggressive corporate culture they developed, setting the bar higher and higher quarter after quarter. They concealed corporate losses, misleading analysts and investors and in some cases made decisions to the benefit of their own investments to the detriment of the mother company, consecutively placing Enron in the vulnerability quadrant. Similarly, the successful oil giant Yukos Oil Co was operating in the vulnerability quadrant prior to 2003, when the Russian government seized a stake totaling 44 percent of the organization. This happened after the arrest of its chief executive officer for fraud and tax evasion. Some analysts believe that the case was political, as he had funded opposition groups, breaking the tacit agreement he had with the government that prevented financial investigations (Johnson et al., 2005). In both cases companies were able to disguise their vulnerability and illegal behavior until there was a change in the external environment (i.e., stock market drop and financial analystsÕ enquiries in the former case and political environment in the latter) resulting in disclosure of corrupted leadership and thus reduced resilience.
Rigidity quadrant Systems in the rigidity quadrant are not satisfying the needs of a significant portion of their stakeholders. There are obvious signs of decline in the systems performance, which can take many forms such as sales, profitability or productivity decline, increased employee turnover, customer dissatisfaction, public perception decline, etc. However, despite these signs, the system remains in denial, unable to enter a phase of change and reorganization. This is either because it has managed to develop defense mechanisms, processes that maintain current structure and functions, or because it does not have the sufficient capital to instigate and support the restructure. Such systems may manage to survive in these conditions for long periods of time, although they are commonly ‘‘accident[s] waiting to happen’’ (Holling, 2001, p. 396). They are caught in a rigidity or poverty trap and can suddenly collapse upon a disturbance. Resilience in these cases is an undesirable system characteristic; systems exhibit a ‘‘dysfunctional momentum’’ (Miller & Friesen, 1980), prolonging adaptation and survival in a rigid state, commonly decreasing the chances of successful transformation upon unexpected disturbance. This is in line with recent quantitative analysis of firms exhibiting extreme performance. Arend (2010) finds that most failing firms do not accelerate in their decline. Dysfunctional firms ‘‘reveal a resilience to decline’’ (Arend, 2010) as they continuously decelerate and only very close to complete failure do they experience the death-spiral described in several cases in the literature.
112 Adaptive organizations can fall in the rigidity trap by continuously reinforcing successful strategies of the past, failing to identify changing market conditions. This condition has been termed routine rigidity (Gilbert, 2005), as it stems from an inability to change the patterns and logic that underlie organizational investments. These companiesÕ success becomes their own downfall, a phenomenon known as the Icarus paradox (Miller, 1990). The development of rigid monocultures and narrow strategic focus is in such cases commonly supported by overreliance on exploitation for organizational learning. Typical cases of companies falling in the rigidity trap include IBM from the mid-1980s to 1993 and The Ford Motor Company in the 1920s and 1930s. Both companies formed rigid structures and did not enter a transformation stage, although signs of stagnation were obvious. IBM developed a narrow focus on internal procedures aiming on efficiency increase and quality improvements, failing to develop effective strategies to cope with emerging competition. An extremely bureaucratic corporate structure emerged, limiting responsiveness to market needs. As a result, management remained attached to mainframe computers, overlooking the potential of the PC to be extensively used by enterprises. They failed to prioritize the emerging PC market, giving control over the operating system to Microsoft and the microprocessor to Intel (Dittrich et al., 2007). Stagnation was obvious through its sharply declining market share, as well as its declining financial position with a debt equal to 73 per cent of stockholdersÕ equity as early as in 1991 (Heller, 1995, pp. 96–97). Similarly, Ford Motor Company failed to adapt to a changing environment between the two world wars, where the market had slowed down and moved from first time buyers to replacement buyers. Autocratic, over-centralized management did not respond to these changing conditions, despite clear suggestions for the need for change by certain executives as early as in 1926 (Watts, 2005). In addition to losing market share, the companyÕs rigid internal structure caused the dissatisfaction of employees and dealers (Nevins & Hill, 1963). Even after registering great losses in the 1930s, the company did not enter an extensive reorganization until Henry FordÕs succession in 1945.
Transience quadrant Systems in the transience quadrant experience a highly uncertain future. They commonly undergo structural or procedural changes in an effort to adapt to external disturbances. There is a distinction here between systems that are flexible and adaptable to external disturbances and therefore have high levels of resilience, and systems in this quadrant. Although very flexible, transient systems are highly unstable and may either achieve adaptation or may fail to adapt. In the case of failure the system may reach complete destruction or may transform to a system of lesser productivity. Companies in their early life-cycle commonly pass through this quadrant, as they have not yet achieved high levels of stakeholder satisfaction, nor resilience. Also companies that go through substantial reorganization and restructuring may pass through this stage for longer or shorter periods of time, depending on the ability of the
E.A. Mamouni Limnios et al. change process to minimize risk of failure and maintain a level of resilience. One of the ‘‘most impressive strategic repositioning programs in the history of business’’ is that of IBM, taking place in the mid and late 1990s (Dittrich et al., 2007). In the early 1990s many analysts had lost faith in the companyÕs ability to survive the downturn, and IBMÕs stock was the lowest it had been since 1983 (Harreld, OÕReilly, & Tushman, 2007). The appointment of Lou Gerstner as CEO in 1993 signaled an era of dramatic change. The company transformed from a hardware manufacturer to a global service provider and software company. Management foresaw the emerging internet market, invented the term e-business in 1997 and embarked on an aggressive advertising campaign, branding themselves as leading service and consultancy providers in this space (Pettit, 2009). In addition to that, a radical culture shift from exploitation to exploration took place, refocusing strategy development towards sensing and seizing opportunities (Dittrich et al., 2007; Harreld, OÕReilly, & Tushman, 2007). IBM went through a turbulent period of uncertain future, however emerged renewed with much higher adaptive capacity. A passage through the transformation quadrant can however also be detrimental to the long term survival of the company. In August 2001 upon the sudden resignation of its CEO, Enron Corporation entered the transience quadrant. The weaker stock market impacted EnronÕs financial health, forcing management to buy off some of the Special Purpose Entities and pay off their debt. This required Enron to account for some of the off-balance sheet items, taking a charge of $1 billion for poorly performing businesses on their October statement (Jickling, 2002, p. 112), an event that triggered a review of the companyÕs financial statements by the U.S. Securities and Exchange Commission. Stakeholder satisfaction was slowly declining throughout this period; it became however permanently impaired by the restatement of EnronÕs financial results on the 8th of November. It revealed an overstatement of earnings by $586 million over 4 and years, and an increase of $2.59 billion of the companyÕs debt (Fox, 2003, p. 276). The CFO was removed, but this resulted in a further loss of business in the trading operation. EnronÕs upper management struggled to restructure the organization, actively pursuing a last-minute merger, which fell through as analysts reduced its credit rating to below-investment-grade. Management failed to maintain both stakeholder satisfaction and financial health. With assets of roughly $62 billion, Enron filed for bankruptcy on the 2nd of December 2001 (Fox, 2003, p. 2). At the time it was the largest bankruptcy in U.S. history.
Future research: testing and validating RAF More empirical work is needed to test and validate RAF across a range of socio-economic and industry environments. Ideally historical case study applications should be sought, instead of two or three snapshot corporate studies, as this would allow capturing dynamics of change over time. The work of Miller and Friesen (1977, 1980, 1983) is a characteristic example of how histories of organizations can be scored to result in typology classifications in the field of corporate management (in their case examining the stages of
The Resilience Architecture Framework: Four organizational archetypes an organizationÕs lifecycle), and relationships between them explored. The consistency of classification within RAF is dependent upon a consistent approach for assessing resilience levels. Various quantitative or qualitative tools (e.g. stakeholder surveys, in-depth interviews) are available to be deployed to assess the desirability of system state. The development of a consistent set of organizational resilience determinants however will require further theoretical and empirical work. Research in socio-ecological systems indicates that a systemÕs resilience is controlled by a few key system variables. In the case of ecological resilience these variables are slow changing (e.g. soil, sediment concentrations, or longlived organisms), whereas social resilience can be controlled by either slow (e.g. culture) or fast-changing variables (e.g. technology) (Walker et al., 2006). When a threshold level of a controlling variable is crossed, the system shifts to a different structural and functional state, a different system regime (Scheffer, Carpenter, Foley, Folke, & Walker, 2001). Despite the importance of these variables and their respective thresholds as drivers of regime shifts, they are highly system and context specific and thus their applicability is limited for cross-disciplinary work. Furthermore, resilience as a dynamic property depends on various system characteristics, which can alter the position of a threshold along a determining variable, as well as change the difficulty by which the system may approach the threshold. The following research questions therefore arise: ‘‘Is a threshold an emergent property of some underlying set of attributes of a system? Is there a relationship, for example, between the network topology of a system and the likelihood of a threshold?’’ (Walker & Meyers, 2004, p. 13). Further work on RAF applications should therefore consider in parallel (a) thresholds as drivers of regime shifts, and (b) key system characteristics that influence the level of resilience (magnitude) and the position of such thresholds. These system characteristics can be structural system elements, such as actorsÕ connectivity (Kolb, 2008; Mason, 2005; Oliver 1997) and centrality (Friedkin, 1993; Ibarra, 1993; Sparrowe, Liden, Wayne, & Kraimer, 2001), or functional elements such as capacity of self-organization (Lichtenstein, 2000; Rycroft & Kash, 2004), learning and trust (Jarillo, 1993). RAF has in this article been proposed as a theoretical typology framework that is applied at the holistic organizational level. Further testing and validation could explore applications at various sub-levels, which would be feasible with the appropriate definitions of system and sub-system boundaries. RAF has the potential to therefore enable a better understanding of sub-system dynamics that may evolve in small or regional scales and aggregate to influence the whole system. Recognition of the first signs of vulnerability or rigidity at smaller system scales could potentially enable timely responses at smaller scales and avoidance of extensive system rigidity or collapse. Historical analysis through RAF has finally the potential for new theory development. Organizational pathways can be studied and hypotheses developed and tested regarding the drivers of movement between organizational typologies. An array of likely movement sequences could emerge, depending on various internal and external organizational parameters. Bhamra et al. upon an extensive review of
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organizational resilience literature conclude that ‘‘more real world-based research needs to be done’’, as ‘‘empirical research that uses case-based methods focusing on the organization are currently few’’ (Bhamra et al., 2011, p. 5388). RAF is a theoretical framework that enables empirical research on organizational resilience, with implications both for practice and for theory development.
Concluding remarks Despite the difficulties of ‘‘living forward’’, confronting system complexities and dealing with emergent system properties, we need to address those issues in our theoretical models and their applications. To achieve that we should address multiple system scales and conduct longitudinal analysis, situating phenomena in their historical contexts (Meyer, Gaba, & Colwell, 2005). The Resilience Architecture Framework provides a basis for further theory development and applications in this direction. This article extends prior research on organizational resilience, by (1) differentiating between two opposing manifestations of resilience as either offence (adaptation) or defense (resistance) to internal or external disturbance, and (2) recognizing that unlike sustainability, resilience can be desirable or undesirable depending on the system state. We have illustrated how this dual conceptualization of organizational resilience within RAF allows for the integration of theoretical aspects from divergent research streams such as organizational rigidity, dynamic capabilities and organizational ambidexterity into the study and understanding of organizations. Further research is needed to further test and validate RAF and identify the drivers of movement within the framework. RAF historical case study analysis at corporate and industry levels can provide useful insights and understanding of system dynamics, enabling managers to identify early signs of rigidity or vulnerability and instigate timely transformations at smaller scales to achieve learning and adaptation at larger system scales. Small scale innovations and failures should be managed with the view to alleviate any potential innovation trauma and gradually build the conditions for learning from failure (Valikangas, Hoegl, & Gibbert, 2009). RAF analysis can take place at various temporal and spatial scales, embedding the organizational network into the larger socio-economic and ecological networks, in order to study cascading effects of resilience between various system types.
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TIM MAZZAROL is a Winthrop Professor at the UWA Business School, University of Western Australia where he teaches and researches in the fields of entrepreneurship, innovation, small business, marketing and strategy. His work has been published internationally. He is a qualified practising market researcher (QPMR) as recognised by the Australian Market and Social Research Society (AMSRS), and also the Director of the Centre for Entrepreneurial Management and Innovation (CEMI). Tim is also a Fellow of the Australian Institute of Management and a member of the executive committee of the Small Enterprise Association of Australia and New Zealand (SEAANZ). He is also an Affiliate Professor at the Burgundy Business School, Groupe ESC Dijon Bourgogne, France.
ANAS GHADOUANI is a professor of Environmental Engineering at the School of Environmental Systems Engineering at The University of Western Australia. His research interest include Environmental engineering, Ecological Engineering and Aquatic Ecology and Ecosystem Studies. He is interested in cross-disciplinary research linking society and environmental issues. His research aims to understand the impact of human activities on environmental health.
STEVEN SCHILIZZI is a Professor at the School of Agricultural and Resource Economics at The University of Western Australia. He holds a Baccalaureat in Math and Physics, a Bachelor in Law, a Master in Sociology and a PhD in (Energy) Economics. Steven is widely published and his research interests include: farming and aquaculture systems, energy analysis, bio-economic modelling, experimental economics, market-based instruments: competitive conservation tenders, equity in economic analysis and policy assessment, economics of subjective quality, and environmental management by business.
