This is unedited version of a paper finally published as McKinley, William & Scherer, Andreas Georg, "Some Unanticipated Consequences of Organizational Restructuring", Academy of Management Review, Vol. 25 (2000), No. 4, pp. 735-752. For correct citation please see the original journal publication. Thank you! As of 2007 Andreas Scherer works at the University of Zurich.
SOME UNANTICIPATED CONSEQUENCES OF ORGANIZATIONAL RESTRUCTURING*
WILLIAM MCKINLEY Department of Management Southern Illinois University at Carbondale Carbondale, IL 62901-4627 Phone: 618-453-7886 Messages: 618-453-3307 Fax: 618-453-7835 E-mail:
[email protected]
ANDREAS GEORG SCHERER Department of Management University of Erlangen-Nuremberg Lange Gasse 20 90403 Nuremberg GERMANY Phone: 49-911-5302-372 Fax: 49-911-5302-474 E-mail:
[email protected] as of 2007:
[email protected] www.iou.unizh.ch/bwl
unedited version of a paper published in Academy of Management Review 25 (2000): 735-752
*We presented an earlier version of this paper at the Workshop der Kommission "Organisation," Institut für betriebswirtschaftliche Forschung, Universität Zürich, February 26-27, 1999. We would like to thank John Edwards for his research assistance and his comments, and Deborah Dougherty, Kathy Eisenhardt, Steve Karau, Jun Lin, Mike Michalisin, Reed Nelson, Markus Reihlen, Robin Sronce, and the anonymous AMR reviewers for their comments. AMR 99-945C.3; May 4, 2000
Electronic copy of this paper is available at: http://ssrn.com/abstract=971039
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SOME UNANTICIPATED CONSEQUENCES OF ORGANIZATIONAL RESTRUCTURING
ABSTRACT Building on Merton's (1936) classic distinction between intended and unanticipated consequences of purposive action, this paper explores two consequences of organizational restructuring that we argue are unanticipated by managers. At the cognitive level of analysis, we propose that organizational restructuring has the unanticipated consequence of producing cognitive order for top executives. At the environmental level of analysis, organizational restructuring has the unanticipated consequence of contributing to long-term environmental turbulence. Both these unanticipated consequences feed back to promote further organizational restructuring, giving restructuring the character of a self-reinforcing loop. We derive formal propositions from this theoretical framework, discuss issues in testing the propositions, and specify implications for future theory-building and management practice.
Electronic copy of this paper is available at: http://ssrn.com/abstract=971039
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SOME UNANTICIPATED CONSEQUENCES OF ORGANIZATIONAL RESTRUCTURING
In a seminal paper titled "The Unanticipated Consequences of Purposive Social Action," Merton (1936) distinguished between intended and unanticipated consequences of purposive action. Intended consequences are the objectives of the action, the targets toward which it is oriented and the motives that stimulate it. Unanticipated consequences, on the other hand, are outcomes of the action that the actor does not expect in advance and therefore does not intend. In his later work on the related distinction between manifest and latent functions, Merton (1968: 119) urged social scientists to study the latent consequences of social action, stating that "By deali n g p r i m a r i l y … w i t h t h e k e y p r o b l e m o f w h e t h e r d e l i b e r a t e l y i n s t i t u t e d p r a c t i c e s o r organizations succeed in achieving their objectives, the sociologist becomes converted into an industrious and skilled recorder of the altogether familiar pattern of behavior." In other words, though intended consequences are important, an exclusive focus on them -- to the neglect of unanticipated consequences -- narrows the field of social explanation too much. A similar perspective has been taken by Rogers (1995), who emphasized the need to understand the unanticipated consequences of the diffusion of innovations, and by Tenner (1996), who discussed the unanticipated consequences of many types of new technologies. T h i s p a p e r f o l l o w s M e r t o n ’ s ( 1 9 3 6 , 1 9 6 8 ) , R o g e r s ’ ( 1 9 9 5 ) , a n d T e n n e r ’ s ( 1 9 9 6 ) l e a d s b y exploring some unanticipated consequences of one purposive managerial action that is becoming increasingly common in organizations today: organizational restructuring. We argue that although organizational restructuring is directed toward intended consequences that are familiar to readers of the business press -- consequences like improved financial performance and greater competitiveness -- restructuring also has some significant unanticipated consequences (Bowman & Singh, 1993). We concentrate on two of these unanticipated consequences because we believe they play a critical role in the perpetuation of organizational restructuring through self-reinforcing feedback loops (Masuch, 1985). The two unanticipated consequences we examine are: 1) the
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production of short-term cognitive order in top executives responsible for restructuring decisions, and 2) the generation of long-term environmental disorder as a consequence of organizational restructuring. Following Merton (1936), we do not assume that these two unanticipated consequences are undesirable just because they are unforeseen by the executives implementing restructuring. The production of cognitive order in top executives and the disordering of environments may be seen as either good or bad for managers, organizations, or environments, depending on one's perspective. What we focus on is the process through which the unanticipated consequences of organizational restructuring feed back to reinforce further restructuring. We begin the paper by specifying definitions of the constructs that play a key role in our theory, particularly the constructs of "organizational restructuring" and "cognitive order." We also clarify the distinction between intended and unanticipated consequences of managerial action, particularly as this distinction applies to the phenomenon of organizational restructuring. We then argue that organizational restructuring in a turbulent environment has the unanticipated consequence of producing short-term cognitive order in the top executives who engage in it, because restructuring creates a perceived congruence or "fit" (Drazin & Van de Ven, 1985; Venkatraman & Camillus, 1984) between the organization's internal structure and the state of the environment. However, restructuring also involves a paradox, because a second unanticipated consequence of this purposive management strategy is the longer-term disordering of the environment. Both the cognitive order experienced by top executives as a result of organizational restructuring and the disruption of environmental conditions that stems from the same source feed back to create pressures for further restructuring. Therefore, organizational restructuring takes on the character of a self-reinforcing loop. Also, we maintain that organizational restructuring leads to a bifurcation or gap between the cognitions of top managers and those of their subordinates. Specifically, while top managers experience restructuring as a source of cognitive order, their subordinates experience restructuring as a source of cognitive disorder because it opens up new options for implementing the business processes that the subordinates rely on to get work done. The result of this bifurcation is a duality
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of "thought worlds" (Dougherty, 1992) that is differentiated by hierarchical level instead of functional background. Based on the theoretical framework described above, we derive several propositions for future empirical testing, and devote attention to important methodological issues that are likely to arise in conducting those tests. We conclude the paper by exploring the implications of our theoretical framework for future theory-building and management practice. We do not pretend that we offer a complete theory of organizational restructuring, because there are many variables that affect the organizational restructuring process that are not dealt with in our model (e.g., the changes in the size and shape of environmental niches discussed by Zammuto and Cameron, 1985, and the configurations of organizational size, change in size, and organizational age studied by Baker and Cullen, 1993). Nevertheless, our theory highlights variables -- the cognitions of top executives and the reciprocal relationship between organizational restru c t u r i n g a n d t h e s t a t e o f t h e o r g a n i z a t i o n ’ s e n v i r o n m e n t -- that have been neglected in past treatments of organizational change, downsizing, and restructuring (McKinley, Zhao, & Rust, 2000). Therefore we believe that our focus represents a unique contribution, and adds a novel dimension to the treatments of restructuring that already exist in the literature. DEFINITIONS AND LITERATURE REVIEW In this article, we define "organizational restructuring" as any major reconfiguration of internal administrative structure that is associated with an intentional management change program. This definition is consistent with Bowman and Singh's (1993) description of organizational restructuring, and draws on their distinction between three types of restructuring: organizational, portfolio, and financial (see also Bowman, Singh, Useem, & Bhadury, 1999). Organizational restructuring, as used here, excludes the business portfolio changes that are part of portfolio restructuring, and also the financial changes -- increasing debt levels or reducing free cash flow -- that are commonly considered part of financial restructuring (Bowman et al., 1999; Donaldson, 1994). Portfolio or financial restructuring may be correlated with organizational restructuring, but they are not the same phenomenon (Bowman & Singh, 1993). Thus our notion of organizational restructuring is considerably narrower and more specific than the use of
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"restructuring" in the business press. In the latter context, "restructuring" appears to have evolved into a synonym for almost any kind of organizational change. Examples to illustrate and ground our construct of organizational restructuring include the divisional charter changes analysed by Galunic and Eisenhardt (1998), the "patching" phenomenon described by Eisenhardt and Brown (1999), the changes in the corporate organization of film production investigated by Robins (1993), and the administrative reorganizations in colleges and universities that were studied by Baker and Cullen (1993). Organizational restructuring may involve significant workforce reduction, for example in the form of layoffs; but major change in administrative structure, rather than workforce reduction, is the essential defining attribute of the phenomenon. In this paper, we conceptualize organizational restructuring separately from its consequences, taking the position that although organizational restructuring certainly has consequences, they are outside the domain of the restructuring construct itself. Since the effectiveness or ineffectiveness of organizational restructuring has to be judged by its consequences and the implications of those consequences for different organizational constituencies, there is no "good" or "bad" restructuring in our definitional repertoire. Organizational restructuring may have good or bad outcomes, but it is not in itself "good" or "bad." As Bowman and Singh (1993) and Bowman et al. (1999) pointed out, the intended consequences of restructuring usually include outcomes like productivity improvement, cost reduction, increased shareholder value, or a better alignment of the organization with a changing environment. Empirical research assessing whether organizations actually achieve these intended outcomes is relatively sparse, but what research does exist indicates a lack of consensus on the issue. For example, Bowman and Singh (1993) cited several presentations by top executives that suggested there were positive effects of restructuring on income and shareholder value in their firms, but also potential negative effects if restructuring were implemented poorly. Donaldson (1994) reported several case studies of corporate restructuring in the railroad and packaged food industries, emphasizing the benefits of restructuring to shareholders but also the weakening of
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claims on the corporate revenue stream by other corporate stakeholders. Zajac and Kraatz (1993) reported performance improvements following restructuring in the higher education industry, while Robins (1993) concluded that disaggregation of film production had positive financial consequences for film studios. However, Bowman et al. (1999), summarizing research on the financial consequences of organizational restructuring, suggested that organizational restructuring had the weakest effect on firm performance of any of the three types of restructuring (financial, portfolio, and organizational) they reviewed. In the independent, but related, empirical research stream on organizational downsizing, some work has suggested that downsizing has positive effects on post-downsizing profitability (Bruton, Keels, & Shook, 1996; McKinley, Schick, Sun, & Tang, 1999), but other studies have shown little influence of downsizing on profits or financial turnaround chances (e.g., Barker, Mone, Mueller, & Freeman, 1998; Cascio, Young, & Morris, 1997; Mentzer, 1996; Norman, 1995). One study has even concluded that layoffs reduce post-layoff accounting returns (De Meuse, Vanderheiden, & Bergmann, 1994). Additionally, despite anecdotal evidence about the boost that layoffs give to stock prices (see Dial & Murphy, 1995 and McKinley, Sanchez, & Schick, 1995), large-sample studies have indicated a general negative effect of layoff announcements on market-adjusted equity values (Franz, Crawford, & Dwyer, 1998; Lee, 1997; Ursel & Armstrong-Stassen, 1995; Worrell, Davidson, & Sharma, 1991). The exceptions to this regularity are layoffs framed as restructuring or consolidation events, and workforce reductions associated with early retirement programs (Davidson, Worrell, & Fox, 1996; Worrell et al., 1991). Finally, an emerging stream of research (Amabile & Conti, 1999; Dougherty & Bowman, 1995; Fisher & White, 2000; Shah, 2000) has examined the influence of downsizing on creativity and on the social networks that support innovation and learning in organizations. The conclusion of this work is that organizational downsizing disrupts creativity and innovation, though creativity may recover somewhat after a downsizing (Amabile & Conti, 1999). Looking outside the domain of consequences intended or anticipated by managers, research on the unanticipated consequences of organizational restructuring or downsizing is
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almost non-existent. This reflects the current dominance of intended organizational performance goals in the research agendas of strategic management scholars and organization theorists, as well as the (probably unintended) influence of practitioners on the theoretical concerns of organizational scholars (Barley, Meyer, & Gash, 1988). In Merton's (1968: 119) words, "The terms o f a p p r a i s a l a r e f i x e d a n d l i m i t e d b y t h e q u e s t i o n p u t … b y t h e n o n -theoretic men of a f f a i r s … " (emphasis in original). Though the questions posed by men and women of affairs are important, we seek to look beyond those questions to analyse consequences of organizational restructuring that are probably unanticipated by most practicing managers. We emphasize these unanticipated consequences because we believe they have subtle effects -- whether desirable or undesirable -- on the organizations that these managers are charged with administering. By the term "cognitive order," we mean a reduction of uncertainty that results from foreclosing alternative possibilities of meaning or action and embracing a single one. When an individual experiences cognitive order, there is a temporary respite from the need to consider options and make choices among them. The construct of cognitive order is related to Weick's (1979; see also Drazin, Glynn, & Kazanjian, 1999) notion of equivocality removal, but is broader: it refers to reduction of equivocality not just about future meanings, but also future actions. Given the information overload that managers face (see Schick, Gordon, & Haka, 1990), and the heuristics they adopt to deal with that overload (Tversky & Kahneman, 1974; Schwenk, 1984), we believe the state of cognitive order will be attractive to managers, when experienced. We also believe that cognitive order is not dependent on the attainment of financial performance goals in organizations, and is experienced much more quickly than the performance consequences of a particular decision can be known. Partly as a result of the rapidity of onset, we maintain that cognitive order is unanticipated by most managers -- at least when first experienced -- and therefore not a conscious goal of their actions. In contrast to the personality attributes that have been the focus of some recent organizational research -- attributes like top executive need for achievement and top manager locus of control (Miller & Droge, 1986; Miller, Kets de Vries, & Toulouse, 1982) -- cognitive order is a psychological state that is not permanent.
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At the opposite pole, cognitive disorder is a state of individual uncertainty that results from having multiple options to consider or alternative meanings or courses of action presented to the individual. While we believe that cognitive disorder is unattractive to individuals due to the uncertainty it involves, cognitive disorder is not necessarily incompatible with innovation or other intended outcomes that are valued by top managers in organizations. In fact, some consultants (e.g., Peters, 1988) and practitioners (see, for example, the description in Kraar, 2000) claim that chaos and cognitive disorder are actually productive for innovation and performance in corporate settings. Having defined and amplified the constructs of organizational restructuring and cognitive order, and summarized the literature on the intended consequences of organizational restructuring and downsizing, we are now ready to begin developing the central theoretical framework of this paper. Before we do so, however, we would like to emphasize one major qualification that applies to the theory presented below. This theory is most applicable to large organizations operating in environments characterized by high turbulence -- the type of environment that D'Aveni (1994) has described as "hypercompetitive." Examples of such environments include the computer industry (Brown & Eisenhardt, 1997, 1998; Eisenhardt & Tabrizi, 1995), telecommunications, automobile manufacturing, and a number of others. While our theory is therefore bounded, and is less applicable to placid environments populated by many small competitors, current merger activity is widening the range of industries in which large organizations dominate and some variety of hypercompetition can be said to exist (Thomas, 1998). Thus the theory articulated below has broad relevance, within the parameters specified in this paragraph. RESTRUCTURING AS A SOURCE OF COGNITIVE ORDER We begin with the assumption that top managers, particularly those in large corporations, frequently perceive their environments as turbulent (Ilinitch, Lewin, & D'Aveni, 1998). We argue that several variables combine to create those perceptions (see Figure 1). The first of those variables is the actual state of the environment -- there is now evidence (e.g., D'Aveni, 1994;
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Reilly, Brett, & Stroh, 1993; Thomas, 1998) that environmental conditions are growing more turbulent in many industries and organizational sectors. But supplementing the influence of objective environmental conditions are perceptions of environmental turbulence fostered by c o n s u l t a n t s ’ r h e t o r i c , f o r e x a m p l e t h e w e l l -known book on business process reengineering by Michael Hammer and James Champy (1993), or the books by Tom Peters (e.g., Peters, 1988). Whatever the actual state of the environment, we believe that consultants will be biased toward p o r t r a y i n g i t a s t u r b u l e n t , b e c a u s e t h i s i n c r e a s e s t h e i r c l i e n t s ’ d e m a n d s f o r c o n s u l t a n t s e r v i ces to d e a l w i t h t h e t u r b u l e n c e . A l s o , w e p o s i t t h a t a t h i r d v a r i a b l e p r o m o t i n g e x e c u t i v e s ’ p e r c e p t i o n s of turbulence is the business press (e.g., T h e W a l l S t r e e t J o u r n a l , B a r r o n ’ s , B u s i n e s s W e e k , Fortune, etc.) and the stories those media contain. Many of those stories emphasize the destabilizing forces of globalization, international financial crises, and rapid technological change. ------------------------------Insert Figure 1 about here ------------------------------Our theoretical model (Figure 1) hypothesizes that once perceptions of environmental t u r b u l e n c e a r e c r e a t e d b y a c t u a l e n v i r o n m e n t a l t u r b u l e n c e , c o n s u l t a n t s ’ r h e t o r i c , a n d b u s i n e s s press accounts, these perceptions become a major factor influencing executives to engage in organizational restructuring. An important incentive for organizational restructuring in a turbulent environment is that it appears to create a "match" or "fit" (Naman & Slevin, 1993; Venkatraman & Camillus, 1984) between the organization's internal structural state and conditions external to the organization. In other words, internal structural change seems to bring the organization into congruence or "coalignment" (Venkatraman & Prescott, 1990) with the conditions of change that are believed to characterize the environment. One manifestation of the cognitive appeal of this internal change/external change congruence is the emergence of a discourse of "flexibility," "nimbleness," and other metaphors of fluidity to describe desired structural attributes in the "nanosecond 90s" (see, for example, Volberda, 1998).
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Of course, a long stream of literature in contingency theory (e.g., Burns & Stalker, 1961; Cheng & McKinley, 1983; Drazin & Van de Ven, 1985; Lawrence & Lorsch, 1967; Schoonhoven, 1981) and configurational theory (e.g., Meyer, Tsui, & Hinings, 1993) has stated that an effective organization must create a match or fit between the organization's structure and the characteristics of its environment. However, this literature has focused on the anticipated performance consequences of such a match, rather than the less clearly anticipated cognitive state we address in this section of our paper. We argue that the perceptual congruence created by restructuring one's organization in an apparently turbulent environment has the unanticipated consequence of creating cognitive order for the top executives who initiate the restructuring (see the right side of Figure 1). The top executives do not actively seek such order, because they are concentrating on achieving better performance and better objective alignment of their organization with its environment. But the psychological state of cognitive order nevertheless stems from the narrowing of options about the organization's future structural state that results from a decision to restructure the organization in a particular way. For top executives, deciding on a given change from structural state A to structural state B dictates the path of structural transformation for the immediate future, eliminating other possible change paths and creating a reassuring sense of cognitive order. A decision to restructure the organization not only eliminates some structural change paths a n d n a r r o w s t o p e x e c u t i v e s ’ c o g n i t i v e h o r i z o n s t o a p r e f e r r e d o n e , i t a l s o d e l e t e s c e r t a i n interpretations about the environment, and in that sense is also order-creating. To restructure implies that the environment is changing and denies that the environment is stable or that the environment is similar to past environmental states. In fact, the interpretation that environments are rapidly changing, and the restructuring that underpins that interpretation, appear to have acquired the status of an order-creating ideology among some top executives in recent decades (see, for example, Kraar, 2000). In sum, we do not deny that there may be other outcomes of organizational restructuring, but we believe that the sense of cognitive order felt by those at the
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apex of the organization is one of the important ones. Based on this reasoning, we offer our first proposition: Proposition 1: In environments that top executives perceive to be turbulent, organizational restructuring has the unanticipated consequence of generating cognitive order for the top executives who engage in it. Given the desirability of grounding our propositions by discussing important methodological issues that would arise in testing them, we identify the measurement of cognitive order as a critical issue in testing Proposition 1. Because of legal restrictions on the disclosure of material information by executives of publicly traded corporations, it is unlikely that such executives would respond to a survey instrument that attempted to assess their degree of cognitive order after a restructuring.1 An alternative to this measurement strategy would be to use proxy measures of top executive cognitive order. An example might be the presence of top executives at public briefings or press conferences following a major organizational restructuring: the reasoning here is that executives whose cognitive order has been increased by the restructuring decision are more likely to feel comfortable appearing at such public forums. Similarly, if top executives experience cognitive order following a restructuring, they should be less likely to sell their shares in the restructured corporation and less likely to leave the firm for another job. Thus, if a corporate restructuring episode at time 1 is followed by increases in the presence of the c o r p o r a t i o n ’ s t o p m a n a g e m e n t a t p u b l i c f o r u m s , a n d b y r e d u c e d i n s i d e r s a l e s o f t h e c o m p a n y ’ s stock and reduced top management turnover, the results could be interpreted as consistent with Proposition 1. Failure to find such relationships would be taken as evidence against Proposition 1. Because it is constructed in such a way as to be open to falsification attempts (Bacharach, 1989), and we state how falsification of the proposition could occur, Proposition 1 is a worthy claimant for the future attention of empirical researchers. Returning to Figure 1, we also argue that there is a positive feedback effect (P2 in the figure) from the "cognitive order" box to the "organizational restructuring" box, representing the 1
We are indebted to an anonymous reviewer for pointing this out.
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reinforcement that cognitive order provides for additional organizational restructuring. If cognitive order is an appealing, though unanticipated, state, activities that are connected with that state, like organizational restructuring, will be reinforced. This increases the likelihood that top executives will engage in more organizational restructuring if the environment is perceived to continue in its state of turbulence. In this sense, organizational restructuring can be viewed as a learned phenomenon, with a reinforcer consisting of an unanticipated psychological state of cognitive order that depends on temporary uncertainty reduction. This reasoning helps explain the advocacy of continual restructuring by some prominent executives, and the calls for ongoing restructuring in some parts of the academic literature (e.g., Donaldson, 1994). The fact that organizational restructuring may also have anticipated financial benefits (Donaldson, 1994) does not invalidate our argument. We do not deny the possibility of positive financial consequences stemming from organizational restructuring, but simply want to call attention to a part of the cognitive dynamic surrounding restructuring that may be less apparent to top executives. We capture the positive feedback effect of cognitive order on organizational restructuring in the following proposition: Proposition 2: The cognitive order that top executives experience as a result of organizational restructuring in a turbulent environment will encourage additional restructuring, giving restructuring the character of a self-reinforcing loop. Masuch (1985) and Monge (1990) have discussed the general attributes of self-reinforcing processes, but to our knowledge no one has yet applied the concept to the iterative relationship between organizational restructuring and the cognitive state it produces in top managers. In testing Proposition 2, an important methodological issue will again be the measurement of top executive cognitive order. However, this time we can recommend a more direct operationalization of cognitive order than the proxy measures that would be necessary for testing Proposition 1. Drawing on content analysis techniques (e.g., Bowman, 1982; Holsti, 1968; Rust, 1999) researchers could content analyse letters to shareholders in the annual reports of corporations that had just undergone major bouts of organizational restructuring (e.g., the creation
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of new divisions or the consolidation of existing ones). The content analysis could assess the degree of cognitive order exhibited by top managers in their discussions of the restructurings in the letters, based on detailed definitions of cognitive order that would be provided to coders. The content analysis-based measures of cognitive order could then be correlated with the incidence and level of organizational restructuring at future dates in the same firms. A positive correlation would provide evidence for the feedback effect of top management cognitive order on subsequent organizational restructuring, thus supporting Proposition 2. A null or negative correlation between the content analysis-based measures of top executive cognitive order and later organizational restructuring would not be supportive of Proposition 2. Cognitive Order and Disorder: A Bifurcation Thus far, the focus has been on top executive cognitions resulting from organizational restructuring and the implications those cognitions have for additional organizational restructuring. We now turn to the question of how subordinates who occupy the levels below the top management ranks perceive organizational restructuring, and how their cognitions compare wit h c o g n i t i o n s a b o u t r e s t r u c t u r i n g a t t h e o r g a n i z a t i o n ’ s a p e x . W o r k i n g f r o m S t e w a r t ' s ( 1 9 8 7 ) definition of top management, we define these subordinates as those managers and employees below the CEO and the layer of executives who report directly to him or her. The downsizing literature contains some research about differences in attitudes toward downsizing across managerial levels (e.g., Armstrong-Stassen, 1998; Luthans & Sommer, 1999), but to our knowledge there have been no studies of how cognitive order varies across levels in the managerial hierarchy during organizational restructuring. Thus we pose the question: do middle managers and employees at the technical core (Thompson, 1967) of the organization make sense of organizational restructuring in the s a m e w a y t h a t t h e o r g a n i z a t i o n ’ s l e a d e r s h i p d o e s ? We believe that the answer to this question is likely to be no. This argument is consistent with the general point made by Trice (1993) and Drazin et al. (1999) that organizations consist of multiple frames of reference and systems of meaning, sometimes differing by hierarchical level. More specifically, as suggested by Hambrick and Mason (1984), it is the special responsibility of
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top managers to scan the environment and form interpretations of its condition. Thus, top executives can be expected to be especially prone to perceptions of environmental turbulence (Figure 1), and especially attracted to the short-term cognitive order that flows from decisions to match internal structure to the evolving state of the environment. Since top executives are charged with managing the relationship between the organization and its environment, organizational restructuring in a turbulent environment will appear to resolve problems and create order. By contrast, employees below the top executive levels are more remote from the rhetoric and the reality of fundamental environmental transformation than executives at the apex of the organization. Thus, those subordinates will not place as high a value as their bosses on the alignment of internal structure with the changing condition of the environment. In fact, a case can be made that the cognitive order experienced by top executives as a result of decisions about this alignment is attained at the expense of cognitive disorder among managers and employees lower down in the organizational hierarchy. After top-level decisions about restructuring have been made, the details of implementing those decisions (how to establish new structural subunits, how to eliminate old ones, what jobs are to be cut and what jobs retained) are often delegated downward to committees of middle managers (Cappelli et al., 1997). This generates cognitive disorder for those subordinates, because a great deal of new information has to be processed and many new options have to be considered. Consistent with our definition of cognitive disorder above, restructuring opens up new possibilities for action at the middle management and employee levels, and poses problems for which new solutions have to be found. Adding to the sense of disorder is the fact that many of the decisions to be made are of a sensitive political nature. Therefore, we argue that a bifurcation will begin to develop between the state of cognitive order felt by the top management team as a result of organizational restructuring and the state of cognitive disorder restructuring induces in their subordinates. Undergirding this cognitive bifurcation is the fact that managers below the apex tend to be much more focused on administering specific business processes than top managers are. We
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define a business process as a series of discrete steps designed to produce a product or service. An example of a business process would be the procedure used in large corporations to verify the receipt of shipments and authorize payment to vendors (Hammer & Champy, 1993). Another example would be the set of steps required to pay customer claims in an insurance company (Cappelli et al., 1997). Business processes are a critical resource that middle managers and firstline supervisors depend on to achieve performance targets in the functional or product domains they oversee. Organizational restructuring is likely to disrupt the reliable functioning of these processes, either by reorganizing the components of the processes or by eliminating certain components of the processes through workforce reduction. While this may have long-term benefits for the organization, by facilitating technological change and increasing flexibility (Cappelli et al., 1997; Hammer & Champy, 1993; Volberda, 1998), it is not likely to be seen as order-producing by middle managers and first-line supervisors. Over the short term, at least, changes in business processes through restructuring will tend to be disorder-generating for these individuals, because such changes raise for reconsideration previously settled questions about how to get work done reliably. In Drazin et al.'s (1999) terms, cognitive disorganization will be felt by middle managers as they reframe existing interpretations about the implementation of their business processes. The sense of cognitive disorder that subordinate managers and employees experience from restructuring has been captured by such authors as Victor and Stephens (1998) and Zohar and Morgan (1998), and it also surfaces in business press articles like Spindle's (1999) description of the restructuring at Nomura Securities. This suggests a third proposition: Proposition 3: Organizational restructuring will be a generator of cognitive order for top executives and a generator of cognitive disorder for managers below the top ranks. Thus a bifurcation, creating hierarchically divided domains of cognitive order and cognitive disorder, will characterize large organizations that are restructuring in turbulent environments. Note that Proposition 3 does not deny the possibility that cognitive disorder is intentionally introduced to the middle and lower management ranks of large organizations by top
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managers implementing an organizational restructuring. Following the rhetoric of consultants who state that managers and employees must learn to embrace chaos (e.g., Peters, 1988), top executives may foment lower-level chaos as part of a strategy to fight complacency and prepare employees for global competition. Proposition 3 also does not deny the possibility that lowerlevel cognitive disorder is a good thing for the long-term performance and innovativeness of the organization. The only claim made by Proposition 3 is that there is a bifurcation, or gap, between the cognitive order experienced by top managers and the cognitive disorder experienced by their subordinates during organizational restructuring. A major issue in testing Proposition 3 will be tapping the degree of cognitive disorder present at the middle and lower ranks of restructuring organizations. To deal with this problem, it might be possible to adapt some of the proxy measures discussed above and use them to assess the degree of cognitive disorder of middle managers and line employees. For example, the rate of voluntary (non-downsizing related) turnover at these ranks could be employed as an indicator of the cognitive order/disorder dimension. One could compare voluntary turnover rates of subordinates and top managers following organizational restructuring to get a sense of whether the cognitive bifurcation predicted in Proposition 3 is manifest in differences in exit behavior. Support for Proposition 3 would require more than just showing differences in post-restructuring turnover rates across hierarchical levels in the corporation. The differences would have to be in a direction consistent with Proposition 3: lower voluntary turnover at the top of the chain of command than at the middle and lower ranks. Proposition 3 would be falsified if the predicted bifurcation pattern did not materialize in proxy measures or if evidence could be provided that the bifurcation (not just high cognitive disorder at the lower ranks) was an intended consequence of organizational restructuring. RESTRUCTURING AS A SOURCE OF ENVIRONMENTAL DISORDER Returning to Figure 1, the reader will note that there is a feedback loop, labelled P4, that connects organizational restructuring back to objective states of environmental turbulence. We argue that this feedback loop represents an unanticipated consequence of organizational
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restructuring at the environmental level of analysis that supplements the unanticipated consequences of restructuring at the cognitive level of analysis. Because organizations, particularly large ones, form important parts of the task e n v i r o n m e n t s o f o t h e r o r g a n i z a t i o n s , o n e o r g a n i z a t i o n ’ s r e s t r u c t u r i n g t e n d s t o c r e a t e environmental turbulence for other organizations, particularly those in the same industry. This is e x p l i c i t i n B r o w n a n d E i s e n h a r d t ’ s (1998) theory of strategy as structured chaos. Brown and Eisenhardt (1998: 5) remarked that ...the best-performing firms consistently lead change in their industries. These firms dominate their markets. In fact, they become the environment for others. Not only do they lead change, but these firms also set the rhythm and pace of that change within their industries (emphasis in original). The role of organizational restructuring in generating environmental change and turbulence is also implicit in the stream of work based on the "hypercompetition" construct (e.g., D ’ A v e n i , 1 9 9 4 ; I l i n i t c h , L e w i n , & D ’ A v e n i , 1 9 9 8 ; T h o m a s , 1 9 9 8 ; Y o u n g , S m i t h , & G r i m m , 1998). The basic idea of hypercompetition is that competing organizations engage in an ongoing s e r i e s o f s t r a t e g i c m o v e s t h a t u n d e r c u t t h e a d v a n t a g e s a c c u m u l a t e d b y t h e i r r i v a l s ( D ’ A v e n i , 1994; Smith & Zeithaml, 1998). This process is reciprocal, as targets of competitive initiatives respond to those initiatives with moves of their own, their targets counterrespond, and so on. While the intended consequence of a hypercompetitive strategy is to disrupt the competitive advantages of rivals (D'Aveni, 1994), an unanticipated consequence, we argue, is an environment characterized by turbulence, chronic change, and high uncertainty about future states. Consistent with the process just described, we believe that organizational restructuring, particularly as practiced by large corporations today, is an important source of unanticipated environmental turbulence. For example, organizational restructuring by a major player in an industry can change the competitive dynamics in that industry, starting a race to achieve the lowest-c o s t p o s i t i o n o r t h e g r e a t e s t " f l e x i b i l i t y " ( D ’ A v e n i , 1 9 9 4 ) . E v e n i f t h e c o m p e t i t i v e g o a l s
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of a restructuring are not clear to rivals of the restructuring firm, those rivals will feel pressure to "clone" (Matthews, Warren, and Wysocki, 1999; McKinley et al., 1995) the restructuring process in order not to miss out on whatever advantages they believe the original restructurer anticipates. This cloning or contagion effect is evident in Matthews et al.'s (1999) description of recent organizational restructuring in the aluminum and automobile industries. Thus, a focal corporation's organizational restructuring, intended to adjust internal structure to externally determined environmental conditions (Donaldson, 1994), can have the unanticipated consequence of changing the environmental conditions as well as the internal structure. Though the effects of restructuring on environmental conditions are usually deemphasized in executives' portrayals of restructuring's purpose and outcomes (e.g., Kleinfield, 1996), these environmental effects are clearly important. The paradox, then, is that top executives responsible for organizational restructuring programs may be deriving a sense of short-term cognitive order from activities that are also increasing longer-term external conditions of disorder in their industry. Those conditions will eventually make themselves felt in perceptions of environmental turbulence (see link P5 in Figure 1) and a perceived need for additional restructuring, which further disorders the environment (while delivering short-term cognitive "hits" of uncertainty reduction to top executives). These consequences again feed into the escalation of restructuring, helping to explain its widespread prevalence in many organizational sectors and industries today. These arguments can be summarized in the following propositions: Proposition 4: Organizational restructuring, particularly as practiced by large corporations, is one source of long-term environmental disorder. Proposition 5: This disorder will eventually make itself felt in perceptions of environmental turbulence by top executives, and those perceptions will drive further restructuring. Proposition 6: As the short-term sense of cognitive order derived from organizational restructuring (Proposition 1) begins to overlap with the longer-term conditions of
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environmental disorder attributable to the same source (Proposition 4), top executives will experience escalating psychological pressures for restructuring. A critical issue in testing Proposition 4 is how to link restructuring at the organizational level with later turbulence at the industry level of analysis. In other words, the goal of the test is to see whether significant organizational structure changes by major industry participants at time 1 are correlated with increased levels of industry turbulence at time 2. In order to examine this relationship, a cross-industry design would be necessary, despite the difficulties in establishing controls for the many factors other than organizational restructuring that might affect industrylevel turbulence. This control problem could be at least partially resolved by including measures of industry age, degree of industry consolidation, concentration in supplier and customer industries, and other factors that could be expected to have independent effects on industry turbulence. Indices of dynamic resourcefulness (Thomas, 1998) or environmental turbulence (Naman & Slevin, 1993) could be used to measure the dependent variable in Proposition 4. Proposition 4 would be supported if the predicted positive relationship between levels of organizational restructuring and later industry-level turbulence could be demonstrated. Proposition 4 would be falsified if the relationship were null or negative. Proposition 5 poses another set of design issues, requiring the researcher to evaluate the relationship between actual industry turbulence and top executives' perceptions of industry turbulence at a later date. Then, to test the second part of Pro p o s i t i o n 5 , t o p e x e c u t i v e s ’ perceptions of industry turbulence would need to be correlated with subsequent levels of organizational restructuring. This design problem is made more tractable by the fact that measures used in tests of other propositions (e.g., industry turbulence, Proposition 4) would also be available for testing Proposition 5. Thus measures of dynamic resourcefulness (Thomas, 1998) could be related to indices of perceived industry turbulence garnered from letters to shareholders in annual reports written after the time at which dynamic resourcefulness was measured. A significant positive relationship between objective dynamic resourcefulness at time 1 and perceptions of industry turbulence at time 2 would be supportive of the first part of
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Proposition 5. Then the perceptual indices based on the annual report data could be correlated w i t h o r g a n i z a t i o n a l r e s t r u c t u r i n g i n t h e s a m e f i r m s a t t i m e 3 , t o s e e w h e t h e r t o p e x e c u t i v e s ’ perceptions of external turbulence translate into later organizational restructuring moves. Evidence of such a relationship would support the second part of Proposition 5. Proposition 6 suggests that at the end of extended periods of environmental turbulence and organizational restructuring, when the cognitive and environmental effects of restructuring hypothesized in this paper begin to overlap, top executives will feel escalating psychological pressures for restructuring. Specifically, we argue that top executives who derive a feeling of cognitive order from their past restructuring decisions, and yet perceive high levels of ongoing environmental disorder, are the most likely to advocate more waves of internal structural change. Metaphorically speaking, the cognitive order resulting from the decision process followed in past organizational restructuring acts as a "carrot," while the ongoing environmental turbulence functions as a "stick," both operating simultaneously to encourage additional restructuring. Proposition 6 might be tested by selecting industries that have experienced relatively long periods of organizational restructuring (e.g., banking), and studying a group of top executives who have been involved in major portions of that restructuring history. The empirical r e s e a r c h e r ’ s g o a l w o u l d b e t o s e e w h e t h e r executives who exhibit the characteristics that proxy f o r h i g h c o g n i t i v e o r d e r ( e . g . , l o n g t e n u r e w i t h t h e f i r m a n d e x t e n s i v e h o l d i n g s o f t h e f i r m ’ s equity) and who also report high levels of perceived environmental turbulence are especially subject to psychological pressures for organizational restructuring. Psychological pressures for r e s t r u c t u r i n g m i g h t b e m e a s u r e d b y c o n t e n t a n a l y s i s o f t h e e x e c u t i v e s ’ l e t t e r s t o s h a r e h o l d e r s , their speeches to the public, or their internal memos. If the combination of high scores on the proxy measures for cognitive order and high perceived turbulence was associated with high experienced pressure for restructuring, Proposition 6 would be supported; otherwise Proposition 6 would be classified as unsupported. Returning again to Figure 1, we also propose that in addition to its effects on objective environmental turbulence, organizational restructuring feeds back to influence consultants'
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rhetoric and business press accounts about the environment (see the links labelled P7 at the extreme left of Figure 1). The assumption underlying this argument is that many of the descriptions of "environments" found in the consultancy literature and the business press are actually constructions generated by corporate restructuring. If, for example, a telecommunications corporation like AT&T acquires a cable television provider like TCI, the corporate restructuring that ensues is practically indistinguishable from a restructuring of the entire U.S. telecommunications industry. The competitive implications for other telecommunications firms are the same as if the entire industry had changed, and indeed, AT&T is large and powerful enough to "enact" (Smircich & Stubbart, 1985) an environment for its competitors (see Brown & Eisenhardt, 1998). As industries become increasingly concentrated around a few large competitors through the current merger and acquisition wave, we expect this phenomenon to generalize beyond telecommunications to industries like banking, soft drinks, fast food, automobiles, Internet service providers, and a number of others. As restructuring-driven constructions of environmental turbulence get integrated into the literatures of consultants and the business press, they begin to influence top executives' sensemaking (Weick, 1995) about environmental conditions. Of course, executives' sensemaking about environments is affected by many sources of information, among which the consultancy and business press literatures are only two; but even given this qualification, we expect these literatures to be a key source of top executives' constructions of reality (Berger & Luckmann, 1967). Consistent with this, Abrahamson (1996) has emphasized the role played by consulting firms, mass media organizations, and other "fashion setters" in disseminating constructions of reality (e.g., portrayals of performance gaps) that encourage the adoption of fashionable management techniques. Thus depictions of environmental turbulence presented in consultants' rhetoric and business press accounts should have a positive effect on perceptions of environmental turbulence by top executives (link P7 below the "perceptions" box in Figure 1), creating more incentives for organizational restructuring to respond to those conditions. As this restructuring proceeds, the perceptions of turbulence become self-fulfilling through their effects
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o n t h e l e v e l o f r e s t r u c t u r i n g i n t h e p e r c e i v e r s ’ o r g a n i z a t i o n s a n d t h e f e e d b a c k e f f e c t t h a t restructuring has on future environmental states and future environmental constructions. It is perhaps not too much to say that large corporations in many industries today are enacting their own environmental turbulence, through self-reinforcing causal dynamics like those portrayed in Figure 1. We summarize these insights in our final proposition: Proposition 7: Organizational restructuring, particularly as practiced by large corporations, stimulates constructions of environmental turbulence in the writings of consultants and reporters, and those constructions drive top executive perceptions of environmental turbulence and also additional restructuring. An important design issue in testing Proposition 7 will be determining what consultant books and business media are influential for the sensemaking of top executives. This problem could be approached by surveying a random sample of CEOs and other top managers in a variety of industries, and asking them to rank order a list of books and media by degree of impact on their thinking. Constructions of industry turbulence depicted in the outlets ranked as most important could then be captured by content analysis techniques similar to those Lamertz and Baum (1998) have pioneered for measuring how downsizing is depicted in newspaper stories. If such industrylevel constructions were preceded by high degrees of organizational restructuring in the same industries, the result would be consistent with our argument that organizational restructuring gets interpreted as environmental turbulence and embodied in media descriptions of that turbulence. Another approach to evaluating the implications of Proposition 7 would be to sample a group of large corporations that had recently been clients of several different consulting firms. Data could be collected on the organizational change programs being championed by each consulting firm and the constructions of the environment used by each firm to justify its particular program (Abrahamson, 1996). These data might be drawn from letters to shareholders in the consulting firms' annual reports, or from books written by "star" consultants in particular firms, and content analysis techniques similar to Lamertz and Baum's (1998) could be used to quantify the data. Consistency between the constructions of environmental reality presented by the
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consulting firms and the perceptions of the environment held by top managers of their corporate clients would provide indirect evidence of the influence of consultants on the sensemaking processes of top managers. Correspondingly, empirical researchers could look for patterns of consistency between consultants' statements about the level of environmental turbulence and the later restructuring activities of their corporate clients. The detection of such consistencies would support the causal logic that underlies the chain of events hypothesized in Proposition 7, while failure to detect such consistencies would raise questions about that logic. DISCUSSION AND CONCLUSION While organizational restructuring is clearly an important phenomenon in many industries and organizational sectors today, most of the business press and academic writing on this phenomenon is confined to restructuring's intended financial and strategic consequences. F o l l o w i n g M e r t o n ’ s ( 1 9 3 6 ) , R o g e r s ’ ( 1 9 9 5 ) , a n d T e n n e r ’ s ( 1 9 9 6 ) d i s t i n c t i o n s b e t w e e n i n t e n d e d and unanticipated consequences, we have focused on some less transparent consequences of restructuring that we believe are unanticipated by most managers. We have proposed that organizational restructuring in a turbulent environment generates a sense of cognitive order for top executives, because the decision to transform internal structure appears to match the organization's internal structural conditions with conditions of change in the environment. Once experienced, the psychological state of cognitive order is a reinforcer for additional organizational restructuring, at least as long as the environment remains turbulent. However, we have also argued that the sense of cognitive order felt by top executives as a result of restructuring is not shared by their subordinates, who are prone to perceive organizational restructuring as a source of cognitive disorder because it disrupts established business processes and opens up alternatives to established ways of getting work done. Therefore the possibility arises of a bifurcation, or gap, between the cognitions of top managers and their subordinates as organizational restructuring progresses. At the level of unanticipated environmental consequences, we have proposed that organizational restructuring in the large organizations that are the principal focus of our theory
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has a disruptive effect on environmental conditions. This disordering effect is attributable to the hypercompetitive escalation that organizational restructuring tends to initiate, and to the fact that a considerable number of large organizations (e.g., AT&T, AOL/Time Warner, the major oil companies) dominate their industries so completely that they are almost indistinguishable from the "environment." The environmental turbulence produced by large-scale organizational restructuring stimulates executive perceptions of environmental turbulence and thence additional restructuring. This self-reinforcing causal dynamic also interacts with the self-reinforcing causal process we described for the relationship between restructuring and top executive cognitive order. Finally, organizational restructuring tends to promote constructions of industry turbulence in the business press and in the organizational change literature produced by consultants, and this material plays its own role in the causal effects that support ongoing restructuring. We have derived seven propositions from this theoretical framework, and in order to anchor these propositions empirically, we have discussed important issues in testing them. Our hope is that the propositions will serve as a stimulus for future empirical research on the unanticipated consequences -- both positive and negative -- of the organizational restructuring that has become so common in contemporary industries. Implications for Theory We conclude this paper by discussing the implications of our theoretical framework for future theory-building and future management practice regarding organizational change. The paper provides an explanation for the chronic nature of the organizational restructuring we see today, and for the managerial paradigm that views continual restructuring and hypercompetition as inevitable features of today's business environment (see Ilinitch et al., 1998). However, an important question is whether there is any limit to the self-reinforcing loops described above and in Figure 1, or whether those loops have the potential to cycle until industry conditions and corresponding states of organizational structure become totally chaotic. While such a pattern is ominous, informal observation of industries over time suggests that it is in fact not typical. Instead, organizational restructuring, while chronic, tends to occur in waves, with periods of
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frenetic activity followed by periods of relative calm. This implies, in turn, the existence of dampers, or self-correcting loops (Masuch, 1985) that balance the self-reinforcing dynamics portrayed in Figure 1. One candidate for such a damper may be the bifurcation between top management c o g n i t i v e o r d e r a n d s u b o r d i n a t e s ’ c o g n i t i v e d i s o r d e r t h a t w e p o s t u l a t e d i s o n e r e s u l t o f organizational restructuring. Assuming this bifurcation does exist, it may put brakes on the organizational restructuring process, exerting pressures on top executives that partially counter the pressures for more restructuring described above. Specifically, top managers may sense intuitively that if they continue restructuring too long, cognitive disorder will build in the lower ranks to the point that the organization will be torn apart or cease to function as a coherent enterprise. Damper effects of this sort, which add to the stability of the organization, would be an interesting subject for future theoretical exploration and empirical research. Dampening organizational restructuring might be considered good or bad for the organization, depending on the perspective and interests of the stakeholder making the judgment. Our focus is not on such normative judgments, however, but rather on unanticipated consequences of organizational restructuring and the role they play in perpetuating or moderating further restructuring. Our theory also suggests that there is a disjunction, over time, between top managers' cognitions about restructuring and the environmental conditions that restructuring actually produces. Put another way, top executives' cognitions may register only part of the causal process set in motion by organizational restructuring; other parts of the process will tend to be less visible to top executives, or even totally obscured. This speaks not to top executives' lack of cognitive ability, but to the information overload they must deal with -- a condition that is, to some degree, shared by all human beings (Schick, Gordon, & Haka, 1990). Judging from their statements in the business press, top managers tend to view restructuring as a necessary and inevitable response t o i n c r e a s i n g l y f l u i d e n v i r o n m e n t s . I f t h e s e s t a t e m e n t s a r e a n y m e a s u r e o f t h e e x e c u t i v e s ’ t r u e cognitions, their tendency is to objectify (Barley & Tolbert, 1997; Berger & Luckmann, 1967) change and focus on the determinism of the environment. The possibility that their corporations
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are, in part at least, the sources of the environmental change to which they are responding is downplayed or cognitively excluded. While a partial view of the causal picture we are proposing in Figure 1 is understandable, given executives' overload and their need for rapid action (Eisenhardt, 1989; McKinley, Mone, & Barker, 1998), it nevertheless understates the environmental turbulence that is created by restructuring programs. This implies, in turn, that future scholarly investigations of organizational change should place more emphasis on the consequences of organizational action for environments, rather than seeing organizations primarily as products of causal forces emanating from the environment. Organizations, particularly large corporations, are active constructors and enactors of their environments (Smircich & Stubbart, 1985; Porac, Thomas, Wilson, Paton, & Kanfer, 1995); and in concentrated industries, such as automobile manufacturing, personal computers, soft drinks, operating system software, and telecommunications, the leading organizations may be indistinguishable from the "environment" (Brown & Eisenhardt, 1998). Increased attention to the environmental enactment and construction role of large organizations would help ground the somewhat disembodied, abstract representation of the "environment" that is found in much current organization theory. In addition, our framework suggests that top managers' cognitions about restructuring may become divorced not only from actual restructuring-environment causation but also from the cognitions of their own subordinates. Put metaphorically, top executives and those below them in the organizational hierarchy may come to live in different cognitive universes as a restructuring program unfolds. If organizational restructuring were to become institutionalized, this bifurcation in cognitive schemas might be subject to convergence (McKinley et al., 2000); but in its current, pre-institutionalized form, we expect restructuring to be interpreted differently by top managers and their subordinates. Since the latter are more focused on technical core activities than top executives, the schema they are likely to bring to bear on organizational restructuring will highlight its effects on technical core processes, which will probably be disruptive. By contrast, top executives are specifically charged with the survival of the organization in a competitive
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environment, so the schema they will bring to bear on restructuring will emphasize its environmental alignment capabilities and its power to improve performance. These two different schemas can produce a valuable diversity in the thinking of organizational members, and the gap between the schemas, if sensed by top management, may set into motion feedback loops that enhance the stability of the organization by slowing restructuring periodically. At the same time, however, cognitive bifurcation of the type we are describing may have unanticipated consequences that hinder the ability of top managers and their subordinates to communicate with one another and maintain a common vision of the organization. In the final analysis, this emphasizes the desirability of developing better theory about organizational restructuring, particularly concerning its influence on the cognitive structure of large organizations. The theoretical framework offered in this paper will hopefully be a step in that direction. Implications for Practice Regarding practice, our theory implies that an important problem facing top executives during organizational restructuring is maintaining subordinate "buy-in" to restructuring activities that the subordinates often perceive as chaotic. From a technical standpoint, lower-level employees need to be convinced that restructuring can be administered to achieve espoused goals of flexibility, innovation, and improved financial performance while simultaneously preserving the capacity of business processes to generate output reliably. We do not have a magic formula for accomplishing this balancing act or for persuading subordinates that it can be done; we merely identify it as an important issue that top management teams need to grapple with as part of their planning for restructuring. To the extent that middle managers and line employees are assessed on their ability to generate a predictable flow of products and services, organizational restructuring has the potential to be perceived as a threat by them. Beyond the technical issues of output production and performance assessment, our theoretical framework suggests that top managers should make a special effort to widen channels of communication with subordinates during the restructuring process. The virtue of this is shown by Weick's (1993) analysis of social disintegration in a group of smokejumpers facing a forest fire
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that was racing out of control. According to Weick (1993), lack of communication between group members helped bring about a collapse of the group's social structure and a reduction of the group's capacity to build common frames of meaning. While organizational restructuring does not have the intensity of a forest fire, it does contain a strong potential for disruption of consensual meaning (Weick, 1993) and for promotion of ontological insecurity (Giddens, 1990). Weick (1993) recommended within-group communication as an antidote to the reciprocal effects of social disorganization and fragmentation of meaning; and if we extend Weick's analysis to the case of organizational restructuring, the implication is that communication across hierarchical levels is vital to the preservation of at least minimal organizational coherence during major structural change. To conclude, this should maximize the chances that large organizations will experience benefits -- both intended and unanticipated -- from organizational restructuring.
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William McKinley is an associate professor of management in the College of Business and Administration, Southern Illinois University at Carbondale. He received his Ph.D. in organizational sociology from Columbia University. His research interests include the sociology and philosophy of organization science, organizational downsizing and restructuring, organizational decline and innovation, and organizational change. Andreas Georg Scherer earned his two doctorates in strategy and international management at the University of Erlangen-Nuremberg. He is on leave as an associate professor at the University of Constance. His research interests include strategic management, organization theory, international management, and business ethics. (As of 2007 he works as a professor at the University of Zurich, Switzerland)
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FIGURE 1 Some Unanticipated Consequences of Organizational Restructuring
Unanticipated environmental and rhetorical consequences
P4
Unanticipated cognitive consequences
Actual environmental turbulence
+ P5
P7
C o n s u l t a n t s ’ rhetoric
+
Perceptions of environmental turbulence by top executives
P5 +
Organizational restructuring
+ P1
P7
P7
P2 Business press accounts
+
Cognitive order for top executives
