Renewal Through Reorganization: The Value of Inconsistencies Between Formal and Informal Organization

  • Gulati R
  • Puranam P
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We develop a theoretical perspective on how inconsistencies between formal and informal organization arising from reorganization can help create ambidextrous organizations. We argue that under some conditions, the informal organization can compensate for the formal organization by motivating a distinct but valuable form of employee behavior that the formal organization does not emphasize, and vice versa--an effect we label compensatory fit. We illustrate the concept of compensatory fit by drawing on qualitative data from a reorganization at Cisco Systems. We also derive formal boundary conditions for compensatory fit using a simple game theoretic representation. We show that compensatory fit can only work when there is a powerful informal organization already in existence, and when the gains from ambidexterity are substantial. Further, depending on the strength of the informal organization, breakdown in the conditions necessary for compensatory fit may lead to performance declines and further reorganizations. ABSTRACT FROM AUTHOR Copyright of Organization Science is the property of INFORMS: Institute for Operations Research and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

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  • Ranjay Gulati

  • Phanish Puranam

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