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Neutrality and the evolvability of organizations: NK model simulations and statistical analysis of knowledge trajectories using biotechnology patents

Author: Jain, Amit INSEAD Area: StrategyPublisher: Fontainebleau : INSEAD, 2009.Language: EnglishDescription: 182 p. : Graphs ; 30 cm.Type of document: INSEAD ThesisThesis Note: For the degree of Ph.D. in management, INSEAD, June 2009Bibliography/Index: Includes bibliographical referencesAbstract: This dissertation aims to expand our theoretical understanding of change in organizations. Change to organizations has traditionally been viewed from the opposing poles of adaptation on the one hand and of inertia to adaptation on the other. Proponents of adaptation embrace the notion that organizations change, but inform us that incremental change results in stagnation due to competency traps and dead ends in search. Advocates of the ecological view inform us that populations of organizations are inert to change, and that radical reorientations in strategy and structure result in a greater mortality hazard. Taken together, these opposing views converge on one point: they both portray a pessimistic picture of change in organizations, irrespective of whether change is incremental or radical in nature. How can organizations avoid the pitfalls of radical change and of dead ends in search processes and evolve? While many models of social and organizational change are pessimistic with respect to radical progress, the optimistic argument of Gould and Lewontin on the evolutionary value of neutrality for biological species permits gradual random change to be ponctuated by radical evolution. In the first part of this dissertation comprising of two computer simulations, I respectively model and explain the concepts of neutrality and of memory and investigate their influence on the evolvability of organizations. Neutrality pertains to the inability of individuals, groups and organizations, collectively reffered to here as agents, to precisely distinguish between alternatives under consideration in search. Given this cognitive limitation, agents categorize search alternatives as better, worse, or neutral, where alternatives are neutral if they are perceived to be equivalent and an agent is indifferent to choosing between them. To model neutrality, I introduce a mild alteration to a simulation model that has previously illustrated the difficulty to radical change. The results of simulations provide an optimistic assessment of the potential for radical organizational evolution by a process of gradual and incremental change, and illustrate the contribution of complex adaptive systems to the study of organizational and sociological problems. The caveat to models of search and change with neutrality is that significant intervals of time are required to obtain useful outcomes. Simulations reveal that memory, the ability to store, retain and retrieve knowledge and information pertaining to prior search activity, leads to speedier discovery and efficiency in search. Memory is a complement to search with neutrality. In the second part of this dissertation, I complement the research using simulations by investigating empirically the import of one type of small and repetitive change occuring in firms in the U.S. and Canadian biotechnology industry, the inbound mobility of scientists. In a first step, I draw from prior research on learning curves to develop a model of knowledge at the individual and the organizational level of analysis in the industry using patenting data. I find that knowledge used in innovation activities, like experience in production activities, accumulates by learning by doing leading to greater efficiency in innovation processes. Like experience in production, accumulated knowledge used in innovation is found to erode over time and is forgotten. The empirical analysis strongly suggests that while the locus of technological knowledge in biotechnology firms is not the organization but the individual scientist, that coordination and routine between these scientists significantly enhances productivity in innovation processes. The final paper uses the model of learning, forgetting and knowledge developed in the prior paper as a baseline, and investigates the role of inbound mobility of scientists in biotechnology firms on their evolvability. Consistent with prior research, I find that technological knowledge and routine in organizations leads to greater inertia in innovation processes, chere inertia is defined by the extent to which organizational innovation is charaterized by new combinations of different technologies, and the extent to which it builds upon prior organizational activities and is path dependent.Empirical analysis reveals that the inbound mobility of individuals leads to changes in knowledge and routine in organizations and results in lower inertia in innovation processes. Consequently, innovations created following inbound mobility of individuals in organizations are more impactful and influential, that is, they provide a better fit of firm activities with the exigences of the environment. Additional analysis reveals that the technological core, comprised of technologies in which an organization possesses the most expertise, changes radically over time. The inbound mobility of scientists is one small and repeated change occuring in biotechnology organizations that is responsible for this transition to new technological domains of activity, and through this, helps organizations avert obsolescence. If radical change to the strategy and structure of organizations does occur in small increments over time, then the question arises as to why change often documented as a sudden punctuated transition from one state to another? In fact, observations of punctuated change are neither sufficiently historical nor sufficiently micro to create a mapping between invisible micro level changes and visible macro level organizational transformations. This dissertation uses complexity theory and simulation to develop the notion of neutrality and develop a linkage between small changes in organizations and radical organizational transformation. The empirical studies validate this argument in one context, innovation in the U.S. and Canadian Biotechnology industry, where small changes to organizations following the inbound mobility of scientists lead to a change in the composition of knowledge core to the organization and to evolvability. List(s) this item appears in: Ph.D. Thesis
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For the degree of Ph.D. in management, INSEAD, June 2009

Includes bibliographical references

This dissertation aims to expand our theoretical understanding of change in organizations. Change to organizations has traditionally been viewed from the opposing poles of adaptation on the one hand and of inertia to adaptation on the other. Proponents of adaptation embrace the notion that organizations change, but inform us that incremental change results in stagnation due to competency traps and dead ends in search. Advocates of the ecological view inform us that populations of organizations are inert to change, and that radical reorientations in strategy and structure result in a greater mortality hazard. Taken together, these opposing views converge on one point: they both portray a pessimistic picture of change in organizations, irrespective of whether change is incremental or radical in nature.
How can organizations avoid the pitfalls of radical change and of dead ends in search processes and evolve? While many models of social and organizational change are pessimistic with respect to radical progress, the optimistic argument of Gould and Lewontin on the evolutionary value of neutrality for biological species permits gradual random change to be ponctuated by radical evolution. In the first part of this dissertation comprising of two computer simulations, I respectively model and explain the concepts of neutrality and of memory and investigate their influence on the evolvability of organizations. Neutrality pertains to the inability of individuals, groups and organizations, collectively reffered to here as agents, to precisely distinguish between alternatives under consideration in search. Given this cognitive limitation, agents categorize search alternatives as better, worse, or neutral, where alternatives are neutral if they are perceived to be equivalent and an agent is indifferent to choosing between them. To model neutrality, I introduce a mild alteration to a simulation model that has previously illustrated the difficulty to radical change. The results of simulations provide an optimistic assessment of the potential for radical organizational evolution by a process of gradual and incremental change, and illustrate the contribution of complex adaptive systems to the study of organizational and sociological problems. The caveat to models of search and change with neutrality is that significant intervals of time are required to obtain useful outcomes. Simulations reveal that memory, the ability to store, retain and retrieve knowledge and information pertaining to prior search activity, leads to speedier discovery and efficiency in search. Memory is a complement to search with neutrality.
In the second part of this dissertation, I complement the research using simulations by investigating empirically the import of one type of small and repetitive change occuring in firms in the U.S. and Canadian biotechnology industry, the inbound mobility of scientists. In a first step, I draw from prior research on learning curves to develop a model of knowledge at the individual and the organizational level of analysis in the industry using patenting data. I find that knowledge used in innovation activities, like experience in production activities, accumulates by learning by doing leading to greater efficiency in innovation processes. Like experience in production, accumulated knowledge used in innovation is found to erode over time and is forgotten. The empirical analysis strongly suggests that while the locus of technological knowledge in biotechnology firms is not the organization but the individual scientist, that coordination and routine between these scientists significantly enhances productivity in innovation processes.
The final paper uses the model of learning, forgetting and knowledge developed in the prior paper as a baseline, and investigates the role of inbound mobility of scientists in biotechnology firms on their evolvability. Consistent with prior research, I find that technological knowledge and routine in organizations leads to greater inertia in innovation processes, chere inertia is defined by the extent to which organizational innovation is charaterized by new combinations of different technologies, and the extent to which it builds upon prior organizational activities and is path dependent.Empirical analysis reveals that the inbound mobility of individuals leads to changes in knowledge and routine in organizations and results in lower inertia in innovation processes. Consequently, innovations created following inbound mobility of individuals in organizations are more impactful and influential, that is, they provide a better fit of firm activities with the exigences of the environment. Additional analysis reveals that the technological core, comprised of technologies in which an organization possesses the most expertise, changes radically over time. The inbound mobility of scientists is one small and repeated change occuring in biotechnology organizations that is responsible for this transition to new technological domains of activity, and through this, helps organizations avert obsolescence.
If radical change to the strategy and structure of organizations does occur in small increments over time, then the question arises as to why change often documented as a sudden punctuated transition from one state to another? In fact, observations of punctuated change are neither sufficiently historical nor sufficiently micro to create a mapping between invisible micro level changes and visible macro level organizational transformations. This dissertation uses complexity theory and simulation to develop the notion of neutrality and develop a linkage between small changes in organizations and radical organizational transformation. The empirical studies validate this argument in one context, innovation in the U.S. and Canadian Biotechnology industry, where small changes to organizations following the inbound mobility of scientists lead to a change in the composition of knowledge core to the organization and to evolvability.

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