Toward a Comprehensive Model of Organizational Evolution: Dynamic Capabilities for Innovation and Adaptation of the Enterprise Model

• Date: 01 August 2016
• Author: Maurizio Zollo,Kerstin Neumann,Emanuele L.M. Bettinazzi,Peter Snoeren
• DOI: http://doi.org/10.1002/gsj.1122
• Published date: 01 August 2016

TOWARD A COMPREHENSIVE MODEL OF

ORGANIZATIONAL EVOLUTION: DYNAMIC

CAPABILITIES FOR INNOVATION AND ADAPTATION OF

THE ENTERPRISE MODEL

MAURIZIO ZOLLO,

1

*EMANUELE L.M. BETTINAZZI,

1,2

KERSTIN NEUMANN,

1

and PETER SNOEREN

1

1

Bocconi University, Invernizzi Center for Research on Innovation,Organization and

Strategy (ICRIOS),Milan, Italy

2

EMLYON Business School, Lyon, France

Plain languagesummary: This article argues that the rapidevolution of expectations and

influence capacity by corporate stakeholders requires managers in MNCs not only to

adapt operatingactivities, but to rethinkthe purpose and overarchinggoal of the business

enterprise, adapting it from a shareholder-primacy to a multi-stakeholder enterprise model.

This complex adaptation process, however, requires the development of a specific form of

competence to be developed and honed, different in kind from the typical capabilities

focused on organizational change. With the help of concrete examples of sustainability-

driven change initiatives, we discuss how the two enterprise models differ and how the

development of this new type of competence facilitates the transition from one to the other.

Technical summary: This article argues that the dynamic capabilities framework can be

useful to study the evolutionary change processes that MNCs go through as they strive to

innovate and adapt to societal pressures relatedto corporate s ustainability.These pressures

require MNCs to rethinkand adapt core organizational elements and we argue that current

dynamic capabilities theory is not sufficiently developed to explain these adaptive efforts. We

suggest refining and extending theory in two directions: (1) distinguishing between

behavioral, cognitive, and relational organizational elements as objects of the innovation,

change, and learning dynamics; and (2) distinguishing between capabilities specific to

generative variation and selection of innovative change and adaptation ideas from those

specific to their diffusion and retention. Copyright © 2016 Strategic Management Society

INTRODUCTION

One of the strongesttrends in multinationalenterprises

has been to commit to become socially responsible and

to contribute to the improvement of environmental

conditions, essentially to transition toward a

stakeholder-oriented view of the company

embedding principles of social and environmental

sustainability (Bridoux and Stoelhorst, 2014;

Margolis and Walsh, 2003). This trend is evident,

for example, in the increasing number of multi-

national firms publishing sustainability reports,

which now account for 75 percent of U.S. companies

in the S&P 500 (2015 data, up from 20 percent in

2011) and 93 percent of the largest 250 companies

worldwide (Governance and Accountability

Keywords: dynamic capabilities; enterprise model; multinational

companies; organizational evolution; stakeholdertheory

*Correspondence to: Maurizio Zollo, Bocconi University,

Department of Management and Technology, GOLDEN for

Sustainability Program, Invernizzi Center for Research in

Innovation, Organization and Strategy(ICRIOS), Via Roentgen,

1. 20136 Milan (Italy). E-mail: maurizio.zollo@unibocconi.it

Global Strategy Journal

Global StrategyJournal, 6:225–244 (2016)

Published onlinein Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1122

Copyright © 2016 Strategic Management Society

Institute, 2015; KPMG, 2013). Moreover, recent

work points out that managers spend a sizeable

amount of their time pondering whether and how to

address increasing stakeholder pressures to change

objectives, strategies, and processes (Crilly, 2013).

From a theoretical perspective, these evolutionary

trends are particularly interesting, because they can

be interpreted from different theoretical angles,

pointing to important gaps in our current collective

understanding of organizational innovation and

adaptation. First,from a theory of the firm standpoint,

these trendscall for a redefinition of the purpose of the

firm and of its boundaries toward a more general

model that can potentially encompass the interests of

a plurality of stakeholder groups, all of whom

contribute to the success of the enterprise. Second,

from a strategy perspective, they compel us to extend

our models toward w hat Schendel and Hofer

(Schendel and Hofer, 1979) refer to as ‘enterprise

strategy,’defined as ‘firms’attempts to integrate the

firm with its broader, non-controllable environ-

ment…in the sense of the overall role that business,

as one of society’s important institutions, should play

in the everyday affairs of society.’In concrete terms,

this implies innovating and adapting not only the

firm’s strategy, but eventually its governance systems

and strategic decision-making processes, as well as its

core business systems (e.g., control andincentive sys-

tems, HR processes, new product development, etc.)

in order to integrate a broader perspective on the

purpose and performance targets of the firm.

In the case of the multinational firm, these

innovation and adaptation processes respond to

pressures from both global and (multiple) local

stakeholders of the firm, which generally call for the

gradual establishment of what can be referred to as a

multi-stakeholder enterprise model, in which. In this

model, the organization gives voice, and sometimes

an actual rolein strategically relevant decision-making

processes, to a wider set of stakeholders than just its

shareholders. These stakeholders include the firm’s

employees (see the German governance models, for

instance), and suppliers (see the keiretsu model

in large Japanese firms), and even customers

(e.g., customer-driven innovation and product feature

design devolution) and local communities (e.g., the

case of many local banks and utility companies). To

tackle this multifaceted, complex, and prolonged

enterprise model innovation challenge, firms might

build dynamic capabilities rather than relying on

individual ad hoc change and adaptation efforts

(Winter, 2003).

Of particular importance for strategy scholars is the

redefinition ofthe performance function of the firm in

terms of a much broader set of dimensions compared

to the standard financial and accounting ones. These

new dimensions include the environmental impact of

firms’activities and achievements in the satis faction

of a plurality of stakeholders, including employees,

customers, suppliers, investors, and communities in

which the firms’activities are located (Eccles et al.,

2014).

1

From a dynamic capability perspective, the

transition towarda multi-stakeholder enterprisemodel

is fraught with complexities related to managing orga-

nizational change and adaptation,which require firms

to do much more than adapting behavioral elements

such as operational routines and heuristics. The most

difficult aspectsof this challenge, we will argue, relate

to the adaptation of organizational traits that go

beyond the firm’s behavior. Firms will have to adapt

cognitive frames and managerial mind-sets related to

a new formulation of purpose and identity and rela-

tional aspects such as the bonds of trust and positive

emotions thatmight connect members of the organiza-

tion with its internal and external stakeholders.

2

These perceptual and relational elements of the

firm are rarely considered as objects of organizational

adaptation in strategic management theory and are,

thus, typically excluded from the theoretical and

empirical work related to dynamic capabilities. For

instance, the challenge faced by firms could revolve

around their role in contributing, or in refraining from

helping, to solvemajor societal issues, such as climate

change, environmental degradation, or major and

increasing disparities in social conditions. In such

instances, firms’counterparts (employees, customers,

investors, governmental institutions, NGOs, etc.)

expect the ‘objects’of organizational adaptation to

be the purpose of the company itself, its rules of

governance, its openness to embed these concerns in

the strategic decision-making and resource allocation

processes, and so on.

In a multi-stakeholder enterprise model, the maxi-

mization of profit remains essential to the capacity of

the firm to achieve its overarching goals, but it is

1

In addition, Eccles et al. (2014) show convincingly, through a

careful matched-pair design, that thelong-term economic perfor-

mance is strongly and positively affected by a commitment to

stakeholderorientation.

2

Although behavioral strategy includes the study of both behav-

ioral andcognitive elements of organization, we willpurposefully

distinguish the two sets of constructs to develop our theoretical

arguments.

226 M. Zollo et al.

Copyright©2016 Strategic ManagementSociety Global StrategyJournal, 6:225–244 (2016)

DOI: 10.1002/gsj.1122