Inertia and Transformation

Abstract

In this article I argue that strategy scholars have incorrectly borrowed from economists the assumption of organizational plasticity. Particularly in large firms, inertia, rather than plasticity, is the norm. Unfortunately, there can be no simple theory of inertia as its causes are multiple and varied. After sketching out the shapes of the most important sources of inertia, I turn to the problem of overcoming inertia—the question of organizational transformation. Starting with a simple model of organizational capabilities as existing on two levels (unit-based and rooted in coordination among units), I draw some preliminary conclusions about the shape of organizational transformation. In particular, I focus on the interplay between incentive intensity and coordinative capacity and argue that most transformations move through a sequence of phases in which coordinative capacity is first dramatically reduced and then rebuilt along new lines.

Financial support from INSEAD’s Corporate Renewal Initiative (CORE) is gratefully acknowledged. My understanding of the issues surrounding corporate transformation has benefitted from discussions with Sumantra Ghoshal, Chris Bartlett, and John Stopford.