Skip to main content
SpringerLink
Log in

The paradox of cost minimization and the survival of organizations

  • Manuscript
  • Published:
Computational and Mathematical Organization Theory Aims and scope Submit manuscript

Abstract

Organizations that operate in a dynamic environment must take steps to adapt to their changing circumstances; otherwise, they may collapse entirely. Yet, managers may postpone necessary change to minimize costs, while ignoring the risk that this myopic approach entails to the survival of their organizations. This paper proposes a model that considers failure as a stage-wise process of decline, in which the organization’s portfolio of products and the technological processes that it uses to produce them become increasingly misaligned with market conditions. Eventually, if management fails to adapt to the market in time, the gap between the organization and its environment expands to a point of no return, after which organizational collapse is inevitable. The model enables us to run computerized simulations to predict the lifespan of organizations.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5

Similar content being viewed by others

References

  • Agarwal R (1996) Technological activity and survival of firms. Econ Lett 52:101–108

    Article  Google Scholar 

  • Ansoff HI, McDonnell EJ (1990) Implanting strategic management. Prentice Hall, UK

    Google Scholar 

  • Barr PS, Stimpert JL, Huff AS (1992) Cognitive change, strategic action, and organizational renewal. Strateg Manag J 13:15–36

    Article  Google Scholar 

  • Bernard AB, Redding SJ, Schott PK (2010) Multiple-product firms and product switching. Am Econ Rev 100:70–97

    Article  Google Scholar 

  • Boynton AC, Victor B (1991) Beyond flexibility: building and managing the dynamically stable organization. Calif Manag Rev 34:53–66

    Article  Google Scholar 

  • Cefis E, Marsili O (2006) Survivor: the role of innovation in firms’ survival. Res Policy 35:626–641

    Article  Google Scholar 

  • Chao RO, Kavadias S (2008) A theoretical framework for managing the new product development portfolio: when and how to use strategic buckets. Manag Sci 54(5):907–921

    Article  Google Scholar 

  • Comin D, Hobijn B, Rovito E (2006) Five facts you need to know about technology diffusion. NBER Working Papers No. 11928

  • Foster R, Kaplan S (2001) Creative destruction: why companies that are built to last underperform the market—and how to successfully transform them. Currency, New York

    Google Scholar 

  • Goldberg PK, Khandelwal AK, Pavcnik N, Topalova P (2010) Multiproduct firms and product turnover in the developing world: evidence from India. Rev Econ Stat 92:1042–1049

    Article  Google Scholar 

  • Greenhalgh L (1983) Organizational decline. In: Bacharach SB (ed) Research in the sociology of organizations, vol 2. JAI Press, Greenwich, pp 231–276

    Google Scholar 

  • Greiner LE (1992) Resistance to change during restructuring. J Manag Inq 1:61–65

    Article  Google Scholar 

  • Hannan MT, Freeman J (1984) Structural inertia and organizational change. Am Sociol Rev 49:149–164

    Article  Google Scholar 

  • Harrison R (1970) Choosing the depth of organizational intervention. J Appl Behav Sci 6:182–202

    Article  Google Scholar 

  • Janis IL (1982) Groupthink: psychological studies of policy decisions and fiascoes. Houghton Mifflin, Boston

    Google Scholar 

  • Johns EA (1973) The sociology of organizational change. Pergamon Press, Oxford

    Google Scholar 

  • Kahneman D, Lovallo D (1993) Timid choices and bold forecasts: a cognitive perspective on risk taking. Manag Sci 39(1):17–31

    Article  Google Scholar 

  • Krishnan V, Ulrich KT (2001) Product development decisions: a review of the literature. Manag Sci 47(1):1–21

    Article  Google Scholar 

  • Lorscheid I, Heine BO, Meyer M (2012) Opening the ‘black box’ of simulations: increased transparency and effective communication through the systematic design of experiments. Comput Math Organ Theory 18(1):22–62

    Article  Google Scholar 

  • McKinley W, Latham S, Braun M (2014) Organizational decline and innovation: turnarounds and downward spirals. Acad Manag Rev 39(1):88–110

    Article  Google Scholar 

  • Milkau U (2013) Adequate communication about operational risk in the business line. J Oper Risk 8(1):35–57

    Article  Google Scholar 

  • Navarro L (2012) Plant level evidence on product mix changes in Chilean manufacturing. J Int Trade Econ Dev 21(2):165–195

    Article  Google Scholar 

  • Pavlou PA, El Sawy OA (2011) Understanding the elusive black box of dynamic capabilities. Decis Sci 42(1):239–273

    Article  Google Scholar 

  • Pich MT, Loch C, De Meyer A (2002) On uncertainty, ambiguity, and complexity in project management. Manag Sci 48(8):1008–1023

    Article  Google Scholar 

  • Raz T, Shenhar AJ, Dvir D (2002) Risk management, project success, and technological uncertainty. R&D Manag 32(2):101–109

    Article  Google Scholar 

  • Richard PJ, Devinney TM, Yip GS, Johnson G (2009) Measuring organizational performance: towards methodological best practice. J Manag 35(3):718–804

    Google Scholar 

  • Samuel Y, Jacobsen C (1997) A system dynamics model of planned organizational change. Comput Math Organ Theory 3(3):151–171

    Article  Google Scholar 

  • Siggelkow N (2002) Misperceiving interactions among complements and substitutes: organizational consequences. Manag Sci 48(7):900–916

    Article  Google Scholar 

  • Simon HA (1957) Models of man social and rational. Wiley, New York

    Google Scholar 

  • Simon HA (1972) Theories of bounded rationality. In: McGuire CB, Radner R (eds) Decision and organization. North-Holland, Amsterdam, pp 161–176  

    Google Scholar 

  • Sinha RK, Noble CH (2008) The adoption of radical manufacturing technologies and firm survival. Strateg Manag J 29(9):943–962

    Article  Google Scholar 

  • Staw BM, Sandelands LE, Dutton JE (1981) Threat-rigidity effects in organizational behavior: a multilevel analysis. Adm Sci Q 26:501–524

    Article  Google Scholar 

  • Sutton RI (2005) Organizational decline and death. In: Nicholson N (ed) Blackwell encyclopedic dictionary of organizational behavior. Blackwell, Cambridge, pp 382–383

    Google Scholar 

  • Tewari I, Wilde J (2013) Product mix and misallocation: evidence from India’s product dereservation policy. Mimeo

  • Thomas JB, Clark SM, Gioia DA (1993) Strategic sensemaking and organizational performance: linkages among scanning, interpretation, action, and outcomes. Acad Manag J 36(2):239–270

    Google Scholar 

  • Trahms CA, Ndofor HA, Sirmon DG (2013) Organizational decline and turnaround: a review and agenda for future research. J Manag 39(5):1277–1307

    Google Scholar 

  • Tushman ML, Romanelli E (1985) Organizational evolution: a metamorphosis model of convergence and reorientation. In: Cummings LL, Staw BM (eds) Research in organizational behavior, vol 7. JAI Press, Greenwich, pp 171–222

    Google Scholar 

  • Tversky A, Kahneman D (1992) Advances in prospect theory: cumulative representation of uncertainty. J Risk Uncertain 5(4):297–323

    Article  Google Scholar 

  • Venkatesh V, Davis FD (2000) A theoretical extension of the technology acceptance model: four longitudinal field studies. Manag Sci 46(2):186–204

    Article  Google Scholar 

  • Weitzel W, Jonsson E (1989) Decline in organizations: a literature integration and extension. Adm Sci Q 34:91–109

    Article  Google Scholar 

  • Winter SG (2003) Understanding dynamic capabilities. Strateg Manag J 24(10):991–995

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Management, Western Galilee College, P.O.B. 2125, 2421, Akko, Israel

    Zvi Winer

  2. Faculty of Management, University of Haifa, 3498838, Haifa, Israel

    Yitzhak Samuel

Authors
  1. Zvi Winer
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Yitzhak Samuel
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Zvi Winer.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Winer, Z., Samuel, Y. The paradox of cost minimization and the survival of organizations. Comput Math Organ Theory 24, 401–421 (2018). https://doi.org/10.1007/s10588-017-9261-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10588-017-9261-5

Keywords

JEL Classification

Search

Navigation