ON THE DYNAMICS OF ORGANIZATIONAL RIGIDITY

Economics and Decision Sciences 

Guest speaker: Luis Vasconcelos 

From : University of Technology Sydney  

Zoom Videoconference
 

Abstract :

We present a novel explanation of why organizations tend to lose their agility over time despite their efforts to foster worker initiative in adapting to local information. Worker initiative ensures efficiency but requires strong incentives. When incentives are relational and the firm faces shocks that erode its credibility, the firm may adopt standardized work process or rules that ignore local information but yield satisfactory (though sub-optimal) performance. Such rules help the relationship survive the current shocks but inflict inefficiencies in the future. While the relationship may recover, its ability to weather future shocks deteriorates, and, over time, it becomes more reliant on rules.