The Organizational Identity Trap

What do Kmart, Lucent, Bull, Marks & Spencer, Moulinex, Polaroid and Xerox have in common? All are examples, say the authors of a recent white paper, of once thriving companies that seem unable to reinvent themselves in response to environmental change. The paper's central argument is that certain companies are unable to adapt to shifts in the competitive environment, despite the best efforts of their CEOs and management teams, because the required adaptive response is inconsistent with the company's core identity.

The paper is “Escaping the Identity Trap” by Hamid Bouchikhi, professor of strategy and management and director of the New Business Center at ESSEC Business School in Cergy-Pontoise, France, and John R. Kimberly, the Henry Bower Professor at the University of Pennsylvania's Wharton School, who is also the Novartis Chaired Professor at INSEAD.

The authors' concept of corporate identity emerged from field-based, inductive research. While conducting an eight-month investigation into consistent underperformance by a multinational company's North American subsidiary, they noted puzzling decision-making patterns — in strategy, hiring and resource allocation — that seemed rooted not in pragmatic analysis but in deeply held beliefs about the company's identity that had emerged early in the company's history and had been reinforced over time. Building on their initial fieldwork, the authors conducted primary and secondary research based on surveys and interviews at companies of varying sizes and from a cross section of industries.

This research suggests that, similar to how an individual's identity can be anchored — consciously or subconsciously — in a gender, a generation, a life style, an ethnic group and/or a profession, a company's identity may be anchored in a core business, a knowledge base, a nationality, a charismatic leader, an ownership and governance structure, and/or an operating philosophy. Organizational identity thus forms a cognitive framework that filters how members of the organization, and all its stakeholders, view the world and perceive issues.

For example, a company whose identity is primarily anchored in manufacturing would typically pay more attention to engineering, production capacity, productivity, quality, product innovation or long-term investment. A company whose identity is invested in a brand would be more likely to view the world in terms of differentiation, brand awareness and consistency, customer loyalty or communication. Organizational identity has a political component, too, in that it influences the distribution of resources and power among stakeholders, both internal and external.

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