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

Author

Listed:
  • Kathleen M. Eisenhardt

    (Department of Management Science and Engineering, Stanford University, Stanford, California 94305)

  • Nathan R. Furr

    (Marriott School of Management, Brigham Young University, Provo, Utah 84604)

  • Christopher B. Bingham

    (Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

Abstract
Our 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. We develop several insights. First, regarding structure, we highlight that organizations often drift toward efficiency, and so balancing efficiency and flexibility comes, counterintuitively, through un balancing to favor flexibility. Second, we 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, we outline how executives balance efficiency and flexibility through cognitively sophisticated, single solutions rather than by simply holding contradictions. Overall, we go beyond the caricature of new organizational forms as obsessed with fluidity and the simplistic view of routines as the microfoundation of performance. Rather, we 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.

Suggested Citation

  • Kathleen M. Eisenhardt & Nathan R. Furr & Christopher B. Bingham, 2010. "CROSSROADS---Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments," Organization Science, INFORMS, vol. 21(6), pages 1263-1273, December.
    • Handle: RePEc:inm:ororsc:v:21:y:2010:i:6:p:1263-1273
    DOI: 10.1287/orsc.1100.0564
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