Fashion INC

8/11/2019 Fashion INC

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Paper to be presented at the DRUID Summer Conference 2007

on

APPROPRIABILITY, PROXIMITY, ROUTINES AND INNOVATION

Copenhagen, CBS, Denmark, June 18 - 20, 2007

ORGANIZATIONAL TRADEOFFS AND THE DYNAMICS OF SEARCH ANDCOORDINATION

Nils Stieglitz

Strategic Organization Design, University of Southern [email protected]

Stephan Billinger

Strategic Organization Design, University of Southern [email protected]


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Organizational tradeoffs and the dynamics of

search and coordination

Stephan Billinger

and

Nils Stieglitz

Strategic Organization Design (SOD),

University of Southern Denmark

Department for Marketing and Management,

Campusvej 55, 5230 Odense M, Denmark

Tel: +45 6550 3187, Fax: +45 6515 5129

[email protected] [email protected]


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Organizational tradeoffs and the dynamics of search and coordination

We analyze the interactions and tradeoffs that result from organizational search and

coordination. Our analysis suggests an antagonistic relationship between

organizational search and coordination. The more an organization searches, the higher

is the demand for coordination. However, meeting the demands for increased

coordination may degrade the efficacy of search processes. Based on a case analysis

and insights from existing theory, we identify four fundamental organizational

tradeoffs in the coordination of interdependent search processes that give rise to the

antagonistic relationship between the two. These are (1) the specialization of tasks, (2)

the interdependencies between tasks, (3) the delegation of tasks and the constraints

placed on organizational members to carry out these tasks, and (4) the incentives for

organizational members. Our findings may be useful for the analysis of organizational


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1) Introduction

Organizations are constantly engaged in search activities to better adapt their tasks oractivities. They attempt to refine existing activities and look for new promising

activities (March, 1991; Ghemawat & Costas, 1993). The specialization and

multiplicity of search processes is a core feature of the modern firm. Marketing may

search for new ways of segmenting customers, manufacturing looks for ways to lower

production costs, while procurement scans prospective suppliers for better quality orlower costs. In many cases, these search processes are interdependent. For example,

the choice of a new, more flexible production technology might allow for broader

product differentiation, requiring new input factors from outside suppliers (Milgrom

& Roberts, 1990). Targeting new customer segments might entail changes in

production schedules and logistics, and so on. However, decentralized search efforts

may be frustrated or discouraged, if an organization fails to coordinate interdependent

search processes (e.g. Ethiraj & Levinthal, 2004; Siggelkow & Rivkin, 2006).

While prior research has established the need of coordinating interdependent search

processes in organizations, the crucial interactions between search and coordination

has received much less attention. Search and coordination have been treated as two


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processes that give rise to the antagonistic relationship between the two. These

tradeoffs result from the specialization and the assignment of tasks, theinterdependencies between tasks, how tasks are delegated, and the incentives for task

performance. The formal and informal design of an organization its organizational

structure shapes these four tradeoffs and influences how a firm searches and

coordinates. Thereby, the organizational design influences the balance between

exploration and exploitation (March, 1996) as well as the internal distribution of(bargaining) power (e.g. Rajan & Zingales, 1998).

We build on and extend prior research in a number of ways. First, our analysis

suggests an intricate interrelationship between organizational search processes and

their coordination that has not received much prior attention. Second, we specify and

differentiate this interrelationship further by pointing to four organizational tradeoffs

that are shaped by the organizational structure of the firm. Our framework points to a

potentially more nuanced analysis of organizational structures and coordination

mechanisms. Third, we provide an empirically grounded analysis of organizational

search and coordination that complements recent formal modeling efforts. Fourth, on

a more fundamental level, our analysis conceptualizes the firm as a coordinating


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learning and knowledge management and on organizational adaptation in complex

task environments. Recent contributions based on organizational economics alsohighlight the significance of search and coordination for effective organization design.

However, while the tension between organizational search and coordination appears

to be a core issue of much of prior research, search and coordination is conceptually

treated as two distinct, independent stages, with no interactions between the two.

The behavioral theory of the firm

Organizational search has been a central research topic in the organizational literature

ever since the inception of the behavioral theory of the firm (March & Simon, 1958;

Cyert & March, 1963). Bounded rationality prevents individuals from optimizing

complex choices, as the set of alternatives and their respective outcomes may be

unknown (Simon, 1955). Individuals must search for new alternatives and learn about

their performance outcomes (Levinthal, March 1981). Organizational search tends to

be problemistic and simple-minded (Cyert & March, 1963; Greve, 2003): It is

triggered by a perceived problem and commences in the neighborhood of existing

solutions. Only if neighborhood search fails, individuals tend to broaden search to


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subtasks (March & Simon, 1959).1 The organizational structure enables this

sequential and problemistic search on an organizational level by stabilizing thechoices in other subtasks. Later research formalized the adaptively rational system as

comprising of one or more independent search process (e.g. Levinthal & March,

1981; Nelson & Winter, 1982; Herriott, Levinthal & March, 1985).2The coordination

of multiple interdependent search processes thus did not evolve into a primary topic

for research.

Organizational learning and knowledge management

The behavioral theory of the firm also serves as the formal underpinning for

organizational learning and knowledge management (Levitt & March, 1988; Huber,

1991; Argote, McEvily & Reagans 2003). Foss (1996, p. 18) argues that firms exist

because they can more efficiently coordinate collective learning processes than

market organization is able to. Likewise, Levitt and March (1988) point to

organizations as collections of learning subunits. The coordination of dispersed,

interdependent learning processes in an organization could therefore be a crucial topic

in organizational learning and knowledge management.


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decentralized effort with multiple agents (Rivkin & Siggelkow, 2003; Siggelkow &

Rivkin, 2005; Siggelkow, Levinthal, 2005; Siggelkow & Rivkin, 2006).

6

A core claim stemming out of their research is that interdependent search processes

must be coordinated. Otherwise, the efficacy of organizational search may suffer by

decreasing performance (Siggelkow & Rivkin, 2006). Organizations are modeled as

organizational forms that differ in the role of senior management, the level of

information flows, the abilities of lower-level managers, and the presence of firm-

wide or parochial incentives. Lower-level managers search a fixed part of the N

string, with their search ability determining how many alternatives (variation of the N

elements) they create and evaluate.7 With no organization-wide coordination,

decentralized search may backfire and reduce performance when interactions between

elements are pervasive, since middle managers do not consider the impact of an

alternative for overall performance (Siggelkow & Rivkin, 2006). This result firmly

establishes the need to coordinate interdependent learning processes in general. The

role of an active senior management8 is to coordinate the alternatives generated by

middle management. Depending on the level of information flows, middle managers

send up a number of proposals to the CEO who combines and evaluates the proposals


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equivalent to a form of lateral communication in which subordinates rank department

options, convene in a conference room, consider composite alternatives, and pick thecomposite that is best for the firm (Rivkin & Siggelkow, 2003, p. 298, fn 6). Past

research on organization design stresses the fundamental differences between

centralized decision-making and mutual adjustment as coordination devices (e.g.

Mintzberg, 1979). Second, incentives are only analyzed in respect to organizational

coordination. They do not influence middle managers willingness to engage in search

or to invest into their search abilities. For example, firm-wide incentives could

decrease overall search efforts by lowering the incentives to do so for all middle

managers (e.g. Rotemberg & Saloner, 1995; Kaplan & Henderson, 2005). Third, the

model identifies middle management as the driving force of organizational search. In

essence, only horizontally dispersed search processes are considered (and

coordinated). Search processes could also be divided vertically, with each hierarchical

level searching differently, potentially requiring a different approach to coordination.

Overall, this important body of theoretical research firmly establishes the demand for

organizational coordination when search processes interact. Yet, it treats search and

coordination as two independent processes. Organizations first search for better


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search, since senior management operates under certainty or asymmetric information.

More to the point, Rotemberg and Saloner (1995) highlight the role of inter-functionalconflicts for the generation of new information, especially the conflicts between the

sales and the production departments. These conflicts may be beneficial for a firm by

producing valuable new information about a firms opportunities, but excessive

conflicts may undermine this advantage by sharply increasing the costs of gathering

and communicating information. Senior management may ameliorate the conflict by

committing to a business strategy or personnel policy that systematically favors one

departments proposals over the other, reducing the incentives of the less preferred

department to engage in information gathering. Here, organizational search and

coordination clearly interact. Inter-functional conflicts increase the amount of

valuable information as well as the demand for coordination. A firm that decides to

coordinate by changing the incentive structure thereby decreases organizational

search in the less favored department.

Milgrom and Roberts (1990; 1995) also point to the pitfalls of uncoordinated search.

Complementarities among tasks give rise to multiple Nash equilibria with different

payoffs. A firm in an inferior Nash equilibrium fails to move to a higher performing


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the tradeoff between uncoordinated local adaptations and the costs of coordinating

interdependent tasks. In carrying out a task, an organizational member has to payattention to local information within the task as well as the interdependencies with

other tasks. Responding to local information increases the demand for the

coordination of interdependent tasks. A firm may either rely on ex ante coordination

by foregoing adaptation to local information or ex post coordination by costly

communication among organizational members.11 However, the model does not

consider search and learning by organizational members.

Recent research in organizational economics therefore also points to the importance

of coordinating interdependent search activities. Moreover, organizational economics

also address how coordination mechanisms may influence the incentives to carry out

an activity like searching for new local information. However, organizational search

itself is heavily underspecified and the models treat the organizational search process

as a straight-forward task based on rational expectations (e.g. Hart & Moore, 2005;

Dessein & Santos, 2006). In sharp contrast to the behavioral theory of the firm (and

most research in organization theory), search and learning are perceived as rather

unproblematic endeavors that may be optimized just like any other activity.


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research investigates the tradeoffs involved in the organizational coordination of

decentralized, independent search processes.

3) Methods

The nature of the research question raised above suggests an approach that allows for

the detailed analysis of search and coordination within a single organization. For this

approach, a longitudinal case-study is ideal, as it allows us to examine the micro-level

mechanisms with which organizational members shape organizational search. It also

reveals how search is reflected in an organizations coordination efforts and vice

versa. Moreover, the four traditional aspects of organization design specialization,

interdependencies, delegation and incentives provide an analytical lens, which also

allows us to aggregate our findings in a way that furthers theoretical development. We

also view this approach as a mean to develop theoretical insights, which are deeply

rooted in organizational reality and that have previously been overlooked or

deemphasized by other scholars.

Therefore, this paper uses a qualitative, inductive longitudinal case-study that allows

us to illustrate the characteristics, the interplay and causality when an organization


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Inc.s production facilities in Eastern Europe. Depending on product category and its

particular characteristics (e.g. lead times, fashion sensitivity), some product types aresourced from external Asian suppliers. While the firms own brand is well-established

in some of Europes major markets, Fashion Inc. is also a supplier and strategic

partner of global brands that have outsourced manufacturing, fashion design, or both

activities to Fashion Inc.

In early 2000, Fashion Inc.s traditional business model of vertical integration came

under severe pressure from the market, resulting in a major restructuring project

between 2001 and 2006. We chose this transformation process and the Business

Process Reengineering (BPR) as our setting and we elaborate on the details below. 12

Data gathering

Throughout the change process, Fashion Inc. allowed several researchers to study the

organizational transformation. The research effort was guided by the principles of

case-study research (Yin, 1994) to ensure validity and reliability. The data collected

encompasses documentation on the firms strategic planning, project management and

Business Process Reengineering (BPR). In addition, the dataset also includes

information from semi-structured interviews, workshop reports, the firms archives,


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representatives from all levels of the firms hierarchy allowed us to develop a

thorough understanding of the setting.

4) The Stimulus for Organizational Change: How Fashion Inc. outlined its new

strategy and organizational structure

Why the organization changed: The strategy process

In the late 1990s, Fashion Inc. was coming under severe pressure from its end market.

The firms traditional corporate strategy was focused solely on the design,

manufacture and distribution of Fashion Inc.s own brand, which targeted the mid-

price market segment. This business model was also used by most of Fashion Inc.s

competitors, creating an industry constellation in which comparable firms were

competing for the same or similar market segments. Consequently, prices were falling

and all the players were being forced to review their strategies. The situation was

exacerbated because overall European spending on apparel was decreasing. In

addition, consumers behavior was changing in response to the mid-price market

segment losing market share either to Asian low-cost import or to international

premium or fashion brands.15


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the question then became: Can we compete with them? The other obvious option,

the outsourcing of production, was a questionable solution; for some competitors it

had been unsuccessful due to their inability to differentiate their products in a

marketplace that was becoming ever more complex.

What the organization changed

To identify its future corporate strategy, Fashion Inc. underwent a thorough strategic

business planning exercise. Senior managements interpretation of the industry

analysis was the basis for this exercise. The CEO stated that: If we follow the

bandwagon, we are likely to lose! He was referring to one of the findings from the

analysis, which was that neither outsourcing nor copying another firms strategy

would produce a business model that would provide sustainable competitive

advantage and a decent return on investments.

Fashion Inc. therefore analyzed its entire activity system and explored the potentials

along its value chain. It found that firm profit could be derived from all steps along

the value chain, and that the industrys bandwagon behavior of concentration on

branding meant that these activities were becoming more competitive. As a result,


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Insert Figure 1 about here

The rationale for the disaggregating the corporate structure is rooted in three types of

benefits: First, efficiency and effectiveness would increase as a result of standardized

processes and a modular process architecture (see Figure 2). Second, direct interaction

with (intermediate) markets would help the firm to search for new business

opportunities along the entire value chain, to develop strategic capabilities (e.g.

advanced fabric development), and to change the firms propensity to innovate. Third,

external markets would allow the firm to benchmark internal resources against

external resources and use this information for future corporate resource allocation.

All these benefits became Fashion Inc. underlying rationale that justified the

permeable value chain and allowed it to create competitive advantages.17


The establishment of new SBUs made it clear that the future organization would not

only address the end market, but also intermediate markets. Hence, different entities

would simultaneously search within the future corporation, and a new organizational

structure was required to coordinate these multiple search processes (see also Figure

2). The transformation from the old to the new organizational structure offers


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This situation changed with Fashion Inc. having distinct SBUs, which addressed their

own markets. The change required questioning and also eliminating several tasks of

the traditional vertical integration. For instance, some sales representatives used to

have a fairly broad task assignment and they developed a routine for processing small

number inquiries (e.g. local sport teams inquiring t-shirts with their logos, etc.). As it

turned out during the BPR project, the total revenue from these orders was very low,

and in less than 90% of all inquiries Fashion Inc. did actually get the order. Hence,

this task was fairly expensive as it caused significant internal actions without return.

In this case, the sales representatives had a broadly defined task (i.e. finding new

customers) and they did not see the costs of the entire order assessment, as it was a

fairly easy inquiry for them but not for the entire organization. Fashion Inc. therefore

decided not to process these inquiries and orders any more, and it got rid of this

particular sub-task. In addition, and as a consequence of the experience with the old

task, the firm also narrowly defined criteria for identifying new clients (including the

assessment of overall costs).

Another example was the planning department. Here it was necessary to clearly

define any planning tasks, because planning would now take place on the corporate


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had the specific capabilities to design and run such a mode of procurement in

collaboration with the SBUs involved.

When analyzing the characteristics of the old planning example, we also identify a

first antagonism: Broader specialization in the former planning task lead to

diminished search (i.e. exclusively for end market products), and it required more

coordination in the various steps of the value chain. We also find that the assignment

of tasks, i.e. the specialization or division of labor shapes organizational search and

coordination. It constitutes the first organizational tradeoff specialization, which can

be characterized as either narrow or broad.

Interdependencies

Fashion Inc.s old organizational structure is characterized by the conventional

vertical integration which had high degree of interdependence between the various

functional departments. For example, when the senior marketing manager decided to

introduce new products, it was clear that the product development had to develop

these products, the planning department had to ensure that production capacities were

available, and the manufacturing departments organized the workforce and the


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was the weakening of interdependencies between tasks. Within this context senior

management acknowledged that in some cases strong interdependencies with non-

standardized interfaces were necessary but only when these were allowing for

value-adding, i.e. complementary, information flows. This also meant that the

organization would hinder unwanted information flows to take place, as the CEO

pointed out: We need well-defined interfaces! It cant be that anyone can influence

anything in any process! It became therefore a paramount characteristic of the

modularization endeavor that interdependence between tasks was only allowed if

there were complementarities that would justify the interdependence. One example

for a well-defined interface can be found in Figure 3, which illustrates how an

employee in the customer service center processed a customer inquiry within the new

organizational structure. The inquiry was finalized by placing an order in the IT

system (see circle with #1 and the output column in Figure 3), which was then the

interface to the next business process. In the old structure, the situation was

completely different as several sales representatives would sometimes call production

to ensure, for instance, timely delivery. However, this procedure would cause major

confusion regarding the prioritization of orders and the associated coordination


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an antagonism between search and coordination, which we see here within the

organizational tradeoff interdependency. We therefore suggest that the definition of

interdependencies between tasks is directly associated with the way organizations

search and coordinate. It constitutes the second organizational tradeoff

interdependence, which can be characterized as either strong or weak.

Delegation

Fashion Inc.s old organizational structure consisted of a hierarchical system that

delegated an organizational members freedom to act on the basis the firms basic

functions. The functions themselves defined the degree of freedom and the constraints

of activities using the traditionally grown understanding of the function, i.e. the

marketing manager did marketing, and the production manager controlled

manufacturing. While this implicit definition of these functions was fairly rigid on the

general level, it was much less defined on a detailed micro-level. A central reason for

this situation was bottom-up grown, non-formalized routines that oftentimes

resulted from employees working and collaborating in the various areas over many

years, as one member of the reengineering team pointed out (in various examples as it


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a critical unit, senior management defined not only the head of the unit but also the

individuals and their particular tasks and the scope of their individual activities (this

was a rather small unit with only 3-5 employees). 18

One example that illustrates how Fashion Inc. precisely determined constraints and

the freedom to act can be found in Figure 4. It shows an example of the product

development in which processes were directly allocated to individuals. 19Remarkable

in this example is the fact that for an individual process (e.g. Trend Research),

Fashion Inc. defined the particular role for each individual by clarifying (a) who has

the responsibility for the task, (b) who is executing it, (c) who is participating in it,

and (d) who gives input. This example shows a fine-grained and rigid definition of the

scope of activities that an organizational member had within the new organizational

structure. The workshops also clearly illustrated that knowing a task and its potential

complementary interdependence with other tasks was not sufficient to define the new

organizational structure. It was also necessary to delegate the actual responsibilities

and decision-rights within and between tasks, and thereby to constrain each

organizational members influence on other tasks.



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examples also illustrate that the actual tradeoff lies in choosing either loose or rigid

delegation.

Incentives

In the old organizational structure, incentives were only used in particular areas

within the organization. These areas were defined by measures that stemmed from the

overall or specific performance of the organization (e.g. sales representatives received

a bonus when they managed to sell more products). All of these incentives were

associated with operational performance and employees were only rewarded when

they managed to contribute to the increase of performance. The incentives were not

designed to innovate the organization, and managers and employees were only

improving the existing structure but not questioning the fundamental challenges that

the structure was facing (see chapter 4).

With the new strategic direction and the fundamental decision regarding

disaggregation, Fashion Inc. also changed its incentive system. For instance, it

introduced incentives for achieved milestones during the BPR, and collective bonuses

for the reengineering team were solely based on the completed task (e.g. mapping of


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fair and that coordination efforts were limited, as the CEO pointed out: We do not

have these major discussions any more. The arrangement also ensured that global

(corporate) and local (SBU) search efforts would not completely jeopardize each

others objectives.

Our analysis shows that the old and the new organizational structure used incentives

that were either individual or collective. For instance, workers in manufacturing were

rewarded individually which did not lead to search and did not require coordination,

however, this incentive did produce a very well-known output. On the other hand, the

reengineering team was (partially) rewarded collectively, for instance for mapping

processes and identifying potential improvements. In this example search increased

because of the expected bonus for the team. In addition, the demand for coordination

increased because the nature of the task (as a special assignment and the need to

identify improvements). However, Fashion Inc. managed to decrease coordination

because the output of these particular tasks was previously known and standardized

(i.e. mapped processes and a list with potential improvements as a result of a

successful team effort). This example represents again an antagonism between search

and coordination which was achieved by the design of the appropriate incentive


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perspective of an organizational designer, analogous search-coordination patterns

were obvious examples and the involved managers (or project team leaders) normally

knew what the managerial implications were (e.g. the demand for a high or low

coordination effort). Interesting for our discussion is the fact that there are

antagonistic search-coordination patterns. In our case analysis, we have shown that

they can impose a tension in the relationship between search and coordination,

because they confront an organizational designer with challenges that are critical for

making choices regarding an organizations structure. We also show that this tension

is rooted in the organizational tradeoffs which are especially prevalent when an

organization has to coordinate multiple interdependent search processes.

Towards a framework of search and coordination

Using a case study we have identified organizational tradeoffs that fundamentally

shape organizations. We now reflect on these tradeoffs in order to contextualize their

relationships. To do so we start from the notion that organizations need to make

choices regarding the tradeoffs and their organizational structure. These choices are

made by organizational designers, who can be managers, team or project leaders, and


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requirements for effective search are often detrimental to effective coordination, and

vice versa. We specify and differentiate this interrelationship by pointing to four

organizational tradeoffs. We support our framework by drawing on previous research

in organizational theory and organizational economics.

(1) First, the organizations division of labor and specialization of tasks influences

how an organization searches and coordinates. The relevant tradeoff here is between a

narrow and a broad assignment of tasks to organizational members. Fundamentally,

the internal division of labor determines how tasks get assigned to organizational

members (Simon, 1957; March & Simon, 1958; Mintzberg, 1979). Since an

organizational members cognitive and learning capacities are limited (Simon, 1955;

Levitt & March, 1988), the way in which tasks are assigned directly impacts search

and coordination. A narrow task assignment allows for more rapid learning and

intense search, since the organizational member specializes in one subtask (March &

Levinthal, 1981; Demsetz, 1995). A broad task assignment, on the other hand,

allocates more than one subtask to an organizational member. Since the member now

must cover a broader set of subtasks, search and learning tends to be shallower in each

subtasks. The tradeoff thus reflects the theoretical and empirical research on


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interdependencies between tasks thus favors search for local improvements within a

task, while allowing for strong interdependencies supports global optimization of a set

of interdependent tasks (Dessein & Santos, 2006).20 Strong interdependencies

conversely increase the demand for coordination, since the activity in one task not

only depends on local information, but also on the activities taken in interdependent

tasks. Coordination may be achieved by weakening interdependencies (e.g. the

standardization of interfaces between tasks), although with the associated detrimental

effects on the search for global optimal solutions (March & Simon, 1958; Levinthal,

Warglien, 1999).

(3) While task assignment delineates organizational members use and decision rights

for subtasks, the division of labor does not determine how these rights get delegated

(Mintzberg, 1979; Milgrom, 1988). The organizational tradeoff for search and

coordination is between placing tight or loose constraints on activities within an

assigned task.21Placing only loose constraints on the activities of an organizational

member enables search by allowing for experimentation and adaptation to local, task-

specific events. Loose constraints translate into more organizational slack to conduct

experiments (March & Simon, 1958). Tight constraints stifles organizational search


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with uncertain payoffs (Arrow, 1962; Cyert & March, 1963). Collective reward

systems, where rewards also depend on the performance of other, non-subordinated

organizational members, increase the risk of free-riding (Alchian & Demsetz, 1972),

thereby increasing the propensity to search. Coordination becomes more difficult with

private rewards, however, since it increases the incentives to respond to local events

while disregarding the impact on tasks not assigned to the organizational member

(Dosi, Levinthal & Marengo, 2003). Collective reward systems aid the coordination

of interdependent tasks by providing incentives to engage in costly coordination

efforts (Rotemberg & Saloner, 1995).

Insert Table 3 about here

Table 3 summarizes our framework (SIDI) and gives a stylized account of the

organizational tradeoffs impact on search and coordination. The formal and informal

organizational structure shapes how an organization balances the tradeoffs and the

antagonistic relationship between search and coordination. This may also suggest that

the organizational designers design choices plays in central role, since he decides on


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Discussion and Implications

Our analysis proffers an explanatory framework that illustrates how organizational

search and coordination is shaped by organizational design. It offers a more nuanced

view of how organizations coordinate multiple search processes. Search and

coordination interact, confronting the organization designer with clear tradeoffs. The

analysis highlights that choices regarding the organizational structure are ultimately

driving any search process, as each organizational choice might redefine the boundary

conditions of the search process. While existing theory has taken an organizational

perspective on search, it only provided a very coarse representation of actual

underlying mechanisms and their interactions. Our framework opens the way to more

detailed (formal) treatment of mechanisms and how they shape search and

coordination within an organization.

Our analysis enriches existing theory by highlighting that the vertical and hierarchical

levels of an organization search differently, as they are drawing on and expanding

diverse knowledge bases. Thus, the firms specialization the structure of use and


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particular setting of the firm, its approach to corporate entrepreneurship (Stopford &

Baden-Fuller, 1994), or leadership within its hierarchy (Rosenbloom, 2000).

However, the fact that we can use these varying explanatory frameworks also

suggests that we need to abstract from the specific findings of a particular case, and

try to identify, contextualize and theorize the underlying mechanisms that go beyond

existing theory, and we hope our findings help achieve this goal.

Our findings also contribute to the stream of literature that examines the process and

evolution of strategy. For instance, our data confirms that strategic direction by senior

management is critical for building a successful organization; it requires top

management to be involved in building the strategic process while concerning

themselves with the content of strategy (Burgelman, 1991). This view also

conceptualizes strategy making (within a large, complex firm) as an iterative process

of resource allocation (Barnett & Burgelman, 1996), or a process of guided evolution

(Lovas & Ghoshal, 2000). The case of Fashion Inc. supports all of these previous

findings. However, our findings also shed light on the organizational apparatus

underlying the strategic process. While existing research concentrates on strategy and

normally refers to the aggregate constructs resources or (dynamic) capabilities, we


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phenomena such as questions regarding how complex or simple organizational forms

learn with different type of information (Haunschild & Sullivan 2002), or how weak

or strong ties among organizational members change knowledge sharing and learning

(Hansen 1999; Lynch 2007). It might also provide a fresh view on dynamic delegation

(Klein et al 2006), governance and organizational structures (Nickerson & Silverman

2003), or routines as a source of change and stability (Feldman & Pentland 2003).

On the other side, the findings allow for a more nuanced view of inter-organizational

phenomena. For instance, organizational transformation, when conceptualized as a

logic of action that results from changes on the institutional level and that impact the

core of the organization (Bacharach et al 1997), can probably be narrowed down by

examining the various aspects of SIDI. Other examples are the role of creating and

maintaining a network on the basis of integration and specialization (Brusoni et al

2001), the underlying architecture of complexity of organizations (Ethiraj & Levinthal

2004) or the architecture of industries (Jacobides 2006).

All of the above studies examine causes and effects of organizing within one or across

several entities. We would argue that specialization, interdependencies, delegation

and incentives are fundamental tradeoffs of organizing in all these settings.


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not change, and the organization is then concentrating on operational execution. In

this paper, we discuss a setting with both execution and dynamically changing search

and coordination processes, and we identify the tradeoffs associated in these settings.


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Figure 1: The Apparel Value Chain and Fashion Inc.s new Corporate

Structure

Fashion Inc.s new corporate structure

Fiber & FabricCut Make

& TrimOriginal BrandName Manuf. Retail

Production of fiber

and fabric

Material handling,packaging, logistics

Cutting, making and

trimming of apparel


Design and product

development

Branding and marketing


Marketing at the

points of sale

Selling of products to

the final customer

Material handling,

packaging, logistics

Fabric Unit CMT Unit Service Unit

Figure 2: Fashion Inc.s overall Process Architecture

RetailOBMCMTFabric

Order Processing

Product Development

Material-

f low

Customer Relationship Mn gt

Corporate Capaci ty Planning

Customer Relat ionship Mn gt Customer Relat ionship Mngt

Product Development Product Development


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Figure 4: Allocation of decision and use rights

Figure 5: Organizational Tradeoffs: The SIDI framework


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Table 1: Sources of evidence throughout the study

Sources of Evidence

in each stage of the Study

Stage 1:

June 2002

January 2003

Stage 2:

January 2003

February 2004

Stage 3:

February 2004

May 2006

Primary Sources of Data Workshop participation, workshopdocumentation (i.e. handouts, workshop

transcripts, working documents, process

maps)

Project management documentation

Personal research notes

Internal documents

SBU business plans

Ongoing discussions with projectmanagement team, as described in Table

2; initial discussion and framing

Workshop participation, workshopdocumentation (i.e. handouts, workshop


maps)

Documentation for IT requirements


Internal documents


Employee survey

Ongoing discussions with projectmanagement team, as described in Table 2

Workshop participation, workshopdocumentation (i.e. handouts, workshop


maps)

Internal documents



IT-design documents

Ongoing discussions with projectmanagement team (see Table 2)

Semi-structured interviews to confirmtheory-building, described in Table 2

Secondary Sources of Data Historical studies ofFashion Inc.

Sector descriptions

Research papers with apparel focus

Analyst reports

Sector descriptions

Press releases

IT-manuals

Company manuals

Sector descriptions

Press releases

IT-manuals

Company manuals

Company Events involved in Workshops as described in Table 2 Firm-wide gatherings (1 presentation of

the new collection, firm anniversary, 2

firm parties

Workshops as described in Table 2

Firm-wide gatherings (1 presentation ofthe new collection, 2 firm parties)

Workshops, as described in Table 2

Firm-wide gatherings (1 presentation ofthe new collection, 1 firm party)

43


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Table 3: Organizational tradeoffs and their impact on search and coordination

Dimension Tradeoff Impact on search Impact on coordination

Specialization Narrow broad Narrow = deep search Broad = expansive search

Narrow = coordination

Broad = coordination

Interdependencies Weak strong Weak = search for local optimum Strong = search for global optimum

Weak = coordination

Strong = coordination

Delegation Loose rigid Loose = search Rigid = search

Loose = coordination

Rigid = coordination

Incentives Individual collective Individual = search Collective = search

Individual = coordination

Collective = coordination

45

Documents

Fashion INC