Structural Inertia and Organizational Change Revisited III: The Evolution of Organizational Inertia*

Building on a formal theory of the structural aspects of organizational change initiated in Hannan, Pólos, and Carroll (2002a, 2002b), this paper focuses on structural inertia. We define inertia as a persistent organizational resistance to changing architectural features. We examine the evolutionary consequences of architectural inertia. The main theorem holds that selection favors architectural inertia in the sense that the median level of inertia in cohort of organizations presumably increases over time. A second theorem holds that the selection intensity favoring architectural inertia is greater when foresight about the consequences of changes is more limited. According to the prior theory of Hannan, Pólos, and Carroll (2002a, 2002b), foresight is limited by complexity and opacity. Thus it follows that the selection intensity favoring architectural inertia is stronger in populations composed of complex and opaque organizations than in those composed of simple and transparent ones. ∗This research was supported by fellowships from the Netherlands Institute for Advanced Study and by the Stanford Graduate School of Business Trust, ERIM at Erasmus University, and the Centre for Formal Studies in the Social Sciences at Lorand Eötvös University. We benefited from the comments of Jim Baron, Dave Barron, Gábor Péli, Joel Podolny, and the participants in the workshop of the Nagymaros Group on Organizational Ecology and in the Stanford Strategy Conference. †Stanford University ‡Loránd Eötvös University, Budapest and Erasmus University, Rotterdam §Stanford University