Complexity, Uncertainty, and Organizational Congruency

Nobuyuki Hanaki and Hideo Owan
Authors registered in the RePEc Author Service: Hideo Owan and Nobuyuki Hanaki

Tsukuba Economics Working Papers from Faculty of Humanities and Social Sciences, University of Tsukuba

Abstract: Many scholars in the fields of organization theory and management strategy have argued that there is a tension between the two types of organizational learning activities, exploration and exploitation. They appear to be substitutes: the greater the skill at one, the harder it is to do the other well. It is often argued that the two activities compete for scarce resources when firms need different capabilities and management policies to promote one over the other. We present another explanation that attributes the phenomenon to the dynamic interactions among the activities, search, knowledge sharing, evaluation, and alignment within organizations relying on the NK Landscape framework (Kauffman 1993). Our results show that successful organizations tend to bifurcate into two types: those that always promote individual initiatives and build organizational strengths on individual learning and those good at aligning the individual knowledge base and exploiting shared knowledge. Straddling between the two types often fails. The intuition is that an equal mixture of individual search and organizational alignment slows down individual learning compared to the first orga nization type while making it difficult to update institutionalized knowledge because individuals' knowledge base is not so sufficiently aligned as in the second type. In such gstraddling h organizations, once individuals get stuck with locally-best solutions in an uncoordinated manner, they cannot agree on how to improve the organizational knowledge. Straddling is especially inefficient when the operation is sufficiently complex (in other words, the interdependency is high) or when the business environment is sufficiently uncertain.

Date: 2010-03
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Working Paper: Complexity, uncertainty, and organizational congruency (2010)
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