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Princeton University Press
The Red Queen among Organizations: How Competitiveness Evolves

The Red Queen among Organizations: How Competitiveness Evolves

by William P. Barnett


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Product Details

ISBN-13: 9780691131146
Publisher: Princeton University Press
Publication date: 02/24/2008
Edition description: New Edition
Pages: 296
Product dimensions: 6.00(w) x 9.25(h) x (d)

About the Author

William P. Barnett is the Thomas M. Siebel Professor of Business Leadership, Strategy, and Organizations at Stanford University's Graduate School of Business.

Read an Excerpt

The Red Queen among Organizations How Competitiveness Evolves

By William P. Barnett Princeton University Press
Copyright © 2008
Princeton University Press
All right reserved.

ISBN: 978-0-691-13114-6

Chapter One Why Are Some Organizations More Competitive than Others?

FORMAL ORGANIZATIONS OPERATE in every aspect of modern life, and in each domain some organizations become remarkably successful while most others do not. Popular magazines feature thriving businesses, describing these most competitive organizations and their leaders as models to be emulated. Meanwhile, thousands of other businesses flounder, and many fail outright. Winning and losing organizations appear in many other walks of life as well. Think of charitable organizations, research and development consortia, churches, sports leagues, social movement organizations, schools, political parties, or any other kind of organization, and you will likely know of a few stand-outs. Look deeper into any of these domains, however, and you will see many other organizations that have fallen short of success. How can we explain why some organizations are more competitive than others?

This question may seem straightforward, answerable simply by looking at what distinguishes the winners and losers we see around us. What makes the question tricky, however, is how quickly its answer changes over time. Even as our attention is fixed on today's champion organizations, most champions of the past have fallen, and many are gone entirely.This is true, of course, when industries rise and fall, as was the case for the U.S. rail, textile, and steel industries, among others. But the same pattern of ascendance and failure appears as well in growing, vital industries. Not long ago, it was unthinkable that the likes of Bethlehem Steel or PanAm would become history even as their industries continued to grow. So the champions of each new organizational generation seem invulnerable in their times. But with the passage of time, the cycle of winning and losing among organizations replays, with yesterday's champions falling away as new winners ascend.

Seeing our most successful institutions rise and fall can be perplexing, and as people search for answers academics have responded in force. Looking back over a century, one can find shelves of possible explanations, most of which point to a particular solution as pivotal for organizations if they are to sustain their competitive advantage. If you are young, you might not realize how many times the "new new thing" has come and gone. Those who have repeatedly witnessed mighty institutions rise and fall know that if there is a way to gain an enduring advantage, we do not seem to have found it. Our libraries are full of possible explanations, just as our organizations are stockpiles of experience. Yet we seem unable to stop the cycle; organizations rise and fall today as they always have, taking with them not only yesterday's livelihoods but also yesterday's explanations. History repeating itself seems to imply that we have been unable to learn.

Here I offer a theory of why some organizations are more competitive than others, and why it is that such competitive advantage is fleeting. The basic idea is simple. If today your organization encounters competition, it will not perform as well as it might have otherwise. To meet this challenge, you will likely attempt to improve; you may even experiment with new ways of approaching the job at hand. If you succeed, now your rivals face stronger competition from you, as your solutions have become their problems. To perform as well as they might have hoped, now your rivals are challenged to improve. As they come up with new solutions, you in turn are again faced with new challenges, and the cycle starts again. Competing organizations engage in an ongoing cycle of cause and effect, becoming stronger competitors-but in so doing making their rivals stronger, too.

By this account, we do learn over time, but it is precisely this learning that prevents successful organizations from sustaining their advantage. Rather, even as organizations often are improving, relative to one another they appear to be standing still-or sometimes even falling behind. In evolutionary theory, this process is known as "Red Queen" evolution, a reference to Lewis Carroll's Through the Looking Glass, in which the running Alice comments on her relative stability, "Well, in our country, you'd generally get to somewhere else-if you ran very fast for a long time as we've been doing." To this the Red Queen responds, "A slow sort of country! Now, here, you see, it takes all the running you can do, to keep in the same place." In an ecology of learners, relative stability masks an absolute dynamic. Organizations learn and sometimes pull ahead, but in so doing they sow the seeds of their rivals' improvements. In Red Queen competition, learning does not lead to sustained advantage; to the contrary, learning is the reason that advantage repeatedly is lost.

My objective here is to make explicit a theory of Red Queen competition among organizations. Many aspects of Red Queen competition are well understood by managers of organizations, industry experts, and academics. But I have tried to develop these ideas into a theory that goes beyond the common-sense notion conveyed in the Lewis Carroll quote. By working through each aspect of the process as it is likely to unfold among organizations, I develop an empirically testable model of Red Queen competition. The first step is to conceive of competitiveness not as a property of markets, but rather as a property that can vary from organization to organization.

"Competitiveness" Varies from Organization to Organization

Individual organizations differ remarkably in how competitive they are. Consider, for instance, the makers of candy canes. Striped, peppermint, cane-shaped hard candies probably do not strike most of us as a remarkable achievement. But, in fact, over the twentieth century, hard-candy manufacturers in the United States developed formulas and production technologies to pull, twist, and harden sticks of candy-including techniques for putting a "hook" at the end. Along the way, these organizations dealt with problems of melting and breaking candy from production through to distribution. One of these pioneering organizations was Bobs Candies. Many hundreds of organizations came and went in the candy industry over the life of Bobs, but this company managed to adapt to this competition over time and eventually became a leader in the candy cane market. Bobs had qualities that other organizations lacked. We might debate what those qualities were, but the bottom line is that these qualities allowed Bobs to survive in a market where most who tried failed.

Thinking of individual organizations like Bobs focuses attention on "competitiveness" as varying from organization to organization. In contrast, most prevailing theories on the subject conceive of competition as a property of markets, or of market segments. When competition exists, it is thought that anyone engaging in that particular market is subject to the force of competition, as when one joins into an auction. Yet we know that organizations vary in their ability to compete, and so some organizations are more formidable competitors than others. To see this, consider figure 1.1. The figure portrays two hypothetical organizations, denoted by j and k. Because these two organizations have different qualities, we would expect that they would differ in terms of their viability. For instance, j might have capabilities that make it especially viable compared to k. In terms of figure 1.1, this would imply that sj is greater than sk-that is, organization j's characteristics make it more viable than organization k. In the same way, I propose that we allow for the competition generated by organizations to differ in strength as well. Just as j's characteristics make it more viable, so might they make it a stronger competitor. In figure 1.1, this would mean that j's competitive effect on k (wj) is greater than k's competitive effect on j (wk). Just as some organizations are more viable than others because of their different qualities, so do some organizations generate stronger competition than others.

The theory of Red Queen competition explains the differences we observe in s and w among organizations as resulting from the different competitive histories of these organizations. Often, exposure to competition will make organizations more viable and stronger competitors. In other cases, however, such a history will backfire, making organizations especially well adapted to contexts that no longer exist. In still other cases, organizations will attempt to avoid or prevent competition entirely. To understand when these different outcomes will arise, it is necessary to make some assumptions about what is known by people in organizations, how organizations behave given what their members know, and how competitions play out given how organizations behave.

Organizations Are Intendedly Rational Adaptive Systems

Most modern theories of organizations accept that organizational rationality is limited. I assume that organizations are intendedly rational, adaptive systems. By this I mean that organizations not only have routines for behaving in certain ways today, but that they also tend to respond to problems and opportunities in a well-intended effort to make things better. Members of organizations try to make their organizations perform at a satisfactory level. When performance falls below that level, people in organizations attempt to restore performance. Yet people in organizations have only limited information about why their organization performs as it does, and about how their actions will affect future performance. What information and know-how organizations do have is learned by inferring from experience, a process fraught with error. Consequently, although organizations are intendedly rational, the actual consequences of organizational development will fall short of what would be expected in a perfect world. In these ways, I assume that organizations develop as described by the so-called Carnegie School, which I will refer to as the adaptive systems perspective.

An implication of the adaptive systems perspective is that, as long as organizations tend to keep searching until they find an improvement, we can expect that organizational learning will tend to improve performance compared to what would be the case if changes were random, or compared to remaining unchanged. Many academics studying organizations will take exception to this claim for two reasons. First, learning might not be worthwhile because adaptations come at a cost, in terms of both resources and disruptions to organizational routines. Consequently, even "correct" adaptations may turn out not to be worthwhile, if the process of getting them is too costly. Second, considerable uncertainty surrounds the process of adaptation, so the actual consequences of a change may turn out not to be what was anticipated for various reasons. Reverberations of change within an organization may be unexpected, and whether a change will ultimately match the changing conditions of the organizational environment is uncertain. Taken together, these arguments lead some to conclude that attempts at adaptation have little or no relationship to adaptive consequences.

I agree with both of these concerns, and in fact I build each into my theory. The costs of adaptation, reverberations among adaptations, and the possibility that adaptations will end up out of step with the environment are all explicit parts of the model elaborated in the chapters to follow. Holding these concerns equal, however, if organizations search until the "stopping rule" of performance improvement, then learning will tend to be adaptive. If this outcome were not the case, then empirical estimates of the Red Queen model would fail to support my theory. In this way, not only does the idea that organizational search tends, on average, to be efficacious follow from the "stopping rule" of performance improvement, it is treated as an empirical question-at least in terms of its implications for competitiveness as I model it here. This is not to say that all attempts at adaptation are efficacious, nor is it a claim that organizations will not fail and be deselected as they try to adapt.

Often organizational learning will not turn out well, given the uncertainty that surrounds the process. For example, in the early 1990s, a software startup called FITS created a revolutionary photographic imaging program. The company's founder, Bruno Delean, spoke to my (extremely skeptical) MBA students of a future when people would send each other photographic images from computer to computer-an outrageous claim given that the Internet as we now know it did not yet exist. In fact, at the time, computer hardware limitations seriously constrained one's ability to manipulate digital photographic images on a computer, so much so that such tasks required the use of then-costly, high-end computer workstations. FITS' founding team of software developers came up with an elegant new approach to the job that dramatically reduced the required computing power, allowing one to use even a moderately priced Apple computer to professionally edit photographs. Although the superiority of this firm's technology was never in doubt, it was not clear at first how to turn the invention into a viable business. Over several years, management frequently changed the company as problems and opportunities arose: renaming the organization, competing in low-end off-the-shelf "shrinkwrap" software, entering into licensing deals with so-called OEMs (original equipment manufacturer), and even taking the plunge into the online world when the Internet came along. By 1999 the cumulative result of this organization's adaptations were without any clear logic; fraught within internal misalignments and a serious lack of fit between the organization and its various evolving strategies, this learning organization failed.

Of course, one can also find examples of organizations that learn and prosper. For instance, many Americans will know that Trader Joe's in 2007 is a successful specialty grocery chain that sells exotic private-labeled delicacies to an upscale clientele at a reasonable cost. Less well known is that the organization began some decades ago selling, among other things, cigarettes and ammunition. Over years of gradual changes in management and strategy, the organization incrementally altered its product mix to match the changing tastes of a shifting customer base, dropping poorly selling products and experimenting with new ones. After decades of such adaptation, one can now describe the organization as having developed routines for locating and distributing interesting foods. Each step along the way was an intendedly rational adjustment. Some succeeded, and some failed, as this organizations attempted over time to maintain or improve performance by searching for new solutions when and where necessary.

Contrasting these two examples illustrates that both successful and unsuccessful attempts at adaptation are possible, a fact with several important implications for the study of organizations. First, when thinking of organizational adaptation, beware of argument through selective examples. Of course, examples help to make abstract ideas concrete. Necessarily, one must select which examples to cite, and it is this selectivity that can lead observers to make a logical error. This approach is typical in much of the business press, and among popular writers on management. In fact, if you look back at older editions of many management books, you will see that it was necessary for the author to update the book in order to continue arguing by citing selective (successful) examples. Second, and worse yet, if such examples are allowed to take the place of systematic tests, we can find ourselves thinking that a theory about organizational adaptation has received support when, in fact, it has not. If we cite examples even-handedly, we will see that adaptive attempts by organizations often go astray, despite the best efforts of those involved. In other cases, attempts at adaptation may work out-but for reasons unknown to the participants involved at the time.


Excerpted from The Red Queen among Organizations by William P. Barnett
Copyright © 2008 by Princeton University Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Preface xi
Acknowledgments xiii

"Competitiveness" Varies from Organization to Organization 3
Organizations Are Intendedly Rational Adaptive Systems 4
Organizations Compete with Similar Organizations 7
What It Takes to Win Depends on a Context's Logic of Competition 8
Organizations Learn a Context's Logic of Competition by Competing 12

Analyzing Logics of Competition 17
Meta-Competition among Alternative Logics 28
The Logic of Predation 34
Discovering Logics of Competition 37
Summary and Implications for the Model 43

How Do Organizations Respond to Competition? 47
The Red Queen as an Ecology of Learning Organizations 50
Consequences of Constraint in Red Queen Evolution 59
Killing the Red Queen through Predation 69
Argument Summary 72

Modeling "Competitiveness" as a Property of Organizations 75
The Red Queen Model 77
Modeling a Pure-Selection Process 79
Modeling Myopia 80
Modeling the Implications of Predation 82
Modeling Organizational Founding 84
Modeling Organizational Survival 85
Comparisons to Other Ecological Models of
Organizations 87

The Institutional Context of Twentieth-Century
U.S. Commerical Banking 90
Logics of Competition among U.S. Banks 97
Specifying the Red Queen Model for Illinois Banks 105
Estimates of the Bank Founding Models 109
Estimates of the Bank Failure Models 119
Summary of Findings 130

The Computer Industry and Its Markets 136
Discovering Logics of Competition among
Mainframe Computer Manufacturers 138
Discovering Logics of Competition among
Midrange Computer Manufacturers 170
Discovering Logics of Competition among
Microcomputer Manufacturers 193
Summary of Findings 213

The Competition-Inertia Hypothesis 218
The Red Queen and Inertia among Computer
Manufacturers 222
The Red Queen and the Rise and Fall of Organizations 224

Managerial Implications of the Red Queen 230
Research Implications of the Red Queen 232

Commercial Banks 237
Computer Manufacturers 241

Notes 245
References 259
Index 275

What People are Saying About This


Organizational analysts have a lot to learn from reading this book. Old assumptions are questioned, attention to institutional and competitive logics is extended, historical detail is presented with precision and depth, and the empirical specifications of the model are much improved over previous analyses. Without a doubt, this is cutting-edge research in organization and management theory.
Stanislav D. Dobrev, University of Chicago

David Barron

A very important contribution to the literature on competition and strategy. Barnett writes with admirable clarity and shows a depth of knowledge of a wide range of industries that he uses to illustrate his ideas. His empirical analysis is rigorous.
David Barron, University of Oxford

John Freeman

The Red Queen tells us that corporations and other organizations can run faster, but fall behind because others are running too. Worse, they learn how to run faster by studying the leaders in their race. Barnett's analysis is pathbreaking and equally interesting to academics and practitioners because it lays out the many ironies that make superior rates of learning and adaptability in one set of circumstances counterproductive when those circumstances evolve (as they always do).
John Freeman, University of California, Berkeley

Steve Luczo

Engaging and thought-provoking, Barnett's construct of 'learning organizations' that evolve as a function of their particular competitive environment and capabilities is, in my experience, an accurate description of this complex and important corporate dimension. Having spent fifteen years in the disc-drive industry, which is generally regarded as the most competitive segment in the technology marketplace, I strongly recommend this book to anyone concerned with the strategic and organizational issues related to corporate competitiveness.
Steve Luczo, chairman of Seagate Technology

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