Publications

Journal Article | Organization Science | 21 | August 2010

CROSSROADS—Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments

The purpose is to clarify the microfoundations of performance in dynamic environments. A key premise is that the microfoundational link from organization, strategy, and dynamic capabilities to performance centers on how leaders manage the fundamental tension between efficiency and flexibility.

The authors develop several insights. First, regarding structure, we highlight that organizations often drift toward efficiency, and so balancing efficiency and flexibility comes, counterintuitively, through unbalancing to favor flexibility.

Second, the authors argue that environmental dynamism, rather than being simply stable or dynamic, is a multidimensional construct with dimensions that uniquely influence the importance and ease of balancing efficiency and flexibility.

Third, the authors outline how executives balance efficiency and flexibility through cognitively sophisticated, single solutions rather than by simply holding contradictions.

Overall, the authors go beyond the caricature of new organizational forms as obsessed with fluidity and the simplistic view of routines as the microfoundation of performance.

Rather, the authors contribute a more accurate view of how leaders effectively balance between efficiency and flexibility by emphasizing heuristics-based “strategies of simple rules,” multiple environmental realities, and higher-order “expert” cognition. Together, these insights seek to add needed precision to the microfoundations of performance in dynamic environments.