Bruce Kogut

Red Queen Dynamics and Organizational Design: Does Convergence in Performance Lead to Convergence in Form?

Coauthor(s): John Paul MacDuffie, Frits Pil, Charles Ragin.

Abstract:

The Red Queen dynamic predicts that organizations will converge in performance, forcing leaders to run harder just to maintain their position. However, do organizations converge in form as well? We draw on unique longitudinal data from the world auto industry to track change over time in manufacturing performance and practices. Using a fuzzy set methodology, our results confirm a Red Queen dynamic but reject a convergence in form despite isomorphic pressures to conform. Instead, divergence in form brings another consequence: increasing complexity for the organizational system as the performance dimensions upon which plants compete ramify.

We study the competitive response in the world auto industry to a massive productivity gap created by the disruptive innovations of the Toyota Production System (TPS). Despite pressures to imitate TPS, we find only a subset of plants, during the period of 1989 to 2000, that either persist in adhering to the Toyota prototype or move towards it. Instead, a larger number of plants choose to improve from the starting point of their existing capabilities, in a configuration we label "Efficient Mass Production." These plants largely, but not entirely, close the gap with the TPS configuration in productivity and, to some extent, quality. Yet in the process, the Efficient Mass Production plants make choices that leave them less able to compete along a new performance dimensions, namely product variety. Thus the TPS leaders innovate upon their capabilities in order to open a new lead over their faster-moving rivals. Taking on this increased complexity may offer competitive advantage, but also requires further development of managerial capabilities.

Our results support the viability, emerging from Red Queen competition, of multiple prototypical ways to compete successfully. Certain equilbria marked by high complementarities among practices attract organizations, limiting the prototypes that emerge in practice. We find that innovation in capabilities that shift the terms of competition, not a search for homeostatis, drives the movement of organizations towards these equilibria. As competition drives an increase in complexity, there is a risk to laggards who may catch up in one race while handicapping themselves in another, but also a risk to leaders who must make sure their capabilities are continually evolving to keep pace with complexity demands.

Source: Working Paper
Exact Citation:
Kogut, Bruce, John Paul MacDuffie, Frits Pil, and Charles Ragin. "Red Queen Dynamics and Organizational Design: Does Convergence in Performance Lead to Convergence in Form?" Working Paper, Columbia Business School, April 2011.
Date: 4 2011