The condensation process essentially suppresses variance within the organization. As discussed above, organizations increasingly emphasize a goal, structure, and/or set of routines, procedures, and processes, and preclude the consideration of others. This downward spiral toward simplification is likely to be the result of an interaction among several variance suppression processes existing at different levels of analysis, ranging from the cognitive top management level to the organizational field level.
Variance suppression occurs at several levels of analysis (Bettis, 2000). At the industrial and organizational field level, forces of competition and selection (Hannan and Freeman, 1977) and isomorphism (DiMaggio and Powell, 1983) result in increasing homogenization among firms. At the strategic group level (Reger and Huff, 1993), homogenization also occurs as firms in the same industry increasingly share similar beliefs and behaviors (Porac, Thomas, and Baden-Fuller, 1989). At the top management team level, the dominant logic also suppresses variance by directing top management decision making, among many things, into certain heuristics, models, concepts, beliefs, and types of analysis. Therefore, variance suppression is a general phenomenon that is prevalent in many different levels of analysis.
Variance suppression at each of these levels is likely to be interdependent. As discussed in the earlier section, dominant logic tends toward variance suppression as top management increasingly adopts a certain worldview (e.g. heuristic, beliefs, paradigm). How much variance it suppresses is likely a function of the variance the organization faced in the organizational field when the dominant logic was developing among the top management team. To the extent that more variance was faced during this period, the dominant logic is likely to be more robust, but even this has obvious limits. Furthermore, variance is not uniform and generic. It has a qualitative component. Different variables can be involved, such as technology, customer needs, or social values. Hence the dominant logic may be more robust to some variables than others. However, early in their lives, firms themselves may also be the source of environmental variance for others in an established industry. This is not the same as having to respond to variance caused by other factors. For instance Digital Equipment, as a new entrant, increased the variance in the computer environment by introducing the minicomputer. Incumbents (e.g. IBM, Burroughs, and NCR) found it hard to respond since their logics (and core competencies) were organized around mainframe computing. However, Digital Equipment subsequently developed a strong dominant logic based on the minicomputer. This logic prevented them from responding adequately when variance again was increased by the PC.
At the same time that environmental variance affects variance in the dominant logic it also affects the adaptability of the dominant logic. One way to think about this is the requisite variety principle from cybernetics, which suggests that the variety within a system (or the variety the system is capable of exhibiting or producing) must be matched to the environmental variety that the system faces (Ashby, 1956). The principle of requisite variety plainly suggests that organizations today must be capable of a greater variety of actions or variance, including learning, during a period of increased environmental variance. To illustrate metaphorically, consider the design of airplanes. Fighter planes must be designed for more rapid, frequent, severe, and unscripted maneuvers than passenger planes because they operate in a rapidly changing, unpredictable, and hostile environment. The tradeoff is that they are much less stable than passenger planes and, hence, rather unsafe, even in peacetime.
A second way to think about the implications of variance suppression for organizational change is in terms of ecological models of random variation and selective retention. In recent years these models, originating in biology, have shown considerable explanatory power in many fields. The models have been applied to a variety of organizational issues. For our purposes we will only mention two specific areas where they have been applied: learning (e.g. Campbell, 1960) and research and development (e.g. Nelson and Winter, 1982). (It should be noted that research and development is obviously a very specific kind of organizational learning.) In the former of these two cases suppression of variance reduces the rate of learning. In the latter it reduces the likelihood of a significant innovation. Obviously, if variation is suppressed there are profound implications for the random variation/selective retention model as it has been applied to various phenomena. Again, the implications for dominant logic should be obvious.
A third way to think of variance suppression that is closely related to the ecological approach is in terms of the exploration–exploitation tradeoff (March, 1991). Variance suppression by definition suppresses exploration, which means that the balance between exploration and exploitation is altered.
What this all suggests is that we need to give more attention to the non-recursive relationships between variance generation and variance suppression at different levels of analysis, and the issues of tradeoff between variance generation and suppression at these different levels. It is not a simple issue of more variance increases adaptive capability. Too little variance limits adaptation, but too much variance will simply swamp any organization. As such, we have to be cognizant of the tradeoffs, and explore ways in which they play out in different situations.
Review of some relevant literature
Dominant logic has been discussed in terms of the impact on resource allocation (Prahalad and Bettis, 1986) and in terms of filtering information (Bettis and Prahalad, 1995). While some papers deal with resource allocation (e.g. D’Aveni, Ravenscraft, and Anderson, 2004; Grant, 1988), others deal with information filtering (e.g. Porac, Mishina, and Pollock, 2002; Von Krogh, Erat, and Macus, 2000). Yet others understand dominant logic as a combination of behavioral and cognitive elements (e.g. Cote, Langley, and Pasquero, 1999; Jarzabkowski, 2001; Obloj and Pratt, 2005).
D’Aveni et al. (2004) associate dominant logic with resource allocation. Those authors associate resource congruence among lines of business with efficiency and profitability. In this case, dominant logic is a strictly behavioral concept and congruence of dominant logic is related to superior performance.
Porac et al. (2002) study growth logics of entrepreneurial teams using narrative analysis and cognitive mapping and show that there are inter-industry patterns in the clustering of growth logics. Von Krogh et al. (2000) suggest that the comprehensiveness of dominant logic is related to superior firm performance. The authors compared Nokia and Ericsson along six categories (internal conceptualization: people, culture, and product and brand; external conceptualization: competitors, consumer/customer, and technology). The method used by those authors is qualitative text analysis of annual reports.
Lampel and Shamsie (2000) also see dominant logic mainly as a cognitive concept, an information filter that then impacts strategic decisions and actions such as venture formation. Those authors claim that joint ventures that depart more from the corporate logic (General Electric in that case) are likely to be terminated earlier than ventures that are more consistent with the corporate logic. They argue that the consistency of the venture’s logic with General Electric’s logic creates cohesion (and harnesses entrepreneurial energies of the diverse businesses).
There are a number of empirical papers that base their measures of dominant logic on behavioral and cognitive elements. Cote et al. (1999), who investigate acquisitions, see the dominant logic of the mother firm (SNC was the firm studied) as rooted in its ‘administrative heritage,’ which they define as ‘cultural values and historical practices that have been successful in the firm’s core business’ (Cote et al., 1999: 928). Hence, the authors operationalize the dominant logic in (1) conceptualization of the role of the firm and acquisitions, (2) criteria for choice and evaluation, and (3) organizing and management principles. On a more abstract level, the authors come to an interpretative and interrelated scheme of thinking, acting, and evaluating of the concrete strategic action by the management team. A difference in the timing of these components leads to inferior performance.
Similarly, Jarzabkowski (2001) proposes to understand dominant logic as the composite of three components: embedded administrative processes, top team thinking and acting, and the underlying strategic orientation of the firm. The potential of this operationalization relies on the fact that these processes are all encompassing and there is inevitably an interaction effect included. The interaction of these three components is self-reinforcing and brings about cohesion. Jarzabkowski associates the cohesion of the three elements of the organization (in this case the University of Warwick) with the responsiveness to the environment. Obloj and Pratt (2005) and Obloj, Obloj, and Pratt (2010) suggest an integrative view of dominant logic as containing cognitive elements (dominant logic as ‘information filter’) and behavioral components (learning and routines). The latter paper compares and contrasts logics of ventures in a transition economy (Poland).
The existing studies on dominant logic are insightful. Yet, there are still many unstudied or understudied issues. While the main focus of early empirical research on dominant logic has been diversification and performance, the emergence of (dominant) logic has recently received increased interest with studies focusing on the firm level (Obloj et al., 2010) and industry level (e.g. Santos and Eisenhardt, 2009). Obloj et al. (2010) examine the emergence of dominant logic in ventures in transition countries. Santos and Eisenhardt (2009) study the emergence of industry logic.
We think there is considerable potential for exploring the emergence of a dominant logic based on the competition of multiple competing logics. Beyond purely empirical considerations (e.g. choice of context, choice of method), it is essential to consider a theoretical foundation for the emergence of a coherent dominant logic. Coherence refers to how the elements of knowledge cohere (<lat. cohaerere) or hang together.1 In the strategy literature, strategic coherence is associated with superior performance (e.g. Black, Hinrichs, and Fabian, 2005; Hamel and Prahalad, 1994). Yet, as indicated in earlier contributions, dominant logic can be seen not just as a ‘filter’ (Bettis and Prahalad, 1995) but also a ‘blinder’ (Prahalad, 2004). If a dominant logic is characterized by excessive coherence, it is resistant to change when strategic change becomes necessary. Only systematic studies of the coherence of the knowledge structure can reveal more about the positive or negative effects of certain coherence patterns. Several methods such as cognitive mapping (Eden, 1992; Eden and Spender, 1998; Fiol and Huff, 1992; Huff, 1990; Walsh, 1995) can be used. We believe studying the dynamics of coherence in a knowledge structure or mental map over time offers considerable promise. Changes in cognitive maps have been examined in firm level studies (Barr, Stimpert, and Huff, 1992) and industry-level studies (Nadkarni and Narayanan, 2007), and specific reasoning processes (e.g. Gavetti, Levinthal, and Rivkin, 2005) greatly contribute to our understanding of managerial logics. Systematic analyses of such reasoning processes over time have the possibility of revealing features of potentially successful dominant logics.