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To stay competitive in a changing environment, many companies attempt radical transformation by adopting a brand-new business model, entering a different industry, merging with another firm or deploying a new global strategy. Often, these efforts fail. The management literature offers many explanations, focusing on issues such as sunk costs, cognitive inertia, organizational routines, resource bases, core competences and organizational politics, among others.1 While none of those explanations is wrong, per se, none recognizes that an organization’s fundamental identity can be the primary constraint on its adaptive capacity.
Just as individuals develop, often unconsciously, a narrative of who they are,2 so do organizations, reflecting the context of their founding and the identities, motivations and values of their founders.3 Just as individuals with ambiguous identities have trouble maintaining internal balance and healthy relationships with people around them, so organizations with ambiguous identities have trouble maintaining internal balance and building lasting and productive relationships with vital stakeholders. And, just as the identity of individuals may come to be anchored in some combination of gender, nationality, profession, social group, life style, educational achievements or skills, so an organization’s may be anchored in some combination of geographical place, nationality, strategy, core business, technology, knowledge base, organization design, operating philosophy or governance structure.
For each organization, its particular combination of identity anchors imbues it with a set of distinctive attributes that key stakeholders (employees, owners, suppliers, customers, bankers and shareholders) view as core, enduring and distinctive.4 The respective weighting of these anchors may vary considerably from one organization to another. For example, Polaroid’s identity has been intimately tied to its core competence in instant film; by contrast, Hershey Foods’ identity is closely linked to its geographic location; and the identity of the Public Broadcasting Service (PBS) is anchored in its commitment to commercial-free, quality programming for mature audiences.
A company may explicitly articulate its identity or it may remain, as is more frequently the case, tacit and unquestioned —that is, until some event, such as a new strategy or a radical shift in the environment, makes it problematic. The significance of Hershey Foods’ location as an identity anchor was not an issue until preliminary talks between the Hershey Trust and potential buyers became public, sparking vigorous opposition to the sale by local unions, community leaders and politicians.
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1. G. B. Northcraft and G. Wolf, “Dollars, Sense and Sunk Costs: A Life-Cycle Model of Resource-Allocation Decisions,” Academy of Management Review 9, no. 2 (1984): 225–234; M.T. Hannan and J. Freeman, “Structural Inertia and Organizational Change,” American Sociological Review 49, no. 2 (1984): 149–164; J.W. Meyer and B. Rowan, “Institutionalized Organizations: Formal Structure as Myth and Ceremony,” American Journal of Sociology 83, no. 2 (1977): 340–363; M. Tripsas and G. Gavetti, “Capabilities, Cognition and Inertia: Evidence From Digital Imaging,” Strategic Management Journal 21 (October–November 2000): 1147–1161; R.R. Nelson and S.G. Winter, “An Evolutionary Theory of Economic Change” (Cambridge, Massachusetts: Harvard University Press, 1982); C.M. Christensen, “The Innovators’ Dilemma: When New Technologies Cause Great Companies To Fail” (Boston: Harvard Business School Press, 1997); D. Leonard-Barton, “Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development,” Strategic Management Journal 13 (summer 1992): 111–126; D.C. Hambrick, M.A. Geletkanycz and J.W. Frederickson, “Top Executive Commitment to the Status Quo: Some Tests of Its Determinants,” Strategic Management Journal 14 (September 1993): 401–419; R. Foster and S. Kaplan, “Creative Destruction: Why Companies That Are Built To Last Underperform in the Market — and How To Successfully Transform Them” (New York: Doubleday, 2001); and H. Mintzberg, “Power in and Around Organizations” (Englewood Cliffs, New Jersey: Prentice-Hall, 1983).
2. E.H. Erikson, “Childhood and Society” (Harmondsworth, United Kingdom: Penguin, 1965).
3. J.R. Kimberly and H. Bouchikhi, “The Dynamics of Organizational Development and Change: How the Past Shapes the Present and Constrains the Future,” Organization Science 6 (January–February 1995): 9–18.
4. Those three criteria were first articulated in S. Albert and D. Whetten, “Organizational Identity,” in “Research in Organizational Behavior,” eds. L.L. Cummings and B.M. Staw (Greenwich, Connecticut: JAI Press, 1985): 263–295. The respective weighting of different identity anchors may vary considerably from one organization to another (core competence may be more important in Polaroid’s identity; French nationality weighs more in the identity of Moulinex). Reciprocally, any aspect of an organization that can be changed without altering the essence of an organization is not part of its identity. Culture is derived from identity. A change in identity entails a change in culture, but the reverse is not necessarily true. (Developing a culture of quality in a manufacturing-driven company requires a new mind-set among employees but would not affect in any significant way the manufacturing identity of the company.)
5. J. Weber, “Public TV’s Identity Crisis: Can PBS Reach New Viewers and Still Stay PBS?” BusinessWeek, Sept. 30, 2002, 65.
6. We have collected material on company identity for several years through both consulting work and research collaborations in industries including automobiles, building materials, electronics, health care, higher education and retailing.
7. B.E. Ashforth and F. Mael, “Social Identity Theory and the Organization,” Academy of Management Review 14 (January 1989): 20–39.
8. J.E. Dutton, J.M. Dukerich and C.V. Harquail, “Organizational Images and Member Identification,” Administrative Science Quarterly 39 (June 1994): 239–263; and D.A. Gioia and J.B. Thomas, “Identity, Image and Issue Interpretation: Sensemaking During Strategic Change in Academia,” Administrative Science Quarterly 41 (September 1996): 370–403.
9. G. Tur, “Franck Casalini: Le Goût du Pouvoir” (Franck Casalini: The Taste of Power), La Tribune, Thursday, Dec. 6, 2001, 32.
10. J.C. Collins and J.L. Porras, “Built To Last: Successful Habits of Visionary Companies” (New York: HarperCollins, 1994).
11. Over two decades, many leading European business schools and universities have aspired for recognition as international entities, launching new programs, hiring American-trained faculty and engaging in a frantic search for strategic alliances. So far, few of those initiatives have succeeded, because most schools have not sought to (or been able to) escape the identities that, having served them well in their home markets, continue to anchor them in local institutional and social environments and keep them from becoming truly international.
12. In selling AT&T Broadband to Comcast, the senior management of the company implicitly admit that they have not been able to invent a new AT&T by means of cable networks.
13. This award is based on opinions gathered from a panel of 5,694 French families and 11,438 individuals aged 15 and up.
14. Interestingly, circumstances eventually forced Moulinex to become a brand after more than 20 years of desperate efforts to keep it as a French industrial organization.
15. C. Ghosn, “Saving the Business Without Losing the Company,” Harvard Business Review 80 (January–February 2002): 37–46.
16. The most important milestones were the acquisitions of Evian in 1969, Kronenbourg and European Breweries in 1970, Gervais Danone in 1973, Generale Biscuit in 1986 and Nabisco’s European business in 1989.
17. V. Fuhrmans, “Aventis Expects Earnings Growth of 25% Annually,” Wall Street Journal, Thursday, Feb. 14, 2002, sec. B, p. 9.
18. Jean-Marie Messier’s December 2001 statement in New York about the “end of the French cultural exception” provoked a storm of indignation in France and added credibility to his opponents’ claims.
19. Through the years, the French government and local authorities had given Moulinex more than &Euro; 400 million to save jobs.
20. The transformation of Vivendi Universal into a global media and entertainment corporation will be achieved after the sale of Vivendi’s majority stake in Vivendi Environment, its utility subsidiary. However, some board members are presumably opposed to what they perceive as a high-risk scenario, given the relative uncertainty of cash flow and profits in the utility sector.